Business Insurance During a Pandemic: Five Actions to Take and Three to Avoid

We are currently several weeks into quarantine in Michigan due to COVID-19, and no one feels the negative effects more than small business owners and the many families they support. My hope is to provide helpful information – some “Do’s and Don’ts” – to enable employers to adjust and take full advantage of existing insurance opportunities:

1)     DO contact your insurance agent regarding “business income loss coverage”

Business income loss insurance coverage is designed to pay for your lost income while your business is not operating due to a covered insurance loss. Most business owner policies and commercial packages have income loss coverage built in; however, the majority contain a virus exclusion form, therefore current circumstances would not be covered.

But this may change.

Currently, there is a bill in New Jersey’s state congress that would make COVID-19 a covered claim for affected businesses, requiring insurance companies to pay lost income to all businesses, statewide, while under government order to limit or close operations. Though other states are beginning to discuss similar legislation, Michigan is not yet one of them.

On the national front, an April 15th 2020 email update from Michigan Association of Insurance Agents stated, “On the heels of President Trump’s comments last Friday regarding the role of Business Interruption Insurance in the COVID-19 pandemic, Rep. Mike Thompson (D-CA) introduced the Business Interruption Insurance Coverage Act Tuesday, along with nine other Members of Congress.

The legislation would require every property/casualty policy which includes business interruption coverage to cover losses stemming from a viral pandemic or business closure while preempting state law in nullifying any such exclusions in force on the date of enactment.”

While awaiting a verdict on this bill, business owners should request their agency document their potential loss, without filing an official claim with the carrier (you want to file with your agency versus insurance carrier). Communication should be in written form – email is best – followed by a follow-up call with your agency. Content for the former should include something along the lines of the following: “I am losing income due to the COVID-19 pandemic. If you could please file this as a potential claim in your agency system and notify me of any legal changes that would allow to us to file a claim, I would greatly appreciate it.”

Because of the virus exclusion included in most policies explicitly stating viruses are not a form of loss that is covered, business owners will want to position themselves to be “first in line” to know if or when changes to relevant, existing legislation occur.

As we have seen with the federal programs, being first and having relationships could mean the difference between getting, or potentially missing out on or delaying those dollars. This is a long shot, but a necessary step nonetheless.

DO NOT file a claim for business interruption

Realistically, this coverage – with or without government dollars – doesn’t seem likely. You want to be in the front of the line, but there’s no reason to increase near future expenses with a filed claim. Insurance companies rate businesses based on varying criteria, but all of them have discounts based on loss history. Even a zero-dollar claim can tarnish a pristine history as a business with no losses and no claims filed.

Why risk a premium increase by filing a claim with your insurance carrier for a “what if” (especially considering your business will suffer and renewals will be impacted for up to five years) when you can give yourself the same advantage with no risk of future premium increases?

2)     DO adjust your workers compensation payroll

If you are currently operating with less staff working and/or working less hours, your workers’ compensation policy should be adjusted and reduced to match this new payroll amount. Workers’ comp policies are based on the type of work and the payroll (or amount of work) that is done in your business.

If the total is greatly reduced, you can start saving on your next payment; or if you paid it in full for the year, a refund request can be submitted with the change in payroll. Even for small companies, this can make a huge difference; but if you work in a field where injuries are more common, this is a game-changer.

If an employer is paying employees to work from home or is paying furloughed employees, payroll records should be kept in such a way as to be able to identify those payrolls come audit time. Insurance carriers are indicating they will provide premium relief for these situations, however employers will need to be able to specify the exact amount of each qualifying payroll.

DO NOT cancel your workers’ compensation policy

While not operating during COVID-19, business owners should try to keep their existing coverage in place. Cancelling will make it harder to come back when you’re again able to operate at full capacity, as in most cases this will increase your costs for the policy and negatively affect your rate, which is based on your history of claims and continuous coverage.

Remember, if you adjust payroll as suggested, your costs will also be adjusted with your billing.

3)     DO communicate often with your agent and insurance billing department

Insurance companies are doing many things to support small business during this time. Unfortunately, this hasn’t been a uniform process with each company, as they are making it up as they go along. For instance, many insurance companies have chosen to delay cancellations for non-payment anywhere from 30-90 days.

Renewals have not been granted the same premium delays and non-cancellation exceptions that insurance companies are offering; therefore, any policy that is up for renewal during this time of crisis is going to cancel for non-pay if you are unable to make a payment. Your only recourse in this case is to call the billing department to work out a payment plan.

The important piece for you as a small business is to be in direct contact to make changes and arrangements before things go wrong. As an independent agent, it has been encouraging to see the extent to which companies are willing to make concessions and come up with creative solutions to help all parties get through this crisis.

DO NOT be afraid to change your agent or insurance company

The purpose of the business insurance industry is to help protect against the many risks of owning and operating a business. You pay your agent to help find you the best option to protect your business at a fair price. If she or he is not up to the task, then you need to find someone who is; someone who will work hard for you through the inevitable ups and downs that come with business ownership.

Some agents are complacent; some are taking this time for a vacation; and some are digging in, doubling down and helping their clients. As all of these changes mean lower premiums and therefore lower commissions for agents, some reluctance is understandable; but it’s the right thing to do. After all, in business – as in life – true character reveals itself in adversity.

4)     DO adjust your business auto policy

If your business has multiple vehicles that were utilized regularly pre-COVID, there’s a good chance not all of them are in use right now. If this is the case, you can place the vehicles that are parked under storage insurance (aka “comp only”) to save on costs during this crisis period.

In lieu of cancelling your auto policy, this method ensures premium expenses are reduced and solely related to utilized vehicles.

5)     DO make sure your insurance is adjusted for remote operations

For businesses that can operate, even partially, or have moved to remote working during this pandemic; following are several issues to make sure you have covered, insurance-wise:

a.      Business property off site needs to be covered under inland marine insurance. When you were frantically handing out those computers to Martha and Maude to work from home, you may not have thought of this… As a business owner, you need to make sure these assets are fully covered and can be replaced were any damage to occur.  

b.      Make sure your cyber liability is covered for remote workers. While a full definition of cyber liability may not be practical here, just know that hackers are more likely to compromise your network, server, and digital ass…sets now that people are working from home. Let’s protect them.

Insured business owners should check with their agent to see if a data breach that happens on a device that is owned by an employee is covered. A number of cyber policies, particularly those that are attached to a package policy, do not include an employee-owned device in the definition of the insured’s network. If employees are using their own devices to work from home, a cyber policy may exclude coverage.

c.      Insurance coverage for business vehicles should be scrutinized. This item will vary greatly depending on the type of business you have, but let’s focus on one example: A restaurant that now does catering and delivery.

Employees are using the owner’s personal vehicle for deliveries and s/he does not have a business auto policy. An accident happens during a delivery. Who covers it? The answer is:  it depends.

Some insurance companies are offering broader coverage for this under existing business policies and/or expanding personal policy coverage for deliveries. There may even be coverage already in place. The most important thing is to know before filing a claim.

All of the aforementioned is why communication with your insurance company is so key during a crisis such as this one. Be sure to contact your agent and have a conversation prior to acting so you will have the knowledge necessary to make the best decisions possible to protect and preserve your business.

For questions regarding the above, or if you would like this information communicated in a presentation to a group, please contact Chaz Carrillo at (517) 230-9214 or via email at [email protected].