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7 COVID-19 Risk Management Lessons for Small Businesses

The coronavirus pandemic has been extremely difficult for businesses, and given the continued increase in the number of cases, both in the United States and around the world, it will no doubt continue to be disruptive for quite some time. Many of the more obvious issues relating to coronavirus have been widely discussed, including in our previous blog posts, but there are plenty of other things to consider that could affect your business going forward. Here are seven things for small businesses to keep in mind about COVID-19.


Supply Chains and Political Risk

We’re now aware of how just-in-time supply chains are susceptible to globally disruptive events. Supply chain problems have widespread effects, from limiting the availability of critical products, to keeping businesses, big and small, from being able to function. However, the initial disruptions from large-scale events are not the only thing to consider; increased diplomatic tension resulting from the pandemic, especially between China and the United States, will likely put further strain on the flow of goods going forward.


Post-infection Syndromes

As was the case with SARS, a certain percentage of those infected with COVID-19 exhibit a kind of “post-infection syndrome” after they’ve cleared the virus. Affected individuals can have difficulty breathing, muscle weakness, and issues focusing, among other symptoms. This will create difficulties for affected individuals and health systems going forward; however, as far as employers are concerned, long-term health issues among employees will not just complicate the return to a normal workflow, but will generate legal obligations that further compound the uncertainty surrounding the pandemic.


Disproportionate Impact on Minority and Low-Income Employees

The coronavirus pandemic has disproportionately affected minority communities in the United States; reports out of Houston, currently one of the more serious hotspots, highlight the vulnerability of the Latino community. Many factors contribute to the spread of coronavirus in these communities, including disproportionate representation in essential industries, greater population and household densities, lack of health insurance coverage, lack of legal immigration status, and income inequality.

Regardless of their specific background, individuals are at greater risk of infection if these specific factors apply to them or their community. Employers must take this potential for elevated risk into account when developing strategies to protect their employees and customers.


Inconsistent Impact on Different Industries

Some industries have been much more affected by coronavirus than others. If you’re in one of these industries, then you’ve certainly given a great deal of thought to what the future may hold, but even if you aren’t, you still need to consider downstream effects for your business.

For example, if travel is an important part of your business model, it’s likely that you’ve already found ways to mitigate the immediate effects of lockdown and infection. However, even assuming that the pandemic is controlled, it’s unclear how expensive – or available – flights will be going forward, with the early retirement of entire fleets and the potential for additional airlines to go bankrupt. There’s no doubt that the airline industry will recover eventually, but it could take several years.


Regulatory Changes

Governments will certainly enact new regulations in anticipation of future pandemics. For example, one researcher is calling for the government to implement stress tests for critical supply chains, in much the same way that financial stress tests were put in place as a result of the 2008 financial crisis. However, regulation will certainly extend beyond supply chains – we are paying particular attention to the effect that regulation might have on the employee/employer and tenant/landlord relationships that our clients have.

Under the Trump administration, such regulation might seem unlikely, given its deregulatory tendencies. However, state and local governments have increased regulation in response to President Trump’s efforts; this suggests the possibility of a confusing patchwork of pandemic-related regulations on a national level, further compounding expected complexity on the international level. If Joe Biden wins the elections at the end of the year, greater federal regulation is to be expected across the board regardless.


Changes to the Insurance Market

The coronavirus pandemic is a significant challenge for the insurance industry for several reasons. First, the lead-up to the coronavirus pandemic was marked by a “hard market” period of limited availability of coverage and high premiums.

More importantly, given their unprecedented and unpredictable nature, it is nearly impossible for insurance companies to appropriately price coverage for pandemics. In the past, there was limited demand for pandemic-related insurance, and most insurance policies were designed not to cover related losses. For example, business interruption insurance would cover government closures of businesses through something called Civil and Military Authority Coverage, but only in cases where nearby physical damage that is covered prompts the closure.

Despite a certain increase in demand for this kind of coverage, it is unclear if insurance companies will be willing to underwrite it in significant numbers in the short term. If government regulation requires insurance providers to extend coverage to pandemic-related losses in the future, this could prompt a significant increase in premiums for insurance policies until insurance companies develop new tools to measure future risk.


Insufficient Insurance Coverage

In considering the state of the insurance market, companies will also need to reassess the assumptions that underly their own insurance plans. For example, many larger companies have high-deductible workers’ compensation coverage, with the presumption that only a handful of employees would trigger the policy in any given year and that losses up to the deductible could be easily absorbed. This approach is likely to be reconsidered as time goes forward, given the potential risk of a large number of employees falling sick.

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