PCI: Hurricanes Prove Commercial Insurance Value

The Property Casualty Insurers Association of America has issued a bulletin, which notes: “Business owners who debate the need for insurance coverage can learn a valuable lesson from Hurricanes Charley and Frances.”

The PCI cites some statistics from claims following Hurricane Charley’s passage. It said “135,000 commercial insurance claims have been filed by businesses in Florida and the Southeast, accounting for $2.7 billion, or 40 percent of the estimated $6.755 billion in total damages from the storm.” While claims estimates are not yet available for Frances, PCI expects a larger number of claims but a smaller dollar value for the losses.

“Commercial insurance has played a vital role in helping businesses that have suffered damage from the hurricanes,” stated John Eager, PCI’s senior director of claims. “About one in every five claims from Charley was a commercial claim and business losses accounted for 40 percent of the damages in dollars. Commercial insurance accounted for over $12.5 billion in premiums in Florida last year. That’s more than the premiums paid for either homeowners insurance or auto insurance.”

The PCI noted that “many business owners have been impacted by one of the aspects of the storm that most insurance policies do not cover.” Don Griffin, PCI VP-commercial insurance, stressed: “Business insurance does not cover power outages caused by a loss of power generated by the local utility, so companies that have been forced to close due to the widespread power outages across the state cannot claim losses because they could not open for business. Business interruption insurance typically applies only to businesses that have suffered physical damage from the storm and been forced to close due to the damage – not just a power outage.

“Companies can buy coverage that covers losses due to power outages after the business has suffered physical damage and they can also buy coverage for interruption due to action by a civil authority that forces them to shut down. But, in reality, few companies purchase such additional insurance.

“We sympathize with businesses that have to shut down due to power outages, but because outages are frequent, unpredictable, and generally result in only minor losses, the cost of insuring for them would be a major additional expense for business owners.”

For larger businesses, business interruption insurance is typically one of several kinds of coverage they can choose to purchase. These consumers typically work with their insurer to determine how much and what specific kinds of coverage they need.

Griffin indicated that small business owners, usually with 10 employees or less, may qualify for a “business owners policy” that does include some business interruption coverage in addition to the regular business coverage for fire, liability, and other standard perils. While it still does not cover power outages, if the business suffers physical damage it will provide salaries for employees for up to 60 days and coverage for lost net income for up to a year. Deductibles do apply.