Businesses in the U.S. and elsewhere are fighting what appears to be a losing battle with insurance companies over claims relating to losses incurred during the pandemic. Many business owners mistakenly assumed that their coverage for “business interruption losses” includes the financial pains brought on by coronavirus lockdowns, says Howard Kunreuther, co-director of the Wharton Risk Management and Decision Processes Center, and a professor of operations, information, and decisions at the Wharton School.
“They didn’t realize that they had been excluded from viruses, which happened because insurers excluded this coverage following the SARS epidemic [of 2002–2004],” says Kunreuther. Meanwhile, insurers have been slugging it out in courts with businesses over the claims (with insurers securing favorable rulings in many cases).
For many small businesses such as restaurants, the denial of business interruption insurance for COVID-19 losses spells bankruptcy and closure, said Kunreuther. He called for public policy intervention—especially public-private partnerships—to find ways to balance the insurance needs of businesses with the reluctance of insurers to provide coverage for pandemic losses.
According to Kunreuther, insurers incurred big losses because of SARS, but they were not “enormously severe.” But the SARS episode was “a signal to insurers that if there were future epidemics or pandemics, they would be in serious trouble,” he says. “Insurers took stock and said, ‘This is a risk that we don’t feel that we can really insure. And this is a warning to us that we probably should take this out of our coverage.’”
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