The shock of the COVID-19 pandemic has devastated the U.S. economy. Millions have lost their jobs and many large and small businesses alike have been shuttered for weeks now. The restaurant industry, like many small businesses, has been acutely affected, with employees nationwide out of work entirely or with dramatically reduced hours.
Understandably, Americans are seeking solutions that can create financial security in this time of uncertainty and get the economy up and running again, and ideas are being brought to the table by both the government and private sector. But while we’re eager to provide relief to those who need it most, we also need to be mindful of creating solutions that stabilize our economy, instead of further disrupting it.
While well-intentioned, a good example of one of these ideas failing to meet their mark can be seen by a campaign recently launched by several celebrity chefs who are demanding insurers pay for revenue lost due to COVID-19. Many have been misled to believe their restaurant’s business interruption policies should cover pandemics, which is in fact, a risk that was never priced into those contracts. They cite the United States’ property/casualty industry’s policyholder surplus, which totals approximately $800 billion, as a pot of money that should be tapped into – without realizing that those same funds are needed to protect policyholders from catastrophes like tornadoes, hurricanes and wildfires, many of which we are about to approach in the spring and summer seasons.
This policyholder surplus has long been the rock-solid foundation on which insurers rely in order to provide relief and economic stability in times of crisis in their roles as “financial first responders.” Mandating retroactive business interruption payouts to restaurants as part of COVID-19 recovery efforts could cost the industry nearly $400 billion per month, effectively wiping out the surplus and jeopardizing American insurers’ ability to pay customers’ losses that are covered under their policies — including between 90 percent and 95 percent of all American households that have either a homeowners or renters insurance policy.
On the surface, the celebrity chefs make a strong emotional appeal. Restaurant employees nationwide are unduly burdened by the shutdown of our economy. But ultimately, this campaign is about the most privileged members of a prominent industry pressuring another industry into retroactively paying for business losses that are not and simply cannot be covered by the tenets of modern insurance.
Celebrity chefs are missing the fact that standard business interruption policies simply do not — and cannot — cover pandemic-related losses. Insurers don’t collect premiums for pandemic losses caused by a “virus or bacteria.” A pandemic impacts the economy at such a magnitude that only governments have the resources to step in and provide support. Given the wide range of factors that determine the scope, range and duration of a pandemic, policies that cover pandemic losses are extremely rare. Only a handful of businesses have purchased them — and even large businesses that retain the services of risk management professionals generally shunned them.
Nevertheless, many of these chefs still likely have benefited from business insurance in the past, both directly and indirectly, in the form of payment for insured losses to their businesses, or to the businesses of the many vintners, dairy farms and other artisans essential to their supply chains.
The Insurance Information Institute’s chief economist says regulators and rating agencies would become concerned if the policyholders’ surplus figure ever fell below the $400 billion mark. Mandating payouts for pandemic-related losses would jeopardize that surplus, the vital financial cushion U.S. insurers rely on to pay for insured losses when the frequency and severity of wildfires, hurricanes and tornadoes is as extraordinary as it’s been in recent years. And as this spring’s tornadoes demonstrate, catastrophes happen anywhere and anytime — even amid a widespread pandemic.
We agree with these chefs that business owners and Americans everywhere need support and assistance to make it through this crisis. This pandemic is a catastrophic event of such magnitude that only the U.S. government can truly provide the financial assistance needed. Thankfully, the government has and continues to deliver financial relief for Americans. For this reason, insurers have united to recommend a solution in the form of a COVID-19 Business and Employee Continuity and Recovery Fund, which would support businesses affected during this time of heretofore unimaginable business interruption. It is our belief that such a Recovery Fund would facilitate the distribution of federal funds and liquidity to retailers, restaurants, and other enterprises affected during this time of incalculable business interruption.
The insurance industry recognizes how vital small businesses, including those in the restaurant industry, and their employees are to the U.S. economy and is taking action to help mitigate the damage. Insurers have offered immediate and forward-looking solutions such as payment relief and more than $10 billion in premium paybacks. Insurers also are responding to how risks are changing as we practice social distancing to mitigate the effects of COVID-19, by giving customers free identity theft coverage as we work and learn from home while also covering business use of personal vehicles used to deliver food, medical supplies, and other necessities.
Insurance has long been a foundation for times of uncertainty. By pooling risk, insurers guarantee an ability to show up for policyholders in times of need. To protect that foundation, we cannot jeopardize our ability to serve the broader American public by retroactively covering pandemic-related losses for a handful of celebrity chefs. Insurers continue to make communities safer, more productive and more resilient, just as we have for more than 350 years — and hope to do for 350 years more.
Sean Kevelighan is the CEO of the Insurance Information Institute, an insurance industry trade association.
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