Interrupting the COVID-19 business interruption: Now what?
Once operations have stabilized post-COVID-19, how can businesses refocus strategic plans for what comes next?
There are 25 million small businesses in the U.S., 30 million questions regarding what comes next after COVID-19, and now, how do other risk outcomes like damage from rioting and vandalism dovetail with COVID issues? Let’s add, how do we prepare for future pandemics and concurrent perils?
There, we just queued up enough to fill a book, but we’ll start with this article, which provides guidance for insurance agents and brokers to share with their clients or to follow themselves.
The immediate physical actions that are suggested to be taken when your business reopens have been covered in a prior article; certainly worth a read but not to be considered the sole source of your actions. Be sure to check with your local municipality first. Governments should have a lot of information for you dealing with health concerns, shutdown and opening rights and responsibilities, sources of personal protective equipment (PPE), and sources of rules for hygienic practices. The practical stuff.
Communicate with your insurance broker about your plans to reopen. There may be updated coverages, updated policy wording or endorsements, carrier communications or notices of premium rebates of which you should be aware. An important requirement for most policies is that the insured notify the carrier if there are any material changes to how the insured business operates (I’ll bet you forgot to tell them you were closed, right?)
Keep up the paperwork
Make and keep good records of the costs the business interruption (BI) caused your business. If you have not already done this, do it before you reopen the business. Even though your carrier has indicated you have no cover for business interruption now, something may cause a change down the road. Knowing and memorializing the loss now may save you a lot of time and aggravation later. At a minimum, your accountant will need the information at income tax time.
Handling those logistics sets the stage for the “interruption of your business interruption” ― opening the door to staff and customers. Clearly it will seem a lifetime since the doors were last open, and there will be a dichotomy of business muscle memory and new actions needed. If yours is a multi-employee business, be sure all understand the physical, health and hygiene requirements needed in the post-COVID-19 environment. This article doesn’t cover all physical operations requirements, but a backstop all businesses will need is good records of protocols in place and compliance with them.
Clear communication is critical
Is your business the same as it was before the COVID-19 shutdown? Same supply chain, vendors, customers, staffing level? Even if all remains the same, little will remain the same. Communication is more important now than ever: Customers are uncertain, staff are uncertain, you are uncertain.
Don’t force convention; convention left on the first train when the business environment closed down in March. You’ll figure it out but communicate the issues and that will prompt effort from everyone in figuring it out.
The new interruption
Once the reopening dust has settled and operations have stabilized on a new post-COVID-19 normal, is there is a need to revisit any strategic plan your business has prepared? Surely the financial portion has been made moot by the shutdown and needs attention! In many parts of the country, even that statement is outdated because of civil unrest activity, physical damage, staff inability to work, creating a potential new business disruption set that overlaps the prior period dictated by COVID-19 closures.
Let’s talk about the potential overlap of COVID-19 and civil unrest and the multiple issues involved. The physical part is scary, uncertain and potentially dangerous, but it will resolve in time.
It seems unnecessary to say, but if you have damage to insured property, make a claim as soon as possible. Prompt notice is another important condition of your policy and providing the agent and carrier a “marker” that your firm had physical damage will help support claims for indirect damage, for example, business interruption costs.
You may not have knowledge of all related civil unrest damage now but trying to backdate a claim can pose problems to all concerned. Having your carrier on notice for property and financial damage may aid in unexpected liability or workers’ compensation claims down the road. Even if there are aspects of direct or indirect damage your carrier denies, having the audit trail of reported damage could aid you in your application for government aid programs, for example, Small Business Administration loans. Now is the time to leverage any benefits that may be available.
Bridging to what comes next
Now that all that dust has settled from any pandemic or civil unrest claims or activity, sit back and consider: What coverage was not present in my policy for a loss I incurred, or what program did I fail to qualify for?
The biggest donut hole in most businesses’ pandemic policies has proven to be business interruption. The lack of physical damage to covered property generally was the barrier to triggering that cover, as were coverage exclusions for contamination or viral outbreak. What attention did you give BI cover before COVID-19, and what attention have you given it since?
Some systemic risk will occur in the future, whether it’s a pandemic, cyber event, climate change effect, flooding, or other risk that insurance policies are not expected to cover. A systemic risk is generally not covered because occurrences affect a wide spectrum of customers in a business sector, geography or even a community. A risk that can’t be mitigated by a carrier through underwriting practices (diversifying risk) becomes a potential financial disaster for a carrier. But your business can plan for such an occurrence.
Your first step might be comparing coverage across multiple carriers to see whether there is a carrier that serves systemic needs better than your current carrier. BI cover differs widely among carriers, and it’s a financial disaster in the waiting (you know that now) if the cover is not present or if it doesn’t address your needs. Do you need cash-flow backstopping, gross profit assistance, payroll backing, or some other measure of help if your business is interrupted? And if no carrier has better cover, now what?
Alternate risk planning action can include a regimented effort to set aside funds, establish ready lines of credit, build a network of peer companies that can pull together, or create a support group upon whom you can call when things happen.
- Do you have an action plan to communicate with your customers when something happens?
- How about redundancy in your supply chain in the event of collapse of particular markets or business sectors?
- How are your relationships with banks, your attorney, and your accountant?
- Do you have a business continuity plan?
- Does your municipality have a business support plan?
We all have heard of legislative proposals that are meant to solve the BI response problem; if there was an easy solution or an affordable indemnity solution would that not already exist? Let’s get past the interruption to COVID-19 business interruption and work on some innovative solutions. But in the meantime, what is your plan for what the next time?
Patrick Kelahan, better known as “The Insurance Elephant,” is a building consultant and forensic market strategist with H2M architects + engineers, and many years’ experience in the insurance industry. He can be reached at pkelahan@h2m.com, and you can follow him on Twitter at @InsuranceEleph1. The opinions expressed here are the author’s own.
Related: