Pandemic lockdowns make the case for pay-as-you-go commercial insurance

Auto insurance has introduced pay-as-you-go options for personal clients, but in the era of business shutdowns to prevent the spread of COVID-19, it seems as though commercial lines could use a similar option as well.

Brokers in a LinkedIn thread recently discussed the conundrum facing their business clients when they purchase insurance for a year and then have to shut down and restart at various points throughout the one-year policy term.

The thread began with Jeff McCann, founder and CEO of Apollo Insurance, quoting from a question he received from a broker regarding a client operating a martial arts business.

“I have a client with quite the conundrum,” the broker told McCann. “He has just taken out a policy…under Calgary [business]. He runs a martial arts studio. He recently took out the policy because the government had opened up this type of business due to [the decrease in] COVID [infection] numbers. They have since changed their minds and have closed up his type of business again.

“He doesn’t know what to do about his insurance. He said he doesn’t want to pay for the insurance while he can’t operate, but is afraid that if he cancels and takes the policy again when things open up, they might close down again shortly after.”

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McCann framed the question by suggesting the insurance industry could use the assistance of government in offering these business owners some form of relief.

The scenario is not far-fetched, as other brokers reported in the thread. Another broker raised a similar issue with a client’s coverage.

“Just had a similar scenario come up this week,” the broker reported. “Her business has been closed for the last nine out of 13 months. She continued to pay all the way through, but [is] now looking for help with her renewal.  She can’t afford to renew for lack of cash flow but can’t operate without insurance.

“She will need to renew when her business is allowed to open, but that won’t be until after her renewal date. Very frustrating for all these small business owners who have been closed down for the bulk of the last year.”

One commercial insurance advisor at a large Canadian brokerage firm offered one possible way out for clients facing these circumstances. But it would take insurers to offer this kind of option.

“Interesting thought, some companies offer a dormancy option, mostly used in other lines of business,” the broker observed. “This option places the policy on hold in sorts. It covers the client for past completed operations, but doesn’t offer coverage for new operations going forward.

“Once the economy picks up, or in this case [if] COVID relaxes, the client could resume normal operations. If insurance companies could write this within their wordings for lines of business in respect to COVID at a reduced premium, this would help with retention and help the client at the same time.”

One LinkedIn poster, the general manager of a brokerage, observed that the broker in this situation should be helping the client risk manage their way out of the dilemma.

“Not an easy choice,” the general manager commented regarding the client’s situation. “Insurance should not be a YES or NO choice; but what do I REALLY need and WHY do I need it?

“Is he responsible under his lease to have liability insurance? Does he want coverage for his contents from common perils such as fire and theft? His liability cost is based on how busy he is, but most likely he is paying minimum for that already.

“This client may need some risk management review on his operations, so he can understand what he can avoid, reduce, assume or transfer to an insurance program. Sounds like he already has minimal transfer, and may not be able to remove that portion under lease. His agent should be helping him with these decisions.”

Feature image courtesy of iStock.ca/lakshmiprasad S