The virus commonly referred to as the “Spanish flu” – which ultimately would kill about 50 million people worldwide – had just begun to reach American shores when in September 1918, the city of Philadelphia was set to host a “Liberty Loan Parade” to promote the government bonds that were being issued to pay for World War I.
The worldwide pandemic had spread to Philadelphia about a week before the parade was to step off, with some 600 sailors contracting the virus within days. Authorities were warned of how it might spread further if the patriotic wartime event, scheduled for Sept. 28, was not cancelled.
It wasn’t. The parade went on as scheduled, bringing 200,000 Philadelphians together.
By Oct. 1, 635 new cases of Spanish flu were reported in Philadelphia, which became one of the hardest-hit cities in America. Within a month, more than 47,000 cases were reported. By April of 1919, the city saw more than half a million cases of influenza – and about 16,000 people had died.
One might consider this a relevant, textbook lesson in risk management.
Now, the world faces a new pandemic threat: the coronavirus, or COVID-19, which emerged in Wuhan, China and has spread to 100 countries and thus far has claimed more than 19,000 lives worldwide. As of this writing, with more than 3,100 dead the number of new cases in China has begun to level off – but Italy remains under siege, with the death toll at nearly 7,000 and rising precipitously despite a nationwide lockdown and the shuttering of all nonessential businesses.
In the U.S., governors in states including New York, California, New Jersey, Illinois and Pennsylvania have declared that only “essential” businesses such as hospitals, food stores, gas stations, banks and others can remain open, while all others are either working remotely (provided their job allows it) or aren’t working at all. In the UK, citizens have likewise been ordered to stay at home to prevent the spread of the virus.
Protocols in Action
John Phelps, risk manager and former Director of Business Risk Solutions for Blue Cross and Blue Shield of Florida, had a sobering message for risk managers and insurers alike as the pandemic continued to spread – one that could serve as a rallying cry for risk-mitigation professionals everywhere.
“Don’t panic, just be prepared,” he says.
Phelps, who served as President of the U.S.-based Risk & Insurance Management Society (RIMS) in 2013, says the lessons learned while managing risks around the H1N1 outbreak in 2009 informed many of the tactics being employed right now by various organizations.
“You don’t just flip a switch and 12,000 people are suddenly able to work from home,” he says. “That competency has to be built. We didn’t think we were building competency for the Coronavirus, but we were.”
As the COVID-19 pandemic quickly spread to the U.S. in March, risk managers had to assess their organizations’ business continuity plans to help identify next moves.
Lance J. Ewing (ARM, CRM, ERMP), Executive Vice President, Global Risk Management & Client Services for Cotton Companies, said many companies had “litmus tests and dry runs” when developing readiness plans previously against SARS (2002-2003), the Zika virus (2015-2016) and H1N1, “but not on a footprint of this magnitude.”
Still, he adds, risk professionals have kept those protocols updated over time in the event of another pandemic threat. Until recently, that included keeping workplaces clean, posting signs encouraging employees to wash their hands frequently in the interest of everyone’s safety, and figuring out what the next steps would be if workers were unable to come into the office.
“This has been my life for the past month, 24/7,” says Ellen Dunkin, RIMS Vice President and Senior Vice President, Chief Risk Officer and General Counsel for Amalgamated Family of Companies in White Plains. N.Y.
In February, Dunkin’s team began looking at different scenarios; could all of its employees work from home? The company, she noted, is a life insurer and a third-party administrator that pays life insurance claims, pension checks and health claims. As such, “many of these claims require notarized documents, so there is a lot of paper that’s involved,” she adds.
While its attorneys and compliance people were already accustomed to working from home at least one day a week, there are some functions that presented a challenge – namely, accounts receivable and accounts payable. “Premium checks are an issue; payouts are an issue,” she explained. “Premium checks are sent in, there are employer contribution checks from health funds – all that mail has to be processed. You have to have some people in the office to do that.”
Dunkin said various workarounds were put in place to handle the workload, including trucking that mail to other locations where it could be processed, once the office had to be mostly closed. “We haven’t reached a place yet where everyone is in total lockdown,” she added. “If the U.S. Postal service shuts down, we’re not the only people who will have issues.”
All three risk managers agreed on two things: the risk management landscape – and the world – will no longer be the same going forward, and when an organization of any size is faced with a major challenge, it’s the people that have to come first.
“What’s top of mind for organizations, as they consider the survival of their company, is their workforce,” says Phelps. “That means the safety of their workforce. That determines things like whether or not you have meetings. Do they have to use virtual functionality? Communication within the company and with customers and vendors is paramount. All employers will be struggling with that one.
“Do we pay our people if we can’t be open?” he continues. Payroll, Phelps points out, “is a big number for a company, whether you’re a 10-person restaurant or a major company. That decision is very difficult for a company to make – that’s not one-and-done determination. Maybe you can dip into your reserves and pay your employees for two weeks, but what if it goes on for three months?
“There are a lot more difficult decisions left to be made,” he adds. “It’s a continual process until someone blows the whistle and says this is over.”
Analysis of customers’ needs – on more than one level – is critical. “Companies must evaluate what their customers want from them under current circumstances,” says Phelps. Manufacturers might make the decision – whether mandated to or not – to stop building vehicles, for example. But for those providing a service, he asks, can they stop? In the interest of employee safety, should they stop or do they shift how they deliver those services under pandemic circumstances?
“Av event like this is going to be society-changing,” he adds. “It’s going to be a change for our country as to how, when and where we do things.” Grocery stores, for example, might discover that half of their business is shifting to Internet sales, and may stay that way. Will patrons want to return to businesses such as movie theaters, post-pandemic?
“As a risk manager you have to be open to that change, and be tuned into it as we navigate this and prepare for the future.”
Additionally, he notes, if a company can be a “first player” and put out a statement or message that resonates with or reassures a frightened public or acts sincerely out of good will, it can an improve their image within a community. “Companies can make donations, or change production facilities to build ventilators. Healthcare companies could set up drive-through testing clinics. That all improves the image of an organization,” says Phelps. “When we come out of this, we’ll have a far greater feeling about some companies than others.”
Ewing, who had flown from Memphis to Dallas for meetings that ended up being cancelled right before he spoke for this story, offered an ideal example. Stuck in a hotel at about 20% occupancy, he had to rely on takeout from a local restaurant, with which he felt comfortable because of its prominently posted signs assuring customers that it was taking serious steps to serve them safely.
“A holistic corporate approach must be taken” in all messaging, says Ewing, who adds that companies can’t overreact by over-communicating. “Factual, material messaging is better. The mind can only absorb so much, and everyone is facing their own set of challenges right now.
“Whatever industry vertical you’re in has to ask, ‘What are the potential touchpoints?’” Ewing adds. "As a risk manager, first and foremost is the safety of your employees and your customers. The human factor always comes before the insurance factor.”
A Question of Coverage
The insurance factor, however, is a huge one – and questions will be asked at myriad organizations in months to come about what coverage was in place when the pandemic struck.
On March 17, the Association of British Insurers (ABI) attempted to get ahead of this wave of coverage inquiries by announcing that most business in the U.K. will not have cover against the disruption that COVID-19 will inflict.
“Irrespective of whether or not the government orders closure of a business, the vast majority of firms won't have purchased cover that will enable them to claim on their insurance to compensate for their business being closed by the Coronavirus,” the ABI said in a statement. “Standard business interruption cover – the kind the type the majority of businesses purchase – does not include forced closure by authorities as it is intended to respond to physical damage at the property which results in the business being unable to continue to trade.”
An all-cause rider, however, would cover an insured for such losses, Ewing points out.
“The exclusion taketh away. The endorsement giveth back,” he says.
“We are in unprecedented time right now, and the industry doesn’t like that,” says Ewing, who adds that an experienced risk professional would know whether their organization’s insurance policies include protections against business interruption, cleanups, and other expenses that will continue to mount in the weeks and months to come.
A standard event-cancellation policy, for example, will typically cover things beyond the insured’s control – but most insureds will not have coverage from a pandemic. As always, it depends on your specific policy wording.
Jim Davis, Partner at Perkins Coie LLP, an international law firm that specializes in insurance recovery, said that COVID-19 is going to have an economic impact that goes beyond the typical loss events, and forecasts an 18-month period of disruption across every industry. In turn, multiple different lines of insurance will be affected.
Businesses large and small will be seeing enormous revenue losses, he notes, which is already spurring contingent business interruption claims. Davis cited a “tip of the spear” lawsuit filed by Bourbon Street restaurant Oceana Grill in New Orleans asking for a judgement that Lloyd’s of London covers lost revenue due to civil-authority actions with coronavirus restrictions, claiming its policy includes coverage for business interruption – including in “the event of the business’ closure by order of Civil Authority.” The French Quarter eatery claims its policy doesn’t include a virus or pandemic exclusion for business interruption.
Other businesses, Davis says, will claim property damage, maintaining that the virus has made their premises inoperable. “What is property damage under these policies?” he ponders. “Do they have a virus/contamination exclusion?”
A wave of D&O suits, he said, will follow the stock market’s massive continued spiral. He pointed to the group of investors that has sued Norwegian Cruise Line after news articles exposed the company's alleged practice of lying about the severity of the disease in order to keep bookings, which caused the cruise line's stock to plummet.
Business shutdowns will also trigger EPLI-related suits by employees who were laid off, claiming discrimination by age, race or other factors. Workers’ compensation claims are also expected, when lawsuits are filed by employees who will claim their employer didn’t do enough to ensure a virus-free workplace.
“This isn’t the first time the industry has seen all of these issues, but it’s the first time it has seen these issues on this scale,” says Bradley Dlatt, Associate at Perkins Coie.
Dlatt sees a lot of claims on the horizon for supply chain interruption, especially for companies that work with China. Apple, for example, was unable to maintain its production runs due to factories being closed – and they’re hardly the only U.S. company that relies on Chinese manufacturing facilities.
Event cancellation will be another sticking point in many policies: did they have a pandemic exclusion, or not? Those policies, says Dlatt, often have exclusions for communicable disease, although sophisticated policyholders can negotiate for riders that include that coverage.
“Did the virus actually prevent the event? Did you mitigate against it? Those cases are a lot more complicated than people realize,” he says.
Ironically, depending on their broker, some businesses may actually be more likely to have a virus inclusion in their policies after 9/11 claims inspired more expansive views in forms of what constitutes contamination. Davis cited the ISO Form CP01400706, Exclusion of Loss Due to Virus or Bacteria.
The larger brokers, he explains, particularly those that serve such major clients as sports leagues and the hospitality and entertainment industries, worked for years to help their clients obtain coverage for disease-related triggers.
Davis believes that, going forward, the insurance market will very quickly look to exclude pandemics at renewals – and says supply line coverage that responds in the months to come will become a lot more expensive come renewal time. Coronavirus and other pandemic exclusions will be sought by insurers across the board.
Phelps says at least in the short term, all of this will put more pressure on an already challenged P&C insurance market. Losses are already mounting, he adds, and the pandemic will continue to engender more liability suits, putting strain on reserves.
Still, he says, there’s a silver lining for insurers: “They’ll use this as an opportunity to improve their book and only serve the best of clients. There will be less capacity within the industry, and that’s going to drive up price. They’ll see it as an opportunity to improve their own risk portfolio for the entire company.”
What’s Next?
As the situation unfolds around the globe in weeks and months to come, insurers and clients won’t be the only ones recovering. Every business on the planet will be affected in some way, great or small.
“Many companies are looking for that magical pixie dust to make this go away, but this has a longer runway than many of them have anticipated,” says Ewing.
“Everybody is going to be touched by this, and I don’t think we know yet what the ultimate effect is going to be on all of us,” says Phelps. “That’s continually changing. Some businesses will go out of business. We’ll have to change how we react to that.
“I hope this is something that makes us stronger as a country,” he adds. “While I deeply regret any loss of life from this, I hope it will also make us stronger."
This feature originally appeared in Reactions.
