COVID-19 Reshapes Insurance

As businesses struggle to survive staggering losses due to the COVID-19 pandemic, they face questions about what can be done to be better prepared for a future outbreak as experts warn it is a matter of when, and not if, another global pandemic will strike.

While there are pandemic insurance products, the market is simply not built to cover losses of this magnitude. An October article in The Insurance Journal with the headline, “It Would Take P/C Insurers 150 Years to Pay COVID-19 Business Interruption Losses,” notes a $4.5 trillion GDP loss worldwide caused by the pandemic. Less than 1% will be covered by business interruption insurance.

Lawsuits nationwide are pushing insurers to pay for loss of business, says Christine Holman, vice president and partner with The Rowley Agency in Concord. But if carriers were forced to pay, they could be bankrupted, and future policies would become unaffordable, she says.

Pandemic insurance is commonplace in Europe and Asia but not so much in the U.S., Holman says. “The last pandemic, excluding SARS, or the last of this magnitude, was the Spanish Flu in 1918.” The fact is pandemic coverage is excluded from most policies, and small business owners in NH have been unable to cover their pandemic losses.

While pandemic insurance is now a hot topic, don’t expect it to be readily available any time soon. “Right now, there’s a moratorium, so even if you buy pandemic insurance it may exclude COVID-19,” she says. “It’s not cheap at all. It is something the big venues are going to be looking at, but the small business owner would be unlikely to be able to afford it.”

However, the industry is exploring products to handle pandemics. Chubb, the world’s largest publicly traded property and casualty insurance company, released a proposal in July for implementing a public–private partnership program before the next pandemic. It includes a Business Expense Insurance Program aimed at small businesses.

“In the event of a government–declared pandemic and ensuing lockdown, insured businesses with 500 or fewer employees will receive a pre–determined payment based on a multiple of monthly payroll expenses,” the Chubb proposal states. Chubb proposes requiring all property and casualty insurers writing business insurance to offer the program to small businesses.

Companies declining the coverage would have to acknowledge they will not be covered for pandemic business losses or be eligible for federal program benefits. It also proposes a voluntary, indemnity-based pandemic insurance program for larger businesses.

Doug Carignan, a commercial lines account executive for HPM Insurance in Laconia, says it will take time before the industry has a remedy for the loss of business income due to a virus or pandemic. He says it is more likely to happen at the federal level, like flood insurance.

Workers’ Comp Questions
Workers’ compensation saw new challenges with COVID-19. There was some good news as fewer people were getting hurt on the job and less travel meant fewer accidents, which often result in some of the most expensive injuries, says Michael Bourque, president and CEO of the MEMIC Group, which has offices in Manchester. “On the other hand, the healthcare industry in particular was hit very hard with people contracting COVID-19,” he says. “And contracting COVID-19 at work makes it a workers’ comp injury.”

There is rising concern about lasting effects on the health of infected workers. “It’s such a new disease that it is hard to know what it can do over the long term. Once the claim occurs, [the insurer] is responsible for it for the life of the worker.”

The responsibility of employers to provide a safe and healthy work environment doesn’t stop at the door of their building; if workers are out in the field or if they’re working from home, an employer still needs to take steps to avoid workplace injuries.

“In early March, your business may have been a professional office in an ergonomically sound environment, then everyone was sent home,” says Steve Cote, president of Chalmers Insurance Group in North Conway. “A lot of workers’ compensation carriers are very concerned about workers’ comp cases in the home.”

Premiums for workers’ compensation, which had been decreasing the past few years, will continue to level off and eventually swing back up amid increased claims and uncertainties surrounding COVID-19, Bourque says.

Critical Advisory Role
While businesses have not been able to turn to insurance to recoup losses, insurance agents have been busy helping clients navigate the shifting landscape of state and federal regulations to protect themselves against liability.

Business owners who perhaps could never find the time to read their policies now find themselves overwhelmed by the amount of information that has come out during the past year and they need a navigator, says Bret Cote, vice president and sales manager for Clark Insurance in Manchester.

“There’s been a higher level of communication that customers now deserve and need to lead them through all the material, all of the conversation and all the stuff that’s coming at them,” he says. “We’re in an over-stimulated, 24/7, content-driven world. How do you navigate through all that noise and get to the stuff that is valuable and usable?”

Information is the first casualty in a crisis, says David Saltzman, director of marketing and business development for Borislow Insurance in Methuen, Mass. The firm, which provides benefit management, quickly set up a web page to collate resources for clients and their employees. “We also have run some webinars, and we’ve done some instruction on how to better use the employee assistance programs that are in their plans and helped them connect with mental health resources.” He says the sheer volume of information coming out at the beginning of the pandemic increased the value of an agency that could parse it.

“One of the biggest resources that the clients relied on, which we’ve seen a 5,000% uptick in, is telemedicine,” says Jennifer Borislow, founding principal and CEO of Borislow Insurance. “Some of the larger clients in northern New Hampshire didn’t have access to mental health providers, so we were able to connect them with telemedicine and behavioral health specialists who were able to help usher them through some of the challenges they were having.”

To mitigate risk insurers are raising awareness about new OSHA rules related to COVID and future pandemics, says Jackie Roy, business account executive of Optisure Risk Partners in Manchester. “OSHA is coming up with new requirements, but a lot of people may not know that until they get fined. It has to be looked at, and sometimes they don’t know where to start,” Roy says.

Managing Premium Fluctuation
Businesses are desperate to control costs, and that includes insurance premiums. Many businesses have premiums that are variable based on their exposure, says Keith Beausoleil, president of Fortified Insurance Agency in Manchester. “Their exposure is simply a rating basis for how they get charged, and so for some businesses it’s based on sales. The more widgets you make and put out in the world, the more opportunities there are for a claim or a loss. If you do fewer widgets, then your premium is going to come down. It’s the same thing if you’re making pizzas, or fine dining or whatever you’re doing,” he says.

Keith Beausoleil, president of Fortified Insurance Agency, holds a virtual meeting with members of his staff. Courtesy photo.

Commercial insurance liability can also be rated on payroll or square footage when assessing the risk, says Jamie Santo, president and CEO of Santo Insurance in Salem. “In a multifamily rental it could be [based] on the number of units or on the square footage. In a bakery or restaurant, it would likely be based on sales. In construction, the general liability, in most cases, is based on payroll,” Santo says.

If a business pivoted to a high demand product or service that greatly increased their expected revenue, the cost of their policy would increase, and at the end of the year they would owe more money. That will not be the case for many restaurants, even if they saw increased business from takeout, as many ended the year with losses due to the loss of alcohol sales.

“Before the pandemic, you’d go to a restaurant and get a steak, salad and two glasses of wine, but now if it is just takeout, it is likely the food only,” says Santos.  

Businesses with commercial policies audited by the insurance company can expect to hear from their insurer about a month after the end of the policy year to conduct the audit. “Audits are very fair. If you have more sales, you pay more, and if you have less, you pay less,” says Rachel Eames, owner of Eames Insurance in Concord. “But it will still be a very harrowing year for the auditors,” explaining with so many businesses either performing well above or well below expectations, it will mean extra work to calculate changes and returns.

Roy says to minimize a year-end sticker shock scenario, they have been doing more frequent payroll and sales reviews and looking at property forms to make sure clients are neither over nor underinsured. “The buildings and content might be undervalued [due to inflation], and there are certain things that people need to take into consideration such as their vacancy clauses.”

She says if an office building is only 40% occupied, coverages such as vandalism may be at risk if the policy was written contingent on a certain level of occupancy. “Those are the types of things that we’re trying to be proactive with,” Roy says.

“Making sure the client understands what they need to do to keep their programs at a higher level of coverage.”

Helping Restaurants Survive
From operations to revenue to regulations, the restaurant industry arguably has been one of the hardest hit sectors in the economy. Where many industries were shut down for a short time and could pick up with a limited amount of adaptation, restaurants have gone through many stages from complete closure to partially open to open with modifications.

While changes to their business model may have been authorized or even mandated by government agencies, certain measures might not jive with what their coverage provides. However, insurance carriers and the agents have been able to provide them with flexibility.

“In the early stages of COVID, insurance carriers in several aspects fell in line with the governor’s emergency practices allowing things to happen,” says Cote of  Chalmers. “Like restaurants that started delivering, that was never underwritten, and serving alcohol curbside. These are things an underwriter would write carefully. They acknowledged the increased exposure and agreed to insure without rewriting a policy.”

There was quite a bit of grace, agrees Beausoleil. “Quite frankly, as an agency owner, I wasn’t expecting to see that from the carriers. Delivery is something that can be fairly costly to insure correctly,” he says. “The carriers basically said, ‘we know you didn’t do delivery before, but we’ll cover you for this time frame because we know you can’t survive without it.’ Some businesses simply had to do it to keep the lights on.”

Restaurants suddenly offering sidewalk dining also presented coverage issues, says Carignan of HPM Insurance. “As agents, we need to make sure that our clients are covered in that regard. We’re stepping out of an enclosed environment, expanding the dining space. We want to make sure we advise them properly on ways to continue to keep employees and customers safe from trip and fall hazards and things of that nature,” he says.

Cote of Clark says businesses began operating in different environments. “Stepping out onto the sidewalks of Elm Street in Manchester that were opened up to outside dining, questions arise,” he says. “How do we ensure employees are safe going in and out? What do we need to remind them of? Because it’s all about top-of-mind awareness. They’re used to a nice level surface inside of a restaurant but now you have to step off a curb and go around a mailbox or the parking pass kiosk.”

Restaurants introduced apps for everything from reservations to paying the tab and used QR codes on the tables to avoid having multiple customers handling plastic menus. Many had to frantically ramp up their websites to provide online ordering capability that hadn’t mattered before. Taking credit cards online brings with it a lot of responsibility to safeguard that data, another new liability.

“That’s one of the interesting things about this pandemic, it has forced everyone into utilizing technology in different capacities or in a quicker capacity than they normally would have,” says Carignan.

Cybersecurity Concerns
While many agencies had technology in place to quickly shift to remote operation, the industry has not undergone digital transformation at the same pace as other sectors, says Greg Soden, COO of Optisure Risk Partners in Manchester.

The insurance industry, as a whole, is very paper intensive, with some agencies continuing to mail forms, etc. “We’ve been able to utilize electronic submission to make it easier for the clients,” Soden says. “It has really changed our industry, and it’s happening at warp speed.”

Clients, though, need to be aware of how technology leaves them exposed. As workers went remote and brought workplace technology home, away from the firewalls and other safeguards of the office, businesses are at greater risk from cybersecurity threats.

Cybersecurity insurance will be the biggest change in the marketplace in terms of underwriting, says Cote of Clark. As workers transitioned to a remote environment, people were doing job functions they hadn’t done in the past, such as helping with payroll or billing and invoicing, and a lot more people may have been accessing sensitive data, which led to a huge uptick in claims. Among the biggest is ransomware attacks.

“Cyber hackers are out there sending emails and disguising them as COVID-19 helpful information or an invoice or shipping and tracking number,” he adds. “The next thing you know you’ve exposed your entire system to a ransom virus, and those are very, very costly for business owners.”

When a ransomware attack locks up a company’s data, firms have paid $1 million or  more to get the information back. “It’s a vital insurance policy for business owners given the environment we work in with all the scams and ways someone can access someone else’s system and do some serious damage. I saw some of the largest claims I’ve seen in my career in 2020.”