The COVID-19 pandemic has transformed business risk. Its effects on risk are likely to persist into the long term, changing the way businesses and insurance companies evaluate and respond.
Long-term pandemic-related risks reach beyond the danger of infection. They include cybersecurity, supply chain disruption and a host of other areas that can impact both businesses and the insurers that provide their coverage.
COVID-19 Changed Business-Customer Relationships
As the COVID-19 pandemic swept the country, individuals, government bodies and businesses all changed their behavior to reduce the spread of infection. Governments issued orders to stay at home or shelter in place, declared states of emergency and required some businesses to close. Both workers and customers flocked to digital platforms in order to work, shop and handle transactions remotely.
As the pandemic wanes, some business activities are returning to a state familiar from the pre-pandemic world. All are doing so, however, with keen attention to how COVID-19 has changed their assessment of business risk.
Risks in Reopening
The risks involved in reopening business premises to the public have occupied minds throughout the country for most of 2020. Reopening poses both well-understood risks and new risks that are less well understood.
Businesses that reopen must focus on three goals: Controlling transmission of the virus, running the business itself and maintaining a healthy, safe workplace, writes Steven Haynes, assistant professor and director of the risk and insurance program at the University of Texas at Dallas. While all three will require attention for the duration of the pandemic, the third will extend beyond any official end to the current situation.
Maintaining a healthy and safe workplace includes running business operations in a way that reduces transmission risks. It also encompasses compliance with OSHA and other applicable standards, and it requires businesses to pay attention to the requirements of their own insurance policies.
Worker Risk Post-Pandemic
An end to the COVID-19 pandemic will not mean that the virus has disappeared from the environment entirely. Instead, it will likely become one of the many adverse health conditions workers and customers can encounter in the workplace environment. Businesses must continue to account for the virus as well as for other injuries and illnesses that may occur.
Even workers who do not contract COVID-19 itself may find their health impaired. “The response to the crisis is to preserve physical health by controlling the spread of infection, but necessary measures put in place to do this can increase risks in other areas,” writes Letitia Rowlin at Willis Towers Watson.
Specifically, pandemic responses like remote work and social distancing can lead to mental health problems for workers. Just as with physical health issues, mental and emotional health issues can pose risks for employers who ignore these issues in their employees.
Ongoing Risks in a World After COVID-19
When the pandemic first hit, many businesses and insurance companies focused on the immediate risks associated with in-person transactions and disease spread. Now, several months later, many organizations are looking at what it will mean to continue business in a digital environment or to reopen in a world altered by the pandemic’s demands.
Digital Risk for Post-Pandemic Businesses
The need for social distancing accelerated the pace at which businesses moved their operations online. A McKinsey study found that “one-third of surveyed companies have accelerated the digitization of their supply chains, half have sped up the digitization of their customer channels, and two-thirds have moved faster to adopt artificial intelligence and automation,” notes McKinsey executive editor Mark Staples.
As businesses move online, however, they have also opened themselves up to digital attacks. Many businesses moved rapidly to a remote or online-only approach, making compromises to keep the business running that also left the organization open to attack.
Fifty percent of respondents to the World Economic Forum’s COVID-19 Risks Outlook survey said that they feared increased cyberattacks as a result of the pandemic, writes Emilio Granados Franco, head of global risks and geopolitical agenda at the World Economic Forum.
“These concerns are merited. Hasty and unplanned decisions related to digital transformations will add substantially to the spate of cybersecurity issues,” write William Dixon and Maninder Singh at the World Economic Forum.
While some of these issues have already become apparent, through security checks or after cyber attacks, others are likely to remain dormant for months or even years before they are either discovered by IT staff or exploited by hackers. Both scenarios pose risk for a business and for its insurance company.
Ongoing Business Disruptions Following COVID-19
Even when an official end to the pandemic is declared, workers and consumers will take some time to readjust their pandemic-related habits. Some may never fully shift back, preferring to work remotely or shop online rather than visit stores in person.
For businesses, global supply chain disruptions may cause ongoing business issues. “Supply chain impacts will linger longer than the COVID-19 outbreak, and this implies that equity market volatility will remain high,” write Frederick Gentile and Lucy Stanbrough at Willis Towers Watson. Here, businesses will also be affected by their locations. Companies located in countries that rely heavily on trade will be affected more and for a longer period than comparable businesses elsewhere, Gentile and Stanbrough predict.
Many businesses that rely on supply chains for raw materials, equipment and other inputs may switch to a more storage-oriented approach. “Companies will have to plan inventories more strategically, stocking up some in some places to support flexibility without eating up too many resources,” says Aaron Parrott, a managing director at Deloitte.
Businesses are finding creative ways to insulate themselves against supply chain disruptions. For example, some manufacturers have begun to stock spare parts rather than rely on just-in-time supply chains that have been derailed by the pandemic, says Paul Lerigo, marketing manager for Mettler-Toledo Product Inspection. Steps like these can help a business avoid the need to invoke its coverage for supply chain disruptions, reducing its risk and the risk its insurer faces.
How Insurers Can Adapt to Changing Risk
The COVID-19 pandemic presented a trial by fire for businesses and insurance companies. Entire industries were forced to change rapidly, only able to determine after the fact how well those changes worked and what their negative effects were.
The pandemic still demands adaptation, and it will likely continue to do so even when it is no longer an immediate threat to public health. Insurers can adapt as well by focusing on a few key areas, like cybersecurity.
As long as digital methods are used to connect a business to its suppliers and customers, cybersecurity risks exist as well. Renewed attention to cybersecurity, then, must extend well into the future.
“The pandemic has brought a renewed focus on several areas of cybersecurity, including identity management, cloud security, secure collaboration and employee ‘cybersafe’ education,” writes Donna Glass, global risk advisory leader at Deloitte. “Pandemic-driven digital transformation has accelerated the need for organizations to fully embrace these and other functions, to enable a secure digital ecosystem for the next normal.”
Insurers can also improve their positions by creating risk metrics that evaluate future risk, writes Reid Sawyer, leader of the Marsh & McLennan cybersecurity consulting services in the U.S. When future risk is taken into account, insurers can more effectively evaluate trade-offs between resilience and efficiency for businesses, as well as other factors that may spell promise or disaster.
The COVID-19 pandemic came with a host of unknowns for businesses and their insurance companies. Our understanding of pandemic-related risk continues to evolve as we learn new information about how the virus spreads, causes symptoms and responds to treatments.
While our approach to COVID-19 may continue to change, its capacity for presenting risks that persist beyond the moment will stay the same. Insurance companies that understand these risks are better equipped to inform business customers and provide value, building stronger, more loyal relationships.
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