How to assess risk, review insurance coverage during pandemic

It has taken the COVID-19 crisis for many businesses to re-evaluate the amount and types of commercial insurance they should buy. Many recently found that their policies don’t cover pandemic-related losses, according to Gies Professor Lynne McChristian.

“Understanding risk is at the core of good business decision-making, yet we have much to learn," said McChristian, director of the Office of Risk Management and Insurance Research at Gies College of Business. "We never think bad things are going to happen to us or in our lifetimes. The mistake that many companies make is thinking in terms of how little insurance do I need, when the question should be ‘What is my vulnerability?’” 

McChristian is the latest expert to share their perspective as part of the College’s COVID-19 Global Challenges in Business webinar series. Her session, “Coronavirus and Insurance Coverage,” is available here. McChristian explained enterprise risk management is interdependent and includes financial, operational, and business risk. The range of risk exposures is immense, including natural and man-made disasters, supply chain losses, and cyber risk.

Business interruption insurance, for example, is designed to cover loss of business income during a shutdown period and extra expenses due to a covered peril.

“Business interruption policies are added on to standard coverage, such as commercial multi-peril and business owners policies, yet only about one-third of US businesses purchase them. They will pay out during a pandemic only if virus and bacteria are not excluded. Going forward, the key is first knowing what your risks are, then correctly estimating the time it would take to recover if a catastrophe hit your business. There are resources to help you figure that out,” McChristian said.

She suggests using an insurance provider as a risk advisor who can help answer these questions about preparing for the unexpected:

• What are your risk exposures?
• What controls do you have in place to minimize the downside?
• Do you have the right systems to track and measure risks?
• Do you have the right people and skills to manage the risks?

McChristian also advises that companies should keep their eye on potential COVID-19-related legislation, including the Pandemic Risk Insurance Act of 2020, and the Business Continuity Protection Program, introduced by insurance trade groups, which would be run by FEMA.

“This series continues to share important advice from our Gies faculty experts to help you respond to the business risks of coronavirus and better succeed through it,” said Brooke Elliott, Associate Dean of Online Programs and EY Distinguished Professor of Accounting at Gies.