We all know what we are supposed to do, personally, to help stop the spread of the coronavirus that has wreaked havoc around the world. I have washed my hands, stayed away from everyone, and have had to adjust to a complete paradigm shift. However, I am busier than I have been in a very long time, taking phone calls from stressed clients wondering how they can sustain their businesses and if there is insurance that just might help. So, what about insurance in this pandemic?
We all have it (insurance, that is), but can it really help in a crisis like this one that is unprecedented and worldwide? Yes, it can, but maybe not the way you think. The following are a few ways that insurance and your agent/broker can help you through this and come out better on the other side.
- CALL YOUR BROKER AND CONSIDER FILING A CLAIM
First, is my business covered for my loss of income and my loss of use of the facility (ies) we have occupied to run our businesses? Most likely, there is little or no coverage for this, if it is caused by the coronavirus. Almost every policy has a “bacteria or virus” exclusion, which prevents the rest of the policy from responding as it might when there is a fire or other covered cause of loss. It also probably requires damage to your property, which may or may not be the case and is hard to prove.
But, does that mean you should not turn in a claim? Definitely not. If you have lost business, had to close or downsize due to the COVID-19 outbreak, we strongly encourage our clients and friends to contact their insurance agents and submit a claim. Even if it is denied, you are on record of your loss and this information can be used when applying for federal loans or other state or local assistance. They usually want you to exhaust your other options first. We are waiting to see if there might be some regulatory relief, although I wouldn’t hold my breath on that one.
Another good reason to file a claim is to begin to assess the actual loss to your business and the financial needs you will have once we transition back to a more normal business operation. Hopefully, you had a “Business Recovery Plan” in place. If not, now is the time to work with your broker to put one together so that you can understand what is involved with getting back to full business strength.
This might also be a good time to look at options for changes to your operations. We are hearing of a number of businesses that have repurposed to help defeat the virus, as well as provide a stream of income. We’ve heard about hotels becoming quarantine centers or factories normally producing cars, switching to desperately needed ventilators. If you change your operations in whole or in part, please notify your insurance broker so they can confirm with the carrier that they are willing to add that type of operation or even write a different policy. You could find that your policy has some designated operation language that would preclude coverage unless the carrier is notified.
- CONSIDER REVISING YOUR CURRENT COVERAGE NOW
While you are filing a claim, ask your broker to review the types of policies in place that might be helpful to revise. These can include Workers Compensation, especially if you have laid off workers. Depending on each carrier, now might be a good time to reduce your monthly premium payments, which will be audited after the policy ends anyway.
General Liability insurance is usually auditable. That means that if your revenues or payroll goes down then you could be eligible for a return premium. If you are early into your policy, it could make sense to revise your estimated receipts and lower the premium now rather than at the end of the policy term. It is important to know what basis your insurer is using to create your rate—revenue or payroll.
Business Income, or loss thereof, is covered on your property policy. Again, if you believe that your income will be lower due to the virus, now might be a good time to discuss lowering the limit so that you can save some money up front. This coverage is not auditable and is rated on the Business Income worksheet that you probably provided to the broker. Let’s make sure that it is correct and not overstated. (One caveat is if you think you have some business income coverage that is not excluded, then you may want to leave the limit where it is to cover the loss.)
Employment Practices Liability could be impacted greatly. Due to local and federal government mandates that certain businesses temporarily close to prevent the virus from spreading, some companies are laying off employees as they are unable to sustain the payroll expense. These companies may see an increase in EPLI claims due to these layoffs. There are also a host of novel (no pun intended) employment issues that employers will need to navigate in connection with COVID-19, especially in connection with complying with various state and federal leave acts and the ADA. Any “incorrect” steps taken (with the benefit of 20/20 hindsight) will be fodder for the plaintiffs’ bar. Be sure you consult your employment counsel if possible before laying off employees. If it is too late for that, then work with your broker to make sure you have documented what was done, including notifications to the employees.
I would be remiss if I did not point out some issues for Directors and Officers of companies. Corporations will likely face disruptions and additional regulatory requirements. They may also be facing bankruptcy, which almost always involves claims against directors/officers. It would be good to review your Directors and Officers Liability (D&O) coverage with your agent and make sure you understand how these claims work and how to prepare for them.
- Public companies will need to comply with the SEC’s requirement to properly disclose information to investors related to the virus. They must provide investors with assessments and plans for addressing material risks to their businesses and operations stemming from the virus “to the fullest extent possible.”
- Companies will need to make sure that they are in compliance with health and safety regulations. Their failure to do so may lead to allegations of breach of their fiduciary duties to ensure the safety of its employees and to ensure the company is not exposed to any reputational damage.
- Claims could result from a company’s alleged failure to prepare for the crisis, or failure to mitigate and manage it effectively.
- Companies may have trouble in meeting their financial obligations if the business interruption is significant enough. Potential (and actual) bankruptcies will likely generate D&O claims
Premium Payments: Please note, the insurance carriers are all stepping up to be flexible in payments and cancellations. You do need to ask for relief, though. It is not automatic and again your agent can assist.
Finally, Cyber Liability Exposures are on the uptick with so many people working from home. If your company carries Cyber Liability insurance, now is a good time to check what coverage you have and need and make any changes to it. Even if you don’t carry this important coverage, do take steps to proactively inform your employees of the possible pitfalls that exist and are growing. A report published by Barracudas Networks (a leading provider of cloud-enabled security and data protection solutions) stated that between March 1st and March 23rd, 467,825 spear phishing emails attacks were detected and 9,116 of those were related to COVID-19. Your first and best line of defense is a knowledgeable employee base. You may want to remind them that if there is anything suspicious, they should report it to IT before opening any attachments. (Here is a link to a very recent Cyber Liability Webinar, hosted by HUB. It has some extremely valuable information and is worth the hour to listen to it.
- Risk Management is vital now more than ever.
Many people think of their broker as someone who places their insurance, but good brokers are now much more invested in helping their clients prevent losses by being prepared for the unthinkable and the unknowable. Who would have thought three months ago that our economy could be altered so drastically by a virus that has encompassed the world! Let’s learn from this. Let’s plan for what could happen and not relegate the Business Recovery Plan to the back burner. Some questions to ask yourself as the business owner:
- What could I do differently the next time I have some catastrophic situation come up?
- Who can help me prepare for the worst case scenario?
- How do I handle compliance when my workforce is scattered all over working from home?
- Could I adjust my operations to accommodate a different paradigm, such as Work From Home most of the time?
- Are there ways to diversify my business so that I can accommodate drastic changes to the way our clients and customers interact with us? What could I do to prepare them for the changes that could take place?
- Am I communicating with all of the stakeholders so that my operations continue in the way I can accommodate clients, vendors and employees?
- Do you have your trusted advisors in the loop when you make your business recovery plans so that they can guide you from their area of expertise?
You are not in this alone. You have resources through your trusted advisor network. This is a great time to reach out to them for advice and sharing. We are all finding new ways to help each other so that our economy can, once again, be healthy and thriving. Insurance can be a part of that recovery and walk with you as you lead your business back to pre-COVID days.
HUB has created a Coronavirus Resource Center that is extremely helpful. We have made a commitment to our community and country to share these resources with anyone who needs them, so feel free to pass along the link to others. We are happy to lend our expertise.