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How the COVID-19 Pandemic is Changing Commercial Insurance

Updated: Jul 6, 2021

Until 2020, most businesses didn't consider global health crises a risk to insure. Additionally, traditional commercial insurance coverage doesn't include government-mandated closures resulting from a pandemic. The Paycheck Recovery Program helped many businesses survive temporary shutdown orders to stop the spread of COVID-19, but the U.S. still reported over 200,000 more permanent closures than average in 2020.

What is a Captive Insurance Company?

A captive insurance company is an alternative to a traditional provider where a business forms its own insurance firm to cover alternative risks. Typically, companies have strict federal guidelines and a narrow list of coverage options. Additionally, premium prices quickly increase depending on the market demand, making it difficult for small businesses to pay for necessary coverage.

Enter the captive insurance company. A private insurer can be set up by a single business or several companies pooling their money to cover risks when they arise. And unlike a traditional insurance company, if the money goes unused, the private owners can decide what to do with the surplus.

The 2020 Pandemic's Influence on Commercial Insurance

COVID-19 hit Utah and the rest of the country hard. Many companies weren't prepared for alternative risks that their standard policies didn't cover. When you pay a quarterly premium, and your business closes even temporarily, it's frustrating and possibly financially devastating to find that the money spent on insurance does nothing to help you.

While the government stepped in with flood insurance help for individuals and businesses, there's no information on whether such a coverage option will be available anytime soon for pandemic options. Although we've seen the full impact of a global health crisis, there's no way of predicting when the next will strike. When we discuss risk from other events, such as flooding, earthquakes, hurricanes, and tornadoes, you can be relatively confident that they will occur within at least a few years.

Surviving a Hard Market with Private Insurance

Preparing for acts of nature is expected. But the pandemic changed everything you know about a hard market. Traditional insurance policies can be expensive and sometimes unaffordable for many small businesses. A captive insurance company or private insurer may be the tool companies need to weather a hard market. These policies cover what traditional insurance companies won't, and as the owner, you decide which risks are covered. Additionally, with captives, you prepare for the worst, hope for the best, and still have access to the surplus funds if nothing happens. By carrying the funds forward, companies can be well-prepared for the next pandemic.

The hard market the U.S. and the world has experienced over the last two years has taken an enormous toll on businesses. From riots and mass protests to a pandemic that's killed millions of people across the globe and over 2,000 Utah residents, property and personal losses have hit levels higher than any point in history.

The captive strategy does not try to follow the soft or hard market. Rather, it provides a long-term, stable, controlled approach to meeting your insurance needs. As the owner of the captive, rather than an insurance buyer, you will strategically position your business for the future, regardless of how the conventional market may fluctuate.

Now's the time to consider domestic property and casualty insurance captives to protect your business from an uncertain future.

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