Even before the pandemic, "business insurance premiums were already on the rise," says Chris Abrams, founder of Abrams Insurance Solutions in San Diego. "New insurance buyers experienced cost inflation upwards of 25% early in 2020. The increased expenses were likely due to coverage restrictions."
Considering the current climate, it's a good idea for small businesses to take a look at existing insurance policies to review risk, exposure, coverage, and exclusions for the most cost-effective approach.
How has COVID-19 affected business insurance premiums?
COVID-19 was an unexpected event that wasn't predicted by most insurance policies, and insurers weren't quite certain how to respond.
"Although it is difficult to project the future during uncertain times, it's likely that premiums will continue to rise for a period. Businesses face high risks as the pandemic continues to ravage communities around the country. Insurers may continue to increase premiums until COVID-19 largely subsides," says Abrams.
Can small businesses rely on business interruption insurance?
As more businesses feel the impact of COVID-19, many owners might turn toward business interruption insurance, but Jeff Hirsch, an insurance attorney for 30 years and a consultant with Founder Shield, doesn't believe this is a viable strategy.
"The problem is these insurance policies will often decline coverage unless the policyholder can show a direct physical loss," says Hirsch.
This coverage was created when a fire in an adjacent building forced the insured's business to shut down briefly until the premises were declared safe and habitable.
"Most insurers deny coverage because of a combination of no direct physical damage, or a government mandate shutdown is not covered, or virus/communicable disease is an exclusion," Hirsch says.
How will future coverage change because of the pandemic?
The pandemic will likely change the language of future insurance policy coverage.
"If polices were silent on the communicable disease exclusion prior to the pandemic, that won't be the case now," says Sean Grady, certified insurance counselor and risk manager and owner of TruView Insurance Group, Scottsdale, Ariz.
Abrams adds, "general liability insurance will become more of a lifeline to businesses as they continue to grapple with COVID-19. Since it can protect businesses from being held liable for bodily injuries, many businesses are turning to it to avoid potential litigation if a customer gets infected."
What businesses can do right now regarding business insurance premiums
Business owners have the green light to review existing insurance policies. They can consider these recommendations:
- Talk to your agent about the current exposure and risk present in your place of business.
- Work with an advisor on how to remain solvent and still afford premiums.
- Be aware of changing regulations at the state level and nationally.
- If you can't afford a premium one month, ask about financing alternatives.
- Make certain existing coverage matches your needs.
Hirsch cautions against small businesses using an app to buy insurance. "Sometimes this results in lapses in coverage because the owners didn't understand the product they were buying," he says.
The takeaway is that small business owners face major economic impact from COVID-19, and Hirsch emphasizes, "Owners need to be smart about how to allocate resources to best protect their business."