One of the major news stories across the United States in the past six months concerns the proliferation of civil unrest and resultant damage to businesses and public property. An unbiased source estimates a total property damage in the U.S. to be somewhere between $1-2 billion. It may be worthwhile to think about how these costs are recompensed and how these events may change how we deal with civil unrest in the future.
One common refrain that we hear is that “insurance will simply cover the losses.” This may be true in many cases because most property insurance policies do provide coverage for civil-unrest damage and even the damage caused by authorities in response to the unrest. However, obtaining insurance payments can be a long and arduous task.
Small-business owners may suffer while trying to put their businesses back together. In Kenosha, Wis., for example, 35 small businesses were destroyed and as many as 80 additional businesses were damaged. Many of these were locally owned and underinsured or struggling to manage the losses. Consequently, a telephone call to the corporate office cannot remedy the problem because there is no corporate office. Furthermore, many businesses simply cannot access the less costly comprehensive insurance rates that a large corporation can obtain.
Insurance coverage can fall short of what a business owner needs to resume operations. A policy that does not specifically offer “replacement cost” may leave an inadequate amount to rebuild and restock the business. With replacement coverage usually comes a coinsurance requirement to cover a specified percentage of that amount, perhaps 80%. If the damage falls below the 80% value mark, the dollar value of the covered amount starts to drop.
Running a business involves much more than just opening the doors and receiving revenue. The forge operator must prepare for many possibilities, including that they might hurt an employee or customer. Forges also face the risk they might lose their building or inventory in a man-made or natural disaster. Those risks, however, can be reduced with proper insurance coverage.
Calling an insurer, broker or agent to ask about coverage options is a relatively easy step that should be done on a regular basis, perhaps annually. Insurance professionals can help business owners to fully understand their risks of doing business and give a range of options to help protect their investment.
One potential future effect of civil unrest is, unfortunately, higher insurance premiums. Property owners often look for ways to cut fixed costs, and commercial insurance is one area of interest as renewal prices have been trending more than 5% higher than the same time last year, according to data from one insurance industry exchange. This year, due to the COVID-19 pandemic, some businesses were not able to pay their insurance premiums.
There are businesses that have reduced their coverage. With lost or reduced sales revenue, many businesses look to reduce insurance coverage that would not be needed during the shutdown. In other cases, businesses opt for 30, 60 or 90 days of business interruption insurance. However, serious damage could push recovery times far past those time limits.
Business interruption insurance raises the question of how losses are valued. In many cases, an income claim is established by examining prior periods of the business to learn the value of lost business during a particular period. An insurance company may make the argument of looking at the last three months when the business was closed. If a building is destroyed and it contained all the receipts for inventory and fixtures, the owner will not have proof of the dollar value of the losses – which an insurer will insist on seeing.
It is certainly more difficult for a small business to argue against an insurer if the insurer is taking an adverse coverage decision; it costs significant time and money to do so. That is time and money the business likely doesn’t have.