COVID-19 has shown how unprepared many businesses are for the unexpected. Experts will be debating what could have been done differently for years to come. What we do know right now is that businesses and organizations should take advantage of times of stability to plan for unexpected events in order to protect life, property, and other valuable assets.
The term “risk management” is widely used in all aspects of life to describe the steps we take to avoid—or lessen—the damages associated with a potential risk. It typically involves the identification and assessment of risk by a coordinated application of resources to mitigate, control, and monitor the risk.
Any time you look at risk assessment, there are four basic questions to ask:
- Identify risks: what can happen?
- Determine probability of loss: how likely is it to happen?
- Assess severity of outcome: what are the consequences if it does happen?
- Mitigate risk: what can be done to manage the consequences?
Let’s look at some of the risks impacting businesses and how businesses can better prepare for the next pandemic.
Business risks associated with COVID-19
Businesses are dealing with significant financial losses, which has resulted in the need to lay off employees. Even formerly thriving businesses are struggling due to governmental-decried closures. While the government has approved federal funding for some of those impacted by COVID-19, there is no guarantee that this will be enough. Some businesses will close permanently, and the economy will be further affected by those closures. Additionally, in order to bid on work opportunities, some prime contractors are requiring a pandemic policy. What can businesses do?
First and foremost, businesses should follow all CDC guidelines and governmental directives. We have heard the importance of social distancing and cleanliness and the preventative value of wearing masks and gloves. These guidelines are intended to protect each of us from getting and giving the virus to others. While stay-at-home directives have forced closures of nonessential businesses, the fact that the number of positive cases is beginning to stabilize is an indication of its success.
Develop a pandemic-specific preparedness plan
The purpose of such a plan is to serve as a reference for a safe and healthy workplace for all employees and ensure adherence to any CDC guidance, as well as governmental directives. Consider including the following sections:
- Policy overview—What do you expect from your managers and employees in a pandemic? Include links to the CDC and require that anyone who may have been exposed to an infected person should remain in quarantine for the recommended number of days. This policy should also address other possible non-COVID pandemics (e.g., employees who have traveled to a region where another illness/disease is prevalent).
- Essential roles—Who within your organization will be responsible for implementing the pandemic plan? Such roles include safety, training, technology, inventory, communication, and business decisions. This team of individuals will be responsible for managing the organization through a pandemic.
- Employee risk mitigation measures—What should your business and employees do to lessen the spread of the virus? Consider measures such as making hand sanitizer and other cleaning products available for daily use by employees, providing sufficient workspace between employees, and encouraging employees to remain home when ill. You can also encourage employees to have regular medical check-ups, including appropriate immunizations.
- Protocol for returning to work after a serious illness—What mandates should your business impose upon a person returning to work following a serious illness? For example, a signed release from a medical provider could be an appropriate measure.
- Training on medical and health concerns—What training will you provide to your employees on health issues including the spread of a disease? The training should include initial symptoms, best practices for mitigation of risk, and prevention of spread.
- Remote work—What allowances will you make to support employees working remotely during times of quarantine? Consider the type of work that is performed and whether it is conducive to remote work. There are some industries where this will not be an option.
- Training on technology to work remotely—What technology will your employees need to work remotely? Instruct them on how to use software for meetings, collaborations, and communication.
- Emergency communication—How will your business communicate with its employees to notify them of important and urgent matters? Consider establishing a robocall system that will alert employees of urgent needs.
Review financial sustainability measures
Does your business have enough capital to sustain itself during an extended shutdown? For how long? Would it be feasible to consider remote work as a permanent solution to lower costs? Are there other business solutions that could decrease expenditures? Some industries may be able to capitalize on this moment as the pandemic opens the door for new business opportunities. Each business will need to determine what makes the most sense for remaining viable.
Document any unplanned expenditures
What unplanned expenditures will your business accrue due to the pandemic? In the event of a federally declared disaster, the federal government will provide funding for eligible expenses to FEMA-eligible applicants impacted by the event. To take advantage of this funding, you will need to document your unplanned expenditures and hold on to all invoices and receipts for payment. Once a disaster is declared, the federal government will release details on what types of costs may be considered for reimbursement.
Assess technological systems
Does your business have the appropriate technology to continue operations during an extended shutdown? Do your employees have laptops, access to an internet with adequate bandwidth, and appropriate protection from computer viruses? Consider investing in software to allow for collaborative meetings and remote file access.
Does your business have contracts that include a force majeure clause? A force majeure clause is a contractual provision that temporarily or permanently suspends contractual obligations when completion of work is not feasible due to circumstances that are beyond your control. This clause typically contains language that specifies which type of events are considered “unforeseeable,” so it must specifically list pandemic in order to apply. The contract should not be enforceable if it contains a force majeure clause and work is not possible due to COVID-19. Some states—such as New York, Florida, California, Texas, and Illinois—mandate the inclusion of force majeure language in contracts. It is likely that other states will now join in this requirement.
Consider pre-positioned disaster contracts
You may need to have contracts in place before an event occurs. Will you require a contract for a call center or to clean and sanitize work areas? Will you need any technology that is not currently in place? Healthcare facilities may want to consider having a pre-positioned contract for on-call medical providers. Having an enhanced supply of gloves, masks, and ventilators on hand may also necessitate additional contracts.
Consult with a risk advisor
Buying insurance is one of the most important risk management steps that businesses take in order to mitigate loss. The impact of COVID-19 on the insurance industry will be significant. Many types of coverage will be put to the test regarding coverage for a pandemic. Some of the issues we expect to see include:
Group health insurance
In the aftermath of COVID-19, how did your group health insurance coverage respond? Did your insurance company lift out-of-network restrictions for members who have only in-network coverage; lift daily limits for prescription refills; lift co-pay requirements for maintenance medication; extend premium payment and/or filing of claim deadlines; extend call hours for added support; add counseling (free) for limited time for members; or manage call operations from remote locations?
These are just some of the health care considerations for group insurers—not an exhaustive list. Talk with your insurance company to insure continuation of medical benefits for those employees insured under a group health plan. With COVID-19, businesses should be mindful of Health Insurance Portability and Accountability Act (HIPAA) and the importance of protecting personal health information. Protect the privacy of your employees who are ill with COVID-19 by only sharing their information with HIPAA-compliant parties—and only when you’re required to do so.
Commercial property insurance/Business income coverage
Most commercial property policies exclude coverage for pandemics and include standard exclusion for Loss Due to Virus or Bacteria. This exclusion means that the insurance company will not pay for “loss or damage caused by or resulting from any virus, bacterium, or other microorganism that induces or is capable of inducing physical distress, illness, or disease.” The Insurance Service Office responded in February 2020 with two new forms for Business Interruption Losses and Civil Authority Orders, both specifically related to COVID-19. Both forms grant limited coverage for COVID-19 when there is no direct physical damage to covered property. However, it is unlikely that any insurance company will be willing to endorse a current policy with an ongoing pandemic.
One issue that will be looming over the industry is the compensability of a workers’ compensation claim for an employee. While the law is unique in every state, most state laws require a causal connection between the injury/illness and the individual’s work. There are many work environments—such as healthcare—that have significant exposure to COVID-19. The courts will likely determine if the illness/disease arose out of the work done by the employee. South Carolina, Minnesota, and Alaska are among some of the states that have introduced presumptive workers’ compensation legislation supportive of healthcare workers who develop the virus after caring for infected patients. Similar presumptive workers’ compensation legislation is likely in other states in the wake of COVID-19.
Commercial general liability
Coverage under the commercial general liability policies is dependent upon the allegations by a third party. We expect that liability claims will escalate in the months to come as individuals begin to question the actions of a third party in their handling of this pandemic. Several class-action suits against China for allegedly causing the coronavirus pandemic have been filed, citing wrongful exposure to the virus. Businesses must be ready to defend their risk decisions in the management of their employees’ and visitors’ safety and in addressing the needs of their clients.
History is a good predictor of the future. If we have learned anything from past pandemics, we know that this one is unlikely to be the last. Even as the stay-at-home restrictions continue, businesses can begin to address how to be better prepared for the next pandemic. Proper risk management will allow for mitigation of loss, improved recovery, and continuity of business.