How to Update Risk Management Programs to Suit a Post-Pandemic World


COVID-19 and the virus containment efforts that come along with it have created various challenges for businesses. These include increasing insurance exposures and liabilities. Captive insurance companies need to internalize the impact of the pandemic (and the post-COVID-19 era) on their risk retention programs. With healthcare workers and employees in other essential industries being subject to higher risks of contracting the virus, there could be heavy implications on workers’ compensation claims and retained health insurance.

Industries such as hospitality, transportation, retail, and service have been upended by shelter-in-place orders, which alter insurance exposures dramatically. Because of this, CEOs and CFOs, as well as controllers, have to carefully consider how the pandemic will affect reserve liabilities, claims activity, and corporate appetite for risk.

Self-insured plans will pay a significant portion of the pandemic healthcare costs, given that many companies retain insurance risk. More than 60% of workers with employer-sponsored coverage plans, usually bigger companies with 200 or more workers, are in a self-insurance arrangement. At this point, it’s hard to estimate the pandemic’s impact on health plans because of the uncertainty regarding infection rates and changes to the consumption of standard healthcare services.

Other claims may also arise. Issues such as mistreatment, discrimination, or privacy violations concerning workers getting infected may lead to an increase in claims activity for employment practices liability. The significant shift to remote work set-up can also lead to claims that may arise from a more laidback working environment.

Given the insurance issues that are emerging, companies with self-insured plans and captives need to take specific action steps to update their risk management programs to function well in a post-pandemic environment. Those with self-insured plans have to strike a balance between maintaining daily operations while adapting to the changing business environment. With the help of captive insurance lawyers, those companies can take the following actions to re-evaluate their risk retention programs.

Create a COVID-Centered Risk Management Program

Risk management and self-insurance are highly intertwined. To have a successful insurance program, a company should also have a high-quality risk management program in place. The pandemic gave birth to new risk management challenges. Employers need to unite government mandates into their current safety programs. This involves developing protocols for social distancing, outfitting the workplace with personal protective equipment, and providing support to infected employees.

Also, companies should think about dealing with the possibility of what they call “epidemic waves” until the time comes that effective prevention and treatment is available.

Assess Claims Potential

Companies have to thoroughly understand the impact the pandemic insurance claims will have on their business. It’s important that plan sponsors monitor changes to regulations that could affect the plan’s financial performance. Emerging laws and regulations should be tracked as well to weigh the possible impact on claims on workers’ compensation, health insurance, and liability coverage.


Track and Adjust Insurance Claim Exposures

If a company went through significant employee reductions, then they should hold out for corresponding reductions in healthcare exposure and workers’ compensation. There should be a decrease in liability costs if customers are not allowed to enter the building. There should be lesser claims if the company’s automobile fleet has stopped operations.

Update Reserve Estimates and Forecasts

Reserve liability for unpaid claims is recorded on the balance sheet of the self-insured company’s financials. A credentialed actuary typically estimates this liability and often comes with a forecast of the incoming year’s claims. Actuarial reserve liabilities and projections should be updated to reflect COVID-19-related claims and exposures. If a company performs only actuarial reviews, they should seriously consider doing an interim actuarial review to know the effect of the changing environment on the financials and cash flows.

Re-Evaluate Risk Tolerance and Desired Retention Level

A company experiencing cash flow constraints and financial stress should consider decreasing their risk appetite and maximize cash flows. Because of the pandemic, commercial insurers will likely adjust premiums or modify other policy features. The organization should collaborate with their risk manager or insurance broker to decide the appropriate insurance coverage for them.

Many bigger firms have at least some type of risk retention strategy for managing risk and lowering the insurance costs. This includes working with captive insurers and self-insured plans. This will remain effective even after the pandemic era as long as it’s properly managed. However, it’s essential to evaluate the foreseen financial impact of the virus on any insurance program and then study the risk appetite. After this, plans should be managed proactively moving forward, making use of the five steps above.

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