A View from the Middle… A Small Partnership to Help Small Businesses through Covid-19

Hale

Right now, we are all rightly focused on social distancing, watching our county infection numbers rise, Zoom meetings, teaching our parents how to use Zoom, trying to help kids with math and physics we don’t understand, Phil Murphy’s 2:00pm status call, washing hands (again), finding the best third string Netflix series and all the rest in this crazy weird Covid-19 world.

But relatively soon, we will have to face some very real and very major economic pain. Many of us are already there.  But It is coming and coming fast for everyone.  It is coming not instead of the public health concerns, but on top of them.

At the most basic level, we need to figure out ways to keep an economy moving at least partially until we can all get back to work.  We can’t stop all of the economic pain but ideally, we can do some innovative things to make it less painful.  Think of it as trying to “flatten the curve” of economic disaster.  One way of doing this is to figure out some creative mechanisms that will allow businesses, in particular small and local businesses to keep people on payroll or at least partial payroll for as long as possible.

A couple weeks ago, Roy Friman, Lou Greenwald and Annette Chapparo of the New Jersey Assembly introduced A-3844. The goal of this bill was to force insurance companies to include Covid-19 in business interruption insurance policies.  Business interruption insurance is exactly what it sounds like.  It is an insurance policy that pays a business owner a set amount if for some reason their business is unable to operate.  Depending on the policy it can pay out a set amount until they can operate again or for a specific fixed period.

The problem is that all existing business interruption policies specifically excluded “viruses” or “pandemics” as valid reasons for making a claim.  A-3844 would ignore this and require insurance companies to pay out business interruption claims caused by Covid-19 for businesses with under 100 employees.  Needless to say, the insurance companies have lost their minds over a bill which decides after a disaster what and who they have to pay. In addition, constitutional scholars have a thing or two to say interfering with private contractual relationships.   The co-authors have recognized this and have pulled the bill.  Normally that would be the end of the story.

However, maybe it doesn’t have to be.

One of the primary difficulties in getting sustained government assistance to people in a disaster is that most people don’t have an ongoing regular relationship with government.  We pay our taxes once a year, car registration every two years, but the vast majority of people don’t get a monthly check from the government.  In addition, we don’t give the government any more information about ourselves or our businesses than we have to.  That means that prior to getting a government check there is always a host of paperwork, documentation and information that must go back and forth between individuals wanting aid and the government giving it.  The government checks and rechecks to make sure that “you” really qualify for whatever the relief measure is.  That takes time and we are running out of time.

In contrast, insurance companies who write business interruption policies and the businesses who have them already have a relationship and a connection.  The businesses pay premiums every month, the insurance companies have paperwork and documentation up the wazoo about what the businesses make every month and how much they are entitled to if they can’t do business.  Insurance companies and business owners “know” each other in a way that government and business owners just don’t. That means in theory insurance companies could get money to their clients in a matter of days not a matter of months.

So why not “deputize” insurance companies to deliver these small business bailout funds to their policy holders?  This is different from A-3844l which just shifts the cost of paying out business interruption claims to the insurance companies.  Instead, the state or federal government is the entity that pays the costs.  The private insurance companies are just the delivery agents, who determine what their clients would be eligible for if their business was interrupted by a “normal” and covered disaster.  There could even be a provision for paying the insurance companies an administrative fee for effectively delivering the money to policy holders.

The insurance industry could fairly easily estimate of how much money would be needed if all of their business interruption policy holders took advantage of the scheme.  The state or federal government could then decide how much of that figure they could reasonably afford.  Insurance companies could then choose if they wanted to sign up as participants. I bet most would. Would you want to be the insurance company that stepped up to help out your clients during Covid-19 when you didn’t have to or the insurance company that said no to giving their clients the government’s money?

This isn’t a solution to all of the economic problems that we are going to face.  But it a new and creative solution for business and government to work together to at least get some small businesses in New Jersey the lifeline they will so desperately need.  Annette Chaparro one of the co-authors of the bill said, “A-3844 is a work in progress. We are working on finalizing the legislation to ensure it is the fairest and most responsible bill possible.”  I hope she means it.

Matt Hale

Associate Professor and MPA Director

Seton Hall University

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