Covering Coronavirus: Risk Considerations

EPIC Risk Advisory Bulletin

Volume 2, Issue 8

In this issue, we take a focused look at:

1. Supply Chain and Business Risks
   • Air Travel Forecast
2. Insurance Products and Coverage Information
   • How Climate Change is Impacting the P&C Industry
   • Manufacturing Companies Face Increased Cyber Risks
   • Business Interruption
   • Presumptive Compensability
   • News of Note
3. Human Resources and Employee Benefits
   • New OSHA Head Could Implement Tough Coronavirus Standard
   • Federal Tax Credits for Businesses That Vaccinate Employees
   • Updated Masking Guidelines for Vaccinated Individuals
   • Recognizing and Addressing Employee Burnout
   • Insights from Across the Firm

The information presented here is intended to provide a high level overview of critical areas of concern for businesses around coronavirus. Consult your EPIC insurance broker for more in-depth guidance.

Supply Chain & Business Risks

Air Travel Forecast – Looking Up?

The Airports Council International Europe released its air travel forecast for 2021, saying it does not expect air passenger volumes to fully return to pre-pandemic levels until 2025. As of the first week of April, air traffic at European Union airports were 86 percent below passenger levels from April 2019 – a loss that sets the industry back to 1995 traffic levels.

As coronavirus variants emerge, and nations continue to advise against non-essential travel, the agency forecasted traffic levels down from negative 52 percent in January to a forecasted 64 percent drop for the remainder of the year.

In the U.S., the Department of Transportation released its April 2021 Air Travel Consumer Report (ATCR), which was compiled from data from February 2021 and shows airline schedules continue to be significantly impacted by the coronavirus pandemic. The number of flights (350,170) was more than forty percent lower, when compared to February 2020 levels (623,103).

Of the flights scheduled in February 2021, nearly 6 percent were cancelled. Still, numbers are above the all-time monthly low of 180,151 flights seen in May 2020. Airlines with the fewest cancelled flights were: Hawaii Airlines (0.1%), Frontier Airlines (1.5%) and Delta Air Lines Network (2.4%).

As an aside, tarmac delays of more than three hours were up in February from January and more bags were mishandled by airlines.

Both of the reports spell bad news for the airline industry, which has been devastated by the pandemic. The entire sector is expected to be smaller for the next several years. Long-term effects could include: more stringent hygiene and safety standards; increased digitalization and mobile app usage across the industry; and changed traveler behavior. Business travel will take longer to bounce back, and is estimated to reach only 80 percent of pre-pandemic levels by 2024.

As McKinsey reports, business travel often doesn’t fully recover after crises, noting that was the case after both the September 11 Terrorist Attacks in 2001 and the recession of 2008. Additional insights from McKinsey include the possibility that the size of planes and cabin layouts will shift in the years to come to accommodate more leisure traffic as airlines wait on business travel to return. It is also likely that ticket prices will rise, as airlines look to recover from staggering losses and debt levels.

Insurance Products & Coverage

How Climate Change is Impacting the P&C Industry

As debates over business interruption coverage continue, a less often discussed threat lurks just beyond the bounds of public debate – the effect climate change is having on property and casualty insurance. Even as wildfires and storms become more frequent and severe, both remain covered perils under commercial policies. However, if damage continues to scale upward, coverage could be impacted.

The 2020 hurricane season saw 30 named storms and 13 hurricanes, up from the average of 12 and six, respectively. Another above average season is predicted this year, with 17 named storms, eight hurricanes and four major hurricanes predicted. The length of fire season in the West is stretching out, both beginning sooner and ending later. In the Sierra mountain range, fire season has lengthened by 75 days. Additionally, there were more than 5,000 additional wildfires in 2020 over the number recorded in 2019. A changing climate may be driving both the frequency and severity of hurricanes and wildfires.

Modeling for pricing on policies may need to be updated and informed by climate change scientists. Clients can also prepare themselves by creating business continuity plans for catastrophic weather scenarios, and gain a better understanding of how a lengthened and more severe hurricane and/or fire season may impact operations. Any retrofitting actions that could better safeguard a building from the threat of severe weather are also worth consideration.

A report produced by AIR Worldwide, the Brookings Institution and AXIS Capital Holdings argues that climate change may increase storm surge losses in traditionally hard-hit cities like Houston, Miami and New York by 20 percent to as much 33 percent by 2050, and that damages could extend farther inland as well.

There are other risks related to climate change, however, that aren’t typically covered, such as perils caused by temperature increases, including crop damage caused by drought, and death to vulnerable populations. Such impacts to the latter could affect the life and health insurance industries over the long term. While a shorter frost period could lengthen the growing season, offsetting damages caused by drought, aquifer drainage is also occurring, adding yet another variable to the mix. Sea level rise is certain to impact coastal areas and cause disruptive flooding to many areas.

Clients, insurers, brokers, scientists and governments will all need to work collaboratively to design innovative, forward-looking solutions to these critical problems as relates to risk management. For more information, contact an EPIC broker.

Manufacturing Companies Face Increased Cyber Risks

It’s no secret that ransomware and other cyber-attacks have been on the rise during the pandemic. As more employees connect to networks remotely, cyber criminals have upped their activity to try to hack into systems, steal information, create havoc and demand ransom.

It may come as no surprise then that the manufacturing industry is experiencing increased levels of ransomware attacks, according to a Dragos report. The manufacturing industry saw triple the number of ransomware incidents last year. A report from Digital Shadows found that while no industry was immune from ransomware attacks in 2020, the industrial goods and services sector experienced nearly a third of all attacks. This amount was significantly higher than the next-highest named group (Construction), which experienced only 9% of all attacks. Other significant sectors included Technology (8%), Retail (7%) and Food and Beverage (5%).

The manufacturing sector’s reliance on industrial and networking assets exposed to the internet put it at increased risk for cyber-attacks. Ransomware, with the ability to disrupt industrial processes, poses the greatest threat to manufacturing operations, since an interruption there would create a destructive ripple effect through supply chain processes. This would impact a greater number of businesses connected to that supply chain.

Additionally, intellectual property theft of proprietary and confidential manufacturing processes is also a threat. Network-connected industrial equipment is particularly vulnerable as an access point and should be assessed by owners for potential security enhancements. Industrial and networking assets connected to the internet are at a high risk for being exploited by ransomware attacks, which use them to gain initial access to a manufacturing company’s network.

A thorough review of systems, equipment, networks and managed service provider partners is recommended to identify potential weak points and bolster security in advance of an attack.

For more information, contact an EPIC team member.

Business Interruption Update

As vaccinations continue to roll out across America and local governments begin easing restrictions, a feeling of normalcy is beginning to return in many places. Glancing back, it’s easy to see the industries which were hardest hit during the pandemic – the travel and hospitality industry suffered an estimated $1.1 trillion in losses. Hospitals and healthcare systems lost $323 billion. Many major retailers declared bankruptcies and millions of small businesses are expected to close forever in 2021.

Over the past year, many businesses have turned to the courts to seek financial relief through business interruption policies with the expectation of  coverage. Most cases have been decided in favor of insurers, causing plaintiffs to get increasingly creative with arguments as to why their policies should cover their losses.

Recent examples include a New Jersey wedding venue, which argued before a federal court that its policy’s virus exclusion didn’t preclude coverage since its losses were due to a government order and not the coronavirus. In Ohio, a class action law suit makes the same claim, while the insurer notes the reality that judges there have already denied the validity of such a position.

In a case brought by Bradley Hotel Corp., an insurer in Illinois argued that forcing insurers to pay out on business interruption claims related to the pandemic would bankrupt the industry and prevent other policyholders from receiving payouts on covered losses.

In North Carolina, Novant Health is attempting to recoup pandemic-related losses by taking a subsidiary of Zurich to court for breach of contract, arguing the insurer refused to honor its obligations or fully investigate a valid claim under the system’s $1.5 billion policy.  While the case was initially filed in state court, it was elevated to federal court on April 16. Novant’s argument hinges on the court finding Zurich responsible for paying claims under the “Time Element section” of the policy.

In Texas, a small spice and tea business lost its bid to gain coverage from Continental Casualty Co. because it could not prove its physical loss was caused by government shutdown orders.

Finally, the U.S. Court of Appeals for the Eighth Circuit is currently considering whether business closures due to the pandemic should trigger business interruption coverage. In that case, Oral Surgeons is appealing a U.S. District court’s decision to deny it coverage. The appeal argues that nothing in the language of its policy supports the insurer’s argument that a covered loss must involve tangible physical damage. For more information on this evolving situation, contact an EPIC broker.

Presumptive Compensability Legislation

As of this writing, 16 states have enacted coronavirus presumptions. Several more are considering them, adding to the extant presumptions in place for first responders. A review of the landscape presents a picture of a tide beginning to turn in favor of workers. While most coronavirus presumptions are rebuttable, employers must take particular care to provide safe work environments, even potentially remote ones.

States continue to introduce both coronavirus presumptive compensability legislation and liability shield laws in an effort to deal with the expected flood of liability lawsuits related to the coronavirus. In South Carolina, the governor is pushing the state legislature to approve a bill that would prevent lawsuits against businesses and other groups by individuals who contract coronavirus, provided state and federal health guidelines were followed by the business. In New Jersey, a bill passed, which provides supplemental benefit payments to the dependents of essential workers who died from coronavirus during the course of their employment.

As this remains an evolving issue, the National Law Review has compiled a helpful list of the state, territorial and local government policies (proposed or passed) in response to the ongoing coronavirus pandemic. It is organized by state and is available online at www.natlawreview.com

For more information, contact an EPIC broker.

News of Note

The passage of another two weeks has brought forth more developments across the insurance world. Here is a rundown of recent news stories of interest.

• OSHA Cites Warehouse After 23 Workers Contract Coronavirus, Business Insurance, April 28
• OSHA Moves Closer to Emergency Temporary Standard on Coronavirus, Safety and Health Magazine, April 28
• State Lawmakers Opposed to Coronavirus Vaccine Mandates File a Flurry of Bills, USA Today, April 27
• Health Care M&A Deals Set Record Pace as Economy Recovers, Bloomberg Law, April 27
• Europe to Set Global Vaccine Standard, Axios, April 27
• Arkansas Lawmakers Pass Telemedicine Bill, Business Insurance, April 21
• Burning Man Might Require Proof of Vaccination for Attendees, CA Public Radio, April 21

HR & Employee Benefits Insights

A New OSHA Head Could Implement Tougher Coronavirus Standard

Doug Parker, the former head of the California Division of Occupational Safety and Health, has been appointed by President Biden to lead the national Occupational Safety and Health Administration (OSHA). If Parker is approved by the Senate, some believe a renewed focus will be placed on enforcement, rather than education, and that burdensome emergency temporary standards could be implemented.

If California provides any indication of what could be expected nationally, increased penalties and violations could occur under Parker’s direction. There, expansive requirements for employers addressing coronavirus communication plans, hazard mitigation, personal protective equipment, testing, quarantining and infection prevention measures were implemented. It raises the possibility of a more expansion emergency coronavirus standard being imposed upon employers at a national level.

Ultimately, business leaders could experience a more aggressive and robust approach to workplace safety enforcement. Employers should take renewed care to ensure all safety and health programs are compliant with OSHA rules and standards, even if such standards weren’t enforced as heavily during the previous presidential administration.

If confirmed, Parker would be the first Senate-approved federal OSHA chief since 2017. For more information about how this announcement may impact your business, contact an EPIC team member.

Federal Tax Credits Offered for Businesses That Pay Employees to Get Vaccinated

As a push continues across America to increase the number of adults being vaccinated for coronavirus, the Biden administration is doing what it can to make it as appealing as possible for employers to be involved in the process. On April 21, President Biden announced it will offer tax credits for businesses with fewer than 500 employees, that pay employees who take time off to get vaccinated.

The government would reimburse businesses for the cost of giving workers up to 80 hours in paid time off to get vaccinated and recover from any side effects – what amounts to up to $511 per day, per worker vaccinated, through September 2021. The tax credits, which were authorized under the most recent round of coronavirus aid, would apply to companies employing roughly half of private sector workers.

The announcement came as America crossed the 200 million shots-given threshold. For more information, contact an EPIC team member.

Updated Masking Guidelines for Vaccinated Individuals

The CDC has updated its guidance for fully vaccinated individuals regarding masking and outdoor activities. If you are fully vaccinated, the CDC says, you can resume many activities you ceased engaging in during the pandemic. According to the CDC, fully vaccinated individuals can:

• Walk, bike, hike or run alone or in small gatherings outdoors without masks
• Gather indoors with fully-vaccinated people without wearing a mask or staying six feet apart
• Gather indoors with unvaccinated people of any age from one other household without masks or staying six feet apart, unless any of those people or anyone they live with has an increased risk for severe illness from coronavirus
• Travel without getting testing or self-quarantining

The CDC continues to recommend mask wearing in crowded outdoor venues like sport stadiums, in indoor public settings and when gathering indoors with unvaccinated people, including children, from more than one other household.

Read the CDC’s full guidance online at www.cdc.gov

For more information, contact and EPIC team member.

Recognizing and Addressing the Signs of Employee Burnout

While employee burnout is a reality employers should always be watchful for and eager to address, the need to recognize and address it has grown during the pandemic, particularly in the financial sector. Reports indicate that the financial sector is experiencing a surge of mental health issues, made more intense by the pandemic.

In response, JPMorgan, as one example, is encouraging employees to take more personal time offline and will enforce policies in place intended to protect junior bankers, in particular, from working on the weekends. Call center employees are also experiencing increased fatigue, and other issues related to being isolated at home. Senior bankers are responding with encouragement and support that ranges from free therapy to online yoga to holding managers accountable for checking in on their direct reports’ wellbeing.

Learning to spot the signs of burnout can help employers take steps early to protect and care for employees. Signs may include the following:

• Exhaustion caused by sleep deprivation, which may also be connected to anxiety and depression
• Mistakes brought on by an inability to concentrate or remember important details
• Physical illness
• Depression
• Irritability
• Cynicism

While any one of these signs may be disconnected to the pandemic or working differently during it, all are sensitive issues that should addressed carefully, thoughtfully and with the utmost confidentiality by employers. For more information, contact an EPIC team member.

Insights From Across the Firm

EPIC thought leaders have written numerous articles on matters relating to coronavirus, all of which are available on EPIC’s website. The most recent articles include:

• CPWR Releases Report on Construction Fatalities, April 28
• Vaccine Incentive Programs, April 27
• JDXComp Program Highlights, April 27
• Today’s Healthcare Trends Impacting Tomorrow, April 26
• Are You Ready for Healthcare Disruption?, April 26
• 2021 Employee Benefits Compliance Webinar Series, April 22
• The Other Health Provisions in the American Rescue Plan Act, April 21

Conclusion

Our understanding of coronavirus and its impact around the world continues to evolve at a rapid pace. This newsletter briefly touches on issues that businesses may want to consider as they approach their response to novel coronavirus. More topics will be considered in future issues as our understanding of the virus and its impact continues to evolve. Please reach out to your EPIC broker for more information.

For all of EPIC’s coronavirus coverage, visit epicbrokers.com/coronavirus 

Disclaimer: This has been provided as an informational resource for EPIC clients and business partners. It is intended to provide general guidance on potential exposures and is not intended to provide medical advice or address medical concerns or specific risk circumstances. Due to the dynamic nature of infectious diseases, EPIC cannot be held liable for the guidance provided. We strongly encourage readers to seek additional safety, medical and epidemiological information from credible sources such as the Centers for Disease Control and Prevention and the World Health Organization. Regarding insurance coverage questions, whether coverage applies or a policy will respond to any risk or circumstance is subject to the specific terms and conditions of the policies and contracts at issue and underwriter determinations. 

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