COVID-19: Business owners preparing for changes in operations
Companies with changed operations as a result of the coronavirus need to consider the new risk exposures.
A hotel is asked to lease its premises for the operation of a temporary medical facility to actively treat COVID-19 patients. A warehouse is asked to lease its premises to another organization to make temporary use of their facilities for the purpose of convalescing patients. A paper packaging company is required to manufacture protective face masks for medical staff. A gin manufacturer agrees to change distilling operations to produce much-needed hand sanitizer lotion.
The coronavirus outbreak means that many companies have been requested or are actively seeking to change the occupancy at premises to meet current market demand or to support community needs — even large automobile manufacturers are switching production in order to produce parts for crucial respirators. Although such changes are necessary and to be highly commended, this can also result in new risk exposures to a location that may not have been previously considered or evaluated.
When facilities or operations are changed, especially under temporary or hurried conditions, the risk of damages from hazards such as fires, inadequate maintenance of new equipment, or incorrect storage of combustible liquids and materials can increase. Changes in operations and property use can also represent a material change in risk and may require a reconsideration of controls and protection.
Reconsidering controls and protection
In the case of the hotel leasing its premises for the operation of a temporary medical facility to treat COVID-19 patients, this scenario could likely involve temporary storage and use of medical gases and compressed oxygen cylinders on the premises, which would introduce potential new risks and hazards.
In the case of the warehouse making temporary use of its facilities for convalescing patients, risk considerations associated with such a change in operations could include, among others, responsibility for ongoing maintenance and cleaning of restroom facilities; responsibility for maintaining and monitoring all fire protection and life safety systems; responsibility for emergency response coordination; and responsibility for cleaning and disinfecting facility premises upon completion of temporary operations. Such considerations need to be adequately addressed.
Outside of these scenarios, other potential changes to risk profiles include surge protection on critical or sensitive equipment/electronics; electrical load changes from new/different equipment exceeding existing load requirements; equipment susceptible to water/moisture intrusion; increased volumes or variety of flammable liquids storage; storage of medical supplies and other cloth materials in suitable racks.
Risk considerations
A new risk bulletin from Allianz Global Corporate & Specialty (AGCS) highlights a number of questions for businesses to consider when preparing for changes in operations, including:
- Will the operations remain similar or change in some or many dimensions?
- Will there be storage of new materials or products to support the new operations?
- Will there be an increase in existing production levels or a change in storage arrangements?
Other impacts from changes in operations could include shifts in responsibility for the care/custody/control of the property/operations (managing hazards, preventative maintenance, site security, monitoring); risk transfer with third parties involved in new operations; waivers of liability; and changes in revenue/business interruption exposures. Businesses should consult with legal counsel, brokers and risk management staff to properly consider and address any changes in operations and risk exposure.
Businesses should also notify their insurance carrier, as coverage implications may result from a failure to disclose/notify material changes in operations or conditions.
To review the full list of recommendations, please visit Business Owners Preparing for Changes in Operations. All recommendations in the bulletin are technical advisory in nature from a risk management perspective and may not apply to specific operations. It is important for businesses to review any loss prevention measures carefully and determine how they can best apply to specific needs prior to implementation. Your local underwriter or broker can address any specific queries relating to insurance cover.
Scott H. Steinmetz, P.E., is the global head of MidCorp Allianz Risk Consulting at Allianz Global Corporate & Specialty (AGCS).
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