How can captives play a role in getting back to business during COVID-19?

With the recent spike in numbers, the coronavirus doesn’t seem to be going away anytime soon. And with a second wave of COVID-19 likely on its way later this year, many employers are recommitting to the planning and coverage of their businesses during the pandemic and looking for ways to prepare for uncertainties. Addressing such unique circumstances has proven to be overwhelmingly difficult, but necessary. To get back to business, employers need to think strategically – arming themselves with resources, continuing to enforce safety precautions, and also educating themselves about coverage options for nontraditional exposures. Captives may be one alternative as businesses prepare for a second wave; read on to learn more, and plan to connect with our team to further discuss these and other trending issues during the upcoming Vermont Captive Insurance Association (VCIA) Virtual Annual Conference 2020, taking place August 11-13.

We recently had a Q&A with two of our affinity experts, Marcia Giesler and Tom Hebson. You can click to listen to the full podcast here, and we’re also sharing highlights from our conversation below.

As companies assess their return-to-work strategies, what are some areas they should focus on during this transition period?

Every employer's goal is to ensure their employees feel safe as they return to work. The first and arguably most important step is communication. Employees want to know that they have resources at their disposal — whether it be ergonomic evaluations, various workplace social distancing measures or clinical services. Another component to ensuring employee safety is understanding who’s coming and going in the workplace. It’s important to be aware of and have the ability to track where specific exposures are coming from in an organization. This is part of the overall safety strategy and back to business strategy, as it reassures employees that the company is keeping a close eye on their surroundings and that all the safeguards are in place.

Many states and municipalities have their own rules and regulations, so how do organizations with multi-state operations cope with the challenges of developing a back to business strategy amid multiple guidelines?

Between state and local regulations, governors’ executive orders and the federal government, information is coming to employers from all directions. Employees are also witnessing constant changes as they watch the news or surf the internet. For employers of all industries and all sizes, keeping track of the changes, understanding what rules are required, and determining how to enforce them is clearly a challenge. Again, communication is key. So much is unknown and the unknown scares people, so the ability for employers to arm themselves and their employees with information and resources as things change is critical in getting people in and out of the work environment in a coordinated and safe way. Partnering with a team to create a purposeful back to business strategy is so important to helping companies move forward with confidence.

What coverage restrictions are your clients seeing in the market that will impact their business decisions as they go forward? How can captives be utilized to improve financial protection?

Certainly in the last few months of COVID-19 exposure, employers have revisited their policies to see what is covered and what is not. A lot of that relates to the event itself. So as we’ve seen the coronavirus spread across the United States — aggregating in certain areas, large cities in particular, many employers are checking to see what would be covered for their policy. The first question is whether or not they have coverage. If they do, is there a clause specific to a pandemic? Is there a communicable disease endorsement that might include getting the virus through contact at the workplace? Does the exposure cover one employee/occurrence or multiple? All of these questions are important, specifically in regard to workers’ compensation exposure.

On the other side of that, they potentially have business interruption exposures. So the question becomes whether or not they are covered in their business interruption coverage. If a business has shut down its operations for an extended period of time, they’ve certainly lost revenue and that lost revenue causes disarray and in some cases bankruptcy in the U.S. marketplace. Predominantly, pandemic coverage has not been included in a lot of policies and contracts, especially from a business interruption standpoint. There’s a lot of uncertainty. This also rolls into the civil discourse that we have seen in the U.S. Multiple types of exposures are hitting risk managers’ desks and employers hope that they have coverage, but they also understand that in some cases, they’re going to have to find alternatives in the future.

Many carriers have asked us to track activity coded for COVID-19. The fact that Sedgwick has made an effort to capture and track all COVID-related reported losses and that we are maintaining a database supports the captive side of the equation. Captives are potentially going to gain in relevance as solutions for organizations lacking in coverage or finding themselves underinsured, allowing them to insure or re-insure themselves for other losses. Sedgwick’s data will help risk managers or financial teams assess the risk they might take (or may want to take) through a captive arrangement. They may create something that wraps around a communicable disease endorsement or they may want to look at business interruption expectations and losses. This information we’re gathering will be critical for captives as they address their risk appetite in the future.

At Sedgwick, we are partnering with our clients each and every day in developing their back-to-business plans and strategies. Getting back to business may be a challenge, but we will continue to share resources to help you along the way. Let’s move forward, together.

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