SMBs May Be On the Hook for Losses Amid Social Unrest

Amid the social unrest dominating the country at the moment, will small- to mid-sized businesses (SMBs) face crippling losses tied to looting?

Landlords mandate that business tenants carry basic liability insurance. But it’s up to the individual small business owners to decide how much coverage they want to carry, or what they can afford. The insurance typically covers inventory or equipment damaged during emergencies. This is known as business interruption insurance.

Yet as reported by Fox Business, business interruption insurance can cost between $500 to $1,500.

But there may be a gap when it comes to small businesses — meaning that they may not have such coverage in place — which means, too, that they could face substantial losses even as the pandemic continues to ravage their top and bottom lines.

“In the small business community, I would say between 20 to 30 percent of owners would have business interruption insurance. It’s costly when you’re starting a business. There isn’t a whole lot of free money available. You put everything in your business it’s hard at times to figure out how to afford this,” Ron Willis, founder and president of the National Association of Business Owners and Entrepreneurs told Fox.

Separately, in an interview with Bloomberg, Janet Ruiz, director of strategic communication at the Insurance Information Institute said smaller firms that were not mandated to carry such coverage by their landlords, and did not carry that coverage, would be responsible for the cost of addressing damages to inventory or for repairs to locations. Next Insurance has estimated that as many as 44 percent of small businesses have never had insurance.

The gap between smaller firms and larger brethren is starkly illuminated by the fact that companies such as Target and Apple can carry policies that Ruiz said could cover losses that could top millions of dollars.

For the carriers, too, there may be significant ripple effects. Insurance Journal reports that the current violence that has been seen across the U.S. after the death late last month of George Floyd may become the most expensive period of civil unrest in history.

The site noted that the $775 million in damages sustained in Los Angeles disruptions after the 1992 Rodney King beating would be surpassed this time around, partly because the destruction has spread to dozens of U.S. cities, stretching from Seattle to New York City.

Property Claim Services has said the rioting has been designated as a catastrophe.  And in a commentary on that designation, Tom Johansmeyer, Head of PCS, said in remarks reported by Artemis that with “riot events tending to have lower numbers of estimated claims, a few large losses (like national retailers or restaurant chains) could push the loss disproportionately higher.”

For smaller firms, the unrest comes right on top of the lingering challenge of the pandemic, and contending with tangible losses tied to looting (especially if they do not have interruption insurance) may be especially difficult.  Consider the fact that in the latest Main Street on Lockdown Business Recovery edition, there’d been a bit of rebound in sentiment in terms of surviving the coronavirus’ impact — though we are not out of the woods yet.

As many as 48.1 percent of SMB owners are “confident” they can keep their businesses open through the pandemic, up from 41.8 percent who said the same on April 6.



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