It’s common knowledge that COVID-19 has dramatically changed the face of business. However, what’s less commonly known is that business insurance is struggling to keep up. With so much uncertainty, business owners and operators need to be prepared when positioning their business ahead of this year’s renewal.
As businesses continue to feel the effects of COVID-19 on their operations and revenue, many are looking to their property and casualty coverages for relief. While some claims have been denied outright, many more are still under review. Some may even head toward litigation. What’s more, the market is hardening and increases across the board should be expected. Here’s how to prepare best.
Business interruption insurance
Unprecedented business closures have led to a growing number of business interruption claims under the business income/extra expense (BI/EE) coverages contained within a commercial property policy. BI/EE coverages include shutdowns imposed by a civil authority, but these coverages are designed to cover direct physical loss or damage to property, often caused by fire, lightning, wind, hail or theft, and are not intended to respond to a virus or pandemic which fail to meet the definition of direct physical loss. For this reason, claims that aren’t denied immediately are likely to play out in various forms of litigation. Insurance carriers are also keeping a close eye on provincial legislation that could require carriers to pay for BI/EE claims, regardless of the policy language.
For 2020, this means carriers who include BI/EE as part of their offering will likely place additional scrutiny on requested limits and may revise their renewal offerings. For example, some American businesses that currently hold BI/EE policies with expiring limits of US$20 million may be offered as little as US$5 million in coverage at renewal – and Canadian businesses may be in a similar situation. In addition, if they didn’t already, renewal policies will likely carry a virus/pandemic exclusion to further clarify their coverage position.
Be prepared going into a BI/EE renewal. Work with a broker to determine the best strategy to approach the carrier. Consider BI/EE risks moving forward and determine the precise amount of coverage that’s needed heading into renewal negotiations.
Workers’ compensation insurance
As businesses begin to bring non-essential employees back to work, there is potential for a different type of workers’ compensation claim to arise. The Canada Labour Code and provincial regulations allow employees to refuse work if they don’t feel safe. The language varies by jurisdiction, with British Columbia’s regulations referring to an “undue hazard” and Ontario’s mentioning “danger.”
This kind of claim is traditionally filed when an employee was exposed to an unsafe condition and lost a limb – or even a life – and alleges the employer was negligent in some form. In dealing with COVID-19 return to work exposures, if employees are required to work without proper physical distancing or personal protective equipment (PPE) and are exposed to COVID-19, the employee may have a pathway to allege negligence on the part of the employer and trigger the coverage.
These kinds of claims tend to be drawn out and litigated for years. Businesses will need to hire a specialized lawyer. While these cases are rare, they are likely to increase as the Canadian workforce returns to their operations.
Before bringing employees back to work, implement the Canadian Centre of Occupational Health and Safety’s “COVID-19: Workplace Health and Safety Guide,” and document all safety practices/meetings while making all forms of PPE available to employees at all times. Work to ensure proper workers’ compensation claims reporting and monitoring procedures and keep all employees’ health information regarding COVID-19 highly confidential.
Employment Practices Liability Insurance
An employer who treats certain employees unfairly as it relates to their fear of the COVID-19 work environment and/or an ongoing workers’ compensation claim could be exposed to discrimination lawsuits. These allegations could trigger a business’s Employment Practices Liability Insurance (EPLI). In certain allegations such as class action lawsuits, a business’s directors and officers (D&O) coverage may be triggered as well.
Make sure appropriate limits are on EPLI and D&O policies. Ensure the human resources department understands the importance of safety compliance and is prepared to deal with work-related risk, safety and special accommodation requests from employees. Be sure to have access to a lawyer that is approved by the EPLI carrier and specializes in employment-related claims.
Cyber insurance
The COVID-19 pandemic has led to employees working from home, vastly increasing the attack surface available to criminals. When employees use company laptops or take home company desktops, they are often outside of the defensible perimeter of the firm. When they use personal computers or mobile devices for work, the problems compound because wifi networks, personal devices and software have neither adequate cyber hygiene nor corporate controls, supervision and licences. As a result, individuals and businesses are rapidly becoming victims of interruption, fraud, privacy breaches and theft of monies, as well as sensitive data.
Although cyber insurance can cover many of these perils, some cyber insurers require written policies for Bring Your Own Device and Work from Home. It’s expected that cyber markets will begin to address these areas at annual renewals.
Ensure current policies and procedures measure up to the new threat scape and to potential new underwriting questions.
Umbrella/excess insurance
For the last few years carriers have been increasing premiums and reducing limits on umbrella/excess insurance policies due to recent global loss trends and increasing jury payouts. Unfortunately, this does not yet take into account the potential pressure new COVID-19 lawsuits will have on the market.
If a business needs an umbrella/excess tower, it is likely the business will need more layering/carriers than in years past. Work with a broker to develop limits benchmarking and devise the best strategy before going out to market.
Conduct a pre-renewal assessment and create a market strategy
Businesses facing premium increases and limit reductions are strongly encouraged to conduct a thorough pre-renewal analysis with their broker. Review the limits on each policy and understand the current and potentially heighted exposures during the COVID-19 pandemic. Develop a strategy to deal with underwriting questions related to the impact of COVID-19 on operations and financials to ensure the best possible outcomes at renewal.
Travis McElvany is executive vice president/risk manager and a global broker at HUB International, the world’s fifth largest insurance brokerage. His expertise lies in providing robust risk management and insurance brokerage services across multiple industry sectors, building complex risk financing programs. 