The Pandemic’s Impact on Business Insurance Coverage

With the pandemic and its consequent economic turmoil, new challenges and questions arose for companies, including the power and limits of business insurance coverage. To explore the pandemic’s impact on insurance coverage, I spoke with Todd Rhoads, vice president and professional services practice group leader at EHD Insurance. I wanted to find out what he is seeing in the business insurance arena.

De Stefano: What lessons should we learn from the pandemic in terms of insurance coverage?

Rhoads: The pandemic ground the economy to a halt, temporarily closed nonessential businesses, and pushed employees into remote work where possible. Disruptions in operations normally result in business interruption claims as companies seek to recover lost sales and increased expenses. Business interruption insurance, however, does not provide coverage if there is no property damage to the business, which was the case during the pandemic. The lesson here is to review contingency planning programs to minimize future disruptions.

De Stefano: What can businesses expect with property insurance over the next year?

Rhoads: In early 2020, we started seeing rate acceleration in most lines of insurance, most notably commercial property, umbrella, and director and officer liability. Today, we are starting to see rates stabilize. In the next 12 to 18 months, the hard market should shift to more consistent pricing in most lines of insurance. A notable exception is cyber insurance, where rates may continue to rise for several quarters due to recent loss activity.

De Stefano: Do you have advice for controllers and CFOs as it relates to business coverages?

Rhoads: Work with broker partners who can offer the claims and risk-control services that will help keep your risk-management program from ruining your bottom line. Price is only a small part of the equation. A trusted insurance broker can take a proactive look at the overall program to make sure you are properly covered and have appropriate risk-transfer options in place, and offer risk-control programs that will drive down overall cost. Communication is the key. Do you only talk to your broker once a year at renewal time? Do they know about new operations that might increase exposure? Do they update you on the market and rates so you can effectively budget the expense? Do you have periodic claim reviews? You should view your broker as an extension of your risk-management department.

De Stefano: As we emerge from the pandemic, what is the most concerning trend you see for business insurance?

Rhoads: The main concern is largely unknown as several areas of exposure are evolving: work-from-home arrangements, effective (and safe) use of technology, employee recruitment and retention. By far, the biggest concern right now is cyber risk. Ransom attacks are happening across all industries, to all sizes and types of companies. The insurance piece continues to evolve as a way to recover, but the biggest need is for enhanced cybersecurity programs at the client level. Clients need to examine their technology programs due to the increased use of remote workstations, cell phones, laptops, etc.

De Stefano: Are you seeing any changes to workers’ compensation premiums?

Rhoads: Workers’ compensation premiums and rates haven’t changed much over the past few years, and we expect that trend to continue. The pandemic resulted in fewer workplace injuries as operations shut down, so the results have been favorable. The main challenge here is adapting to remote work arrangements. Ergonomic exposures have always been a big consideration in workstation design; but with employees working from home, how can the company ensure that the workstation is set up correctly so it won’t cause issues down the road? What about other exposures in the home that might not be present in the office? Is a potential claim really a workers’ compensation injury? We haven’t seen much of this so far, but it should be on every company’s radar.

De Stefano: What is the most overlooked insurance area by businesses?

Rhoads: Cyber is no longer the most overlooked, but this exposure is still at the forefront of many insurance discussions. Many clients are still unsure of the need for a cyber insurance program since they haven’t been hacked. Truth be told, virtually every company has been visited by hackers. You may not know it, but chances are very high someone has been in your system looking around for something to steal or a way to disrupt your business to extort a ransom. Bad actors are now targeting businesses based on peak business seasons for the greatest impact. There are plenty of ways to protect your business, and having a comprehensive insurance product should be part of that protection.

I am appreciative of Todd Rhoads for sharing his insights. The pandemic was an unfortunate real-world stress test of our disaster preparations and business response plans. It is important that we carry those lessons forward and find a trusted insurance adviser to help manage this critical aspect of business continuity and asset protection.