(Reuters) – As insurers encounter an expensive natural disaster season due to storms and wildfires destroying parts of the United States, the new coronavirus gives them an odd economic break.
Many companies that were damaged or evacuated due to natural disasters already generated much less revenue due to the pandemic. According to analysts, lawyers and industry sources, they will receive lower payouts when filing business breaks.
It's another hit for small businesses that were rebuilt after major disasters in recent years, just to stop revenue. during the pandemic, and then enter another aggressive disaster season. This can make some companies unable to survive, says John Ellison, a lawyer at Reed Smith LLP who has represented policyholders in cases arising from Hurricanes Katrina, Rita and Sandy.
"There is a reasonable chance that not all companies in that situation will do so," he said.
Claims are never easy to file or process, with insurers, lawyers and accountants arguing over calculations. They rarely cover all losses.
The last few months have been particularly tough for policyholders in states such as California, Iowa and Louisiana. They were already battling insurers in court over pandemic allegations and were then hit by Hurricane Laura, wildfires and a destructive, rapidly moving storm that destroyed parts of the Midwest.
Most disaster claims are for property damage, but a "significant" amount still comes from business interruptions, based on how insurers have attributed losses after major disasters, says Piper Sandler's analyst Paul Newsome.
Insurers do not disclose how much of their total disaster losses are for business interruptions.
The amount of payments for disasters during the pandemic depends on the business, says Loretta Worters, a spokeswoman for the industry-funded Institute for Insurance Information. A liquor store whose business is booming may have higher revenues than six months ago, she said.
Many insurers make a 1
Business interruptions cover losses. based on the latest revenue trends, so payouts will almost certainly be lower for companies whose operations suffered due to the pandemic, says Credit Suisse analyst Mike Zaremski. Government-imposed breakdowns, supply chain disruptions and weaker customer demand have hurt many companies.
This is the situation in Guerneville, California, a wine region where many companies had to evacuate due to fires after being damaged by the pandemic.
For example, the Big Bottom Market, a gourmet deli there, must be closed from March to May. When it reopened, the business was initially off by 40% compared to the previous year, says owner Michael Volpatt. The introduction of new catering services stemmed from the tide, but July revenue was still down 9%, Volpatt said.
A mandatory evacuation of wildfires on August 18 forced the Big Bottom Market to close for 12 days. The store lost property damage but lost more than $ 20,000 in revenue, says Volpatt, who is preparing an insurance claim.
Business interruption was already a sore point between insurers and customers fighting in court over whether insurance covers pandemics. Only a few of the almost 1,000 ongoing trials have handed down rulings, with mixed results.
The hairdressing salon owner Berlin Fisher is a plaintiff in such a case that was filed in July. A Hiscox Ltd. unit denied business interruptions for Mr. Fisher's two salons in California, whose revenue was wiped out by a measure that blocked indoor haircuts, he said. Mr. Fisher's salon in San Francisco was running while the pandemic erupted.
A Hiscox spokesman declined to comment.
In June, Mr. Fisher cuts hair under a tent in Guerneville to make ends meet. He was evacuated four weeks later due to the fires and submitted a new claim, which is being processed.
Mr. Fisher pays about $ 100 a month for the insurance, but said it may not be worth the cost.
"There is a huge difference between what people who sold the insurance told me then and what actually happens," he said.
More insurance and risk management news about the coronavirus crisis here .