What the Delta Variant Means for Small Business Insurance Needs

Note: This article was originally written in September 2021. The status of COVID-19 changes rapidly and some information contained here may be out-of-date at the time of this reading.

The economic disruption caused by the COVID-19 pandemic is far from over. 

While the availability of safe and effective vaccines did nudge the economy back on track, the reality is that viruses mutate — and we’re now grappling with the effects of emerging variants. 

What does the delta variant mean for small businesses?

The Delta Variant and Small Businesses

The rise of the delta strain of COVID-19 has the potential to have an outsized impact on small businesses. This is particularly true for small businesses in the retail and service sectors, such as restaurants and stores that depend on foot traffic for sales. Even without state-mandated business closures, wary consumers could decide that staying home is the safer choice.

A 2020 study by McKinsey found that small businesses are particularly vulnerable to COVID losses because they are less likely to have substantial financial resources to fall back on. While large businesses are not immune to economic losses caused by the pandemic, small businesses are significantly more likely to go bankrupt during a loss of consumer confidence — and the decreased spending that comes with it.

In April of 2021, the 12 banks of the Federal Reserve released an analysis of COVID’s impact. The research supports the McKinsey study’s findings that small businesses were hit hard, but it underlined the fact that that small businesses owned by people of color saw the steepest losses.

Insurance Policies for Small Businesses

There are a wide range of business insurance products that cover small businesses. When you apply for small business insurance coverage, your agent will likely ask a number of questions about how you operate. This helps them assess your risk and determine what coverage types are suitable. 

Some business owners opt for a combined product called a business owners policy that bundles commercial property and liability coverage. For others, it makes more sense to purchase individual policies that pertain to the risks associated with their specific business. 

Business interruption insurance — also sometimes called business income insurance — is a type of policy that helps pay your business expenses if you have to close your doors unexpectedly. This insurance covers things like your payroll, taxes, rent or lease payments — and even the revenue you’d be making if you were open.

Many business owners are wondering if their business interruption insurance applies to COVID-19, since it’s supposed to replace lost income when your business is closed due to a covered loss. This last point — that it must be a covered loss — is key. Policies differ from  one place to the next, so if you have questions about whether a COVID-19 closure qualifies as a covered loss, check your policy or contact your insurance agent.

Because business losses due to the pandemic have been considerable, some insurance companies are modifying policies upon renewal to clarify that pandemics are not covered. Some new business insurance policies contain specific exemptions for communicable diseases, particularly if the language in prior policies was unclear. 

Nationally, there has been a stark increase in the number of lawsuits against insurance companies that have refused to cover COVID-19 losses as part of business interruption coverage. Insurers argue that because business losses are attributable to the pandemic and not property damage, business interruption coverage does not apply to these cases. 

What Should Business Owners Do to Manage Delta and Other COVID-19 Variants?

The steps you take to protect your business will depend heavily on the type of business you run. 

Since most states are reluctant to return to the strict lockdown measures that halted economic activity, businesses have been left to figure out how to welcome customers and employees back into stores and workplaces safely. Businesses that face the public, such as restaurants and retail, have two primary constituencies to think about: their employees and the public.

Employees need to feel safe at work and confident that they will be supported by management when conflicts arise (like disagreements with mask policies). The battles over masking and vaccination requirements show no signs of ending any time soon. 

Businesses in states that require mask use can point to state mandates for backup when asking customers or vendors to wear masks. However, in states without mandates, businesses will need to navigate the desire to protect customers and staff with the possibility of pushback from those who oppose mask requirements. 

For businesses that have less direct contact with the public, the biggest question is often whether employees should work from home or return to the office — and how to do so in a way that prevents the spread of COVID.

The location of your business matters, too. As the spread of COVID increases with indoor activity, we will likely continue to see hot spots in regions of the country where more people are inside. In warmer regions, spread in the summer months has been considerable as people head indoors to air-conditioned spaces. On the opposite end of the thermometer, we can expect the spread to increase in cooler regions as people retreat inside to warm up.

Most states publish information on the rate of community spread, hospitalization numbers and deaths. Keeping an eye on these figures may help you plan by predicting how much foot traffic to anticipate in your business. Guidance from state health authorities is another place to look when developing plans to operate safely while the pandemic is ongoing. 

Since operational decisions can present potential liability issues, you may also want to talk with your insurance agent about what measures you can take to protect your business.

State Legislatures and Insurance Policies

Since insurance is regulated at the state level, businesses should keep an eye on what kinds of policy decisions state lawmakers and insurance commissions are considering. What they enact could have a direct impact on how you can do business. 

Here’s a possible scenario: 

• If a state passes legislation that prohibits business owners from asking the vaccination status of employees but one employee passes COVID to another who is then hospitalized, does the second employee have a workers compensation claim? 
• How is your health insurance policy affected? 
• What about your business’s reputational risk if an employee comes to work sick and passes COVID on to a customer?

These are the types of questions businesses are grappling with each and every day, and clear answers are in short supply.

The Bottom Line

The COVID-19 pandemic continues to be a fluid situation. Businesses frequently are left with more questions than answers. 

It’s essential that you stay flexible and informed, so talk to your insurance agent if you have any questions about what your policies cover.