Coronavirus promises big changes for small business insurance

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Many small businesses are being impacted by COVID-19 as large events have been canceled and people in many parts of the country are being asked to stay home.

It could be months before insurers can understand the damages and the needs of small businesses. Carriers are scrambling to understand the situation in order to develop new products to address this unmet need as a globalized world increases the chances of viral outbreaks like this one.

But to begin with, insurers are looking for ways to help small businesses that are facing immediate impacts from the global economic uncertainty that has spread as fast as the coronavirus itself.

“Most small businesses are primarily focused on reducing the immediate impact on their ongoing operations and ensuring the health and safety of their employees, but we anticipate an increase in customer queries over the next weeks regarding their coverage against losses from COVID-19,” said Rashik Adhikari, founder/CEO of Covered by Sage, a tech-driven insurance brokerage.

Those dealing with travel interruptions want to understand if travel insurance covers trip interruptions due to COVID-19. Most travel insurances don’t cover cancellations due to pandemic.

Many customers are experiencing or will soon experience cash flow issues and may have challenges paying regular premiums, so companies are adapting policies to be more flexible.

“A number of insurers that we have spoken to are looking at things like, revising their cancellation policies and making sure that they are able to be sensitive to what small businesses are going through in terms of the disruption to normal business as usual,” said Matthew Josefowicz, president/CEO of Novarica, a consulting firm that helps insurance companies with tech strategy.

Business interruption insurance

In the near term, business interruption insurance with coverage for losses caused by “communicable or infectious diseases” might be the most relevant type of plan to help out small businesses in this pandemic.

However, pandemic risk is excluded from some business interruption policies and not necessarily excluded from others. It could depend on whether the government issues a specific order that requires insurers to cover the pandemic in these circumstances.

Business interruption insurance is often designed to cover property risk.

“A lot of it about not being able to access a facility or having some type of equipment damage that causes losses like a kitchen fire in a restaurant or something like that,” said Matthew Josefowicz, president/CEO of Novarica, a consulting firm that helps insurance companies with tech strategy.

“I think we are going to see more standardization of either exclusion or inclusion of this type of risk in the future,” he added. “I wouldn’t be surprised if there is some kind of federal program similar to flood or terrorism risk, because a systemic risk like this that affects the entire economy at one time is really beyond the capability of most individual insurerers to take on.”

Until the government takes this on though, small businesses will need to look for ways to cover themselves from pandemics. With the outsized impact of COVID-19, Adhikari said that he anticipates greater interest in adding specific protections against business interruption caused by these types of outbreaks.

“While it won’t be practical to predict a viral outbreak, risk managers should consider purchasing insurance to cover mid-term business interruption with endorsement covering communicable or infectious diseases, which would include these types of viral outbreaks,” said Rashik Adhikari, founder/CEO of Covered by Sage, a tech-driven insurance brokerage.

Cyber risk

While right now small businesses are in reaction mode, insurance providers are trying to imagine the kinds of new products that could support these clients once they get their footing. Work from home culture is one major transition that small businesses are facing as more people under lockdown orders are transitioning employees to remote working. This could present its own set of insurance needs.

“One of the issues is that as a lot of businesses transition to work from home, they are taking on an increased cyber risk, as the employees may not have the same level of protection that they would have inside the office,” commented Josefowicz.

“That is an evolving risk that small businesses should be speaking with their agents or carriers about to ensure that their cyber risk is covering them for their new operating model,” he added.

And while it may be too early to tell how long people will be working from home, the bigger question of how small businesses might transform their operating models in the future.

“If we see a lot of small businesses virtualizing their operations, then a lot of traditional business coverage will have to evolve based on that,” said Josefowicz.

“If they have a large percentage of employees working from home or even if some small businesses give up their physical locations and operate out of the owner’s home, a lot of small business insurance is not really designed for that,” he added. “So we may see a growth in home-based businesses, which would be something we would need to evolve to,” he added.

Workers comp

Several workers compensation insurance companies have announced dedicated support and claims desks for COVID-19 related queries. But the remote working situation could also present a new set of variables.

Workers comp insurance could change if the culture evolves into one in which most people are working from their homes for an extended period of time. For example, if people are responsible for their own office setups and they give themselves repetitive stress injuries, working in bad chairs or things like that, how liable is the employer for those types of claims?

“The question becomes where is the line between work and home, which is already evolving and I think this is going to kick it into high gear for small businesses and large businesses too,” said Josefowicz.

“A lot of the type of risk that small business insurers are going to be seeing from their customers will relate to the increasing virtualization of all businesses including small business,” he concluded.

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