Did COVID-19 Affect Commercial Insurance?
Business Interruption Coverage Disputes
The pandemic created unprecedented conflict over business interruption (BI) insurance coverage. Many business owners were told that losses from pandemics are generally not covered under standard BI policies, despite having purchased this coverage to protect against lost income. Private insurance played a limited role in addressing business losses from the COVID-19 pandemic, as insurers generally did not pay pandemic-related claims because nearly all policies required physical damage to property.
Businesses argued that government-mandated closures and the virus's presence constituted covered losses, while insurers cited virus exclusions and lack of physical damage. Some £1bn of business interruption claims related to the pandemic have already been paid, but a number of important cases are being litigated in the UK and elsewhere, with litigation continuing years after the initial outbreak.
Surge in Demand and Market Changes
Business interruptions resulting from restrictions on economic activities propelled BI insurance claims and led to a sharp rise in unemployment, with the business sentiment reflected by the number of initial claims turning out to be particularly responsive to the pandemic. The crisis dramatically increased awareness of business interruption coverage, with many businesses realizing too late that their policies didn't cover pandemic-related losses.
Following COVID-19, many insurers have since added virus exclusions or removed previously available virus coverage, making future pandemic coverage even more difficult to obtain through standard commercial policies.
Long-Term Industry Impact
The pandemic exposed fundamental gaps in commercial insurance frameworks. Emergency relief programs enacted in 2020 and 2021 provided about $4.6 trillion for pandemic response and recovery, with about $1.2 trillion going to small businesses in the form of loans and grants, demonstrating that government assistance—not private insurance—became the primary financial lifeline for businesses.
The crisis also revealed supply chain vulnerabilities that continue affecting commercial insurance. Shortages and delays in the supply of materials and components resulted in longer restoration times and business interruption, with COVID-19-related shutdowns and disruption in China continuing to cause delays to supply chains.
Regulatory and Legislative Response
State insurance commissioners demanded fair investigation of all COVID-19 claims, though most were ultimately denied. Some state legislatures proposed retroactive pandemic coverage mandates, though these faced constitutional challenges and strong industry opposition. The experience highlighted the need for clearer pandemic risk-sharing mechanisms between government and private insurers.
The pandemic fundamentally reshaped how businesses view commercial insurance, revealing its limitations during widespread, systemic crises while accelerating discussions about federal pandemic insurance programs for future outbreaks.
