Leave it to the New York Times to flawlessly peg “unprecedented” as one of the 20 phrases that defined 2020. Among others were doomscrolling, quarantini, and social distancing. And we can’t disagree. All bittersweet chuckling aside, the COVID-19 crisis has impacted the entire world — including our corner; the insurance industry. Businesses and insurance carriers feel the pressure of new risks and the stress of analyzing a historical year of events. This post looks at factors business owners can expect to tackle with commercial insurance renewals and questions to ask, looking forward.
How 2020 Impacted the Insurance Industry
After 30 years as an insurance lawyer and current Head of Claims and Senior Product Specialist at Founder Shield, Jeff Hirsch (that’s me) chimes in as we examine 2020. Amid the heartache COVID-19 has created, it’s also brought immense legal issues to small businesses, mid-market companies, and enterprises. Unsurprisingly, very few organizations went unscathed. The following are some of the ways 2020 has changed the insurance industry (possibly forever) and why it matters to you.
Increased D&O Litigation
Kevin LaCroix, attorney and Executive VP at RT ProExec, predicted that COVID-19 could lead to directors and officers (D&O) claims. As usual, he was spot on. The most significant D&O claims trend, LaCroix says, “has been the rise of a number of COVID-19-related securities class action lawsuits.”
With Zoom calls being the go-to way to meet up, it’s no surprise that Zoom was under legal fire in many cases, among other companies. LaCroix continues, “As the pandemic moves from the public health crisis phase to the economic impact phase, there may well be more lawsuits along these lines, raising allegations pertaining to the disruption on companies’ financial performance or business operations arising from the pandemic.”
Just as “unprecedented” was on the tip of nearly everyone’s tongue, “PPP loans” also became a commonly used phrase, mostly to business owners. That said, it’s no doubt small businesses took the hardest hit this year.
As a result, the Cares Act provided the foundation for the payroll protection plan (PPP) in loans to small businesses to cover payroll where a company continues to provide wages to employees even during a layoff or furlough. Administered by the Small Business Administration (SBA) through approved lenders, successful applicants could seek loan forgiveness if specific conditions were met.
The SBA has a six-year time frame to contest whether loan forgiveness was appropriate. As a result, PPP Insurance is a new product offered by a few insurers. Our brokers and sales team at Founder Shield can help applicants through the process to see if that product is right for them.
Last month, business insurance reported that OSHA had issued $2.9 million in fines for COVID-19-related safety violations. These fines ranged in size from the low thousands to over $35,000. Coverage for these fines would have many roadblocks under traditional insurance (first among them that intentional/willful conduct is usually not covered), but we’re watching the space to see if an insurance-related product is developed around this area.
Lack of Governmental Relief
There is a growing number of failed businesses due to the combination of the pandemic and the economic downturn, with no additional (Federal) governmental relief, likely to happen in the concise term, which means that eventually, the pool of premium will decrease.
Even though insurance companies have won far more coverage challenges than they have lost, we do not see any premium relief — nor do we expect one. Whether the business marketplace will afford even basic insurance through the economic downturn remains a genuine question. If premium income dries up, something will have to give.
The more severe impact of COVID-19 on companies, mostly brick and mortar businesses, has been forced closure because of nationwide shutdowns. That said, business interruption insurance covers lost revenue and other expenses related to the shutdown to help ensure the company remains financially stable and open permanently, whether or not the doors are closed temporarily.
Some business owners’ policies (BOPs) include this coverage; however, we’re looking at business interruption as part of essential business insurance, such as general liability (i.e., “slip-and-fall” insurance). Given COVID-19’s extensive reach in this nation, we could positively welcome a shift in coverage. Plus, it’s an aspect you need to be aware of before commercial insurance renewals.
Direct Physical Loss Claims
On the same note as business interruption, there’s been a trend of direct physical loss claim denial. But let’s back up. This coverage was created (business interruption) when a fire in an adjacent building forced the insured’s business to shut down briefly until premises were declared safe and habitable.
Most insurers deny coverage because of a combination of no direct physical damage or mandate shut down not covered or virus contamination coverage limitation.
We at Founder Shield have been counseling some of our clients to provide notice of a loss or claim due to a pandemic to lock in any coverage that might be available. When we get a coverage denial, we ask carriers to reconsider or, at the very least, to waive any statute of limitations to challenge the coverage denial. We’ve had mixed success with our clients — but it’s a solid strategy.
The reason for this approach is to enable our clients to take advantage of any court decisions expanding the scope of coverage or legislation that mandates some form of coverage. At the time of your commercial insurance renewals, be sure you know the ins and outs of coverage details.
Questions to Ask Before Renewing Coverage
Knowing how 2020 has changed and shifted the insurance industry helps prepare appropriately for your commercial insurance renewals. There’s likely a tough road ahead for plenty of businesses upon renewal time. Here are a few beneficial tips and must-ask questions before signing the dotted line.
Are Your Current Policies Sufficient?
Before you renew your commercial insurance, look at your current policies closely. Did they meet your needs in 2020? In addition to meeting your overall needs, consider asking the following questions to pinpoint whether your policies are due for a slight adjustment:
- Have you expanded services or products?
- Did you hire more employees?
- Has your revenue increased significantly?
- Did you experience any lawsuits or legal action?
- Did you secure any funding or business loans?
- Have you moved locations or opened a new office elsewhere?
- Did you renovate or upgrade your office?
Combing through all this detailed information will take some time, so plan ahead. Start preparing for your insurance renewals at least two months in advance. Keep in mind that a trustworthy and experienced broker will already be on top of these tasks, making the job of getting your ducks in a row easier.
Has Your Broker Met Your Needs?
Valuable insurance partners meet your needs throughout the year, not only at renewal time. These folks are up-to-date on new regulations, requirements, and insurance standards. When it comes to insurance trends, your broker should be in the know. If you’ve partnered with a good match, they will have inside knowledge and foresight relating to your specific industry — a skill many business owners overlook.
When reviewing the past year, ask yourself if your broker was responsive or did they leave you hanging for weeks on end? Do they regularly assess your risks and vulnerabilities to support your risk management plan? Lastly, have you outgrown the “robo-broker” and are needing a professional that is more engaged in your particular market?
Changing brokers is a natural happening in the business world, albeit uncomfortable at times. However, getting the most out of your money means relying on a seasoned broker willing to work hard for you.
Have You Prepared for the Renewal Application?
As mentioned, it takes time to review the past year and all its nuances honestly. Commercial insurance renewals are no walk in the park, after all. Additionally, you’ll need to examine your budget and expectations for the new year while simultaneously gathering information about the past year. It’s a tall order — but ask these questions to help you along:
- Have you examined your company goals?
- Has your company vision shifted for 2021?
- Did you file any claims in 2020?
- Or, did you experience any other circumstances that could potentially impact your commercial insurance costs?
- Have you downsized because of COVID-19?
- Do you have all your financials in order?
Additionally, are you current on insurance rates for various policies? For example, rates have been steadily rising for auto, property, and D&O coverage for several years. However, we’re now seeing a surge in workers’ compensation, professional liability, and general liability premiums. This knowledge is invaluable when renewing your commercial insurance policies. An experienced broker can help you navigate these challenges, no doubt.
Founder Shield specializes in knowing the risks your industry faces to make sure you have adequate protection. Feel free to reach out to us, and we’ll walk you through the process of finding the right policy for you.
If you’re interested in learning more about a customized insurance program, please reach a member of our team by phone at 646-956-5140 or email at firstname.lastname@example.org or create an account here to get started on a quote.