The COVID-19 (coronavirus) pandemic has impacted the entire world, leaving nobody untouched. While much of the focus has been on the healthcare industry, and rightly so, this is also impacting the insurance industry. Many businesses are now realizing the value of having something called business interruption insurance. This is a type of insurance policy that covers the business in the event that a business is unable to operate for an extended period of time, such as a natural disaster. While hurricanes and tornadoes are some of the most common causes of business interruption, COVID-19 has created an unprecedented situation for many business owners.
Of note, business interruption is very different from property insurance, which only covers the value of the building itself and not the income the business generates. While the physical buildings are intact, the profits, costs, and added expenses of running a business are getting hit hard. This is what makes business interruption insurance so valuable during this difficult time.
Of course, there are other impacts on the insurance industry as well. Insurance companies are facing numerous challenges and how insurers respond to these difficult challenges will impact what they look like on the other side. There are several pressures on insurance companies right now, including their investment portfolios. Many insurance companies depend on their investment portfolios to generate returns. Unfortunately, the markets have been in turmoil recently and this is having a devastating impact on their investment returns. When this is combined with interest income drying up, this is placing significant financial pressure on insurance companies.
In addition, numerous regulatory authorities are asking for insurance companies to provide a delay in how they collect insurance premiums by not applying penalties to those who pay late. While there are families who are struggling to pay their rent and mortgages, this lack of premium protection is going to make it hard for insurance companies to pay out claims in a timely manner. Given the importance of business interruption insurance, insurers are depending on these premiums to cover the claims that get filed.
Finally, there is also a drop in the demand for other types of insurance as well. For example, there has been an increase in layoffs, leading to a drop in workers’ compensation insurance. Furthermore, people simply aren’t buying houses, cars, and other purchases which should be insurable. This is leading to fewer new policies being written, making it even harder for insurance companies to make ends meet.
These are a few of the major ways in which COVID-19 is impacting the insurance industry. How these companies respond is going to set an important precedent for not just the industry but the country as a whole.