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The Rough Notes Company Inc.



August 26
09:27 2021

Risk Managers’ Forum

By Richard Rudolph


What lessons have risk managers learned and what challenges remain?

Just as COVID-I9 changed the way we humans interact, the virus also affects non-human assets.

For years, employers labored under the belief that employees had to be closely supervised to be productive, and that productivity was enhanced by having many employees working in cubicle farms and in the “bull pens” of large offices. But such concentration of employees was also conducive to a rapid spread of all respiratory diseases, including COVID-19.

The solution was obvious: To be even a little productive, many employees were ordered to work from home. What lessons were learned from this experience?

  1. Employer liability issues. The very first thing risk managers should do is ask themselves the following questions regarding employer liability issues exacerbated by COVID-19:
  • How do risk managers use loss control when employees are in their own homes and what other hazards might exist in a home environment that don’t exist in a conventional office?
  • What does “arising out of and in the course of employment” now mean? If an employee trips over an open desk drawer in the office setting, that appears to be a compensable injury under workers compensation statutes. But what if the employee trips over a child’s toy left on the floor in the home environment? Isn’t that essentially the same scenario? How does the loss control professional manage that hazard?

Diseases such as silicosis, black lung disease, and asbestosis arise out of and in the course of employment. But what about breathing virus-laden air in a conference room? Yes, lawyers can argue that the illness was contracted virtually anywhere, not just in the quarry, mine, or boiler room, but it also takes a lawyer to argue the opposite, and that expense figures into the Total Cost of Risk to the risk manager.

  1. Increased workplace violence. The Federal Aviation Administration reported 3,000-plus incidents of unruly passengers causing flight delays or diversion in the first six months of 2021. There were only 150 incidents in 2019. A 30% increase in murders, most of which are committed with firearms, also worsens this potential harm. Closer interaction with human resources professionals can help to find potential acts of workplace violence, de-escalate worrisome situations, and provide counseling for involved persons. Naturally, this concern requires paying close attention to the provisions in various insurance policies.
  2. Increased drug use. Another lesson has to do with increased usage of drugs, both legal and illegal, that may arise out of the frustrations of quarantines, masks, social rules, loss of employment, and general elevated levels of stress. This problem may result in production issues of quality and productivity, workplace violence, workers compensation, health insurance, and vehicular accidents. Risk managers must work closely with human resources, production managers, and traffic managers to develop and implement effective loss prevention and mitigation strategies, and also review current insurance policies.
  3. Non-human assets. Because COVID-19 is a human ailment, much of the risk manager’s attention is focused on workers compensation, workplace violence, and drug abuse. However, that does not mean that property exposures are not affected by the pandemic. Just as COVID-19 changed the way we humans interact, the virus also affects non-human assets. One example of a changed property exposure, and one that has long-term implications, has become clear as employees shifted from a high-density workplace environment into a decentralized, work-from-home mode. The conventional wisdom of close supervision in a central location to keep employees working productively has clashed with digital-native generations who can easily be supervised by electronically monitoring their work activity at remote locations. The stigma of working from home has lessened since digital natives are tech savvy and able to communicate effectively on social platforms like Zoom, Skype, or Microsoft Teams. So, what do we do with those large office buildings that now appear to be unnecessary?
  4. Cost reduction strategies. Another property exposure that requires reevaluation affects businesses with inventories of raw materials, work-in-process, or finished goods. Marketing and production managers are concerned about minimizing inventory carrying cost, the costs associated with warehousing (rent, utilities, and salaries), financial costs (opportunity cost), perishability or shrinkage, and insurance. Two common strategies often considered are Economic Order Quantity (EOQ), a method of determining the most economical order size that minimizes total carrying and ordering costs, and Just in Time (JIT) production, a method that aligns material orders with production schedules so the minimum level of inventory is carried. While both systems are useful in minimizing inventory carrying costs, they bring with them a serious risk of production disruption or much higher ordering costs when there are disruptions to the supply chain. COVID-19 caused a serious and still-lingering disruption to shipping, both internationally and domestically. This problem requires risk managers to pay more attention to the levels of insurance coverage on inventories in storage and in transit. The “minimum” amount of coverage suggested by EOQ or JIT strategies may be inadequate given the likely sporadic flow of inventories as firms catch up on production. Perhaps there will be renewed interest in various reporting forms to minimize premiums.
  5. Earning coverage. Related to the inventory problem caused by supply chain disruption is the disruption of earnings and need for earnings coverage. Again, risk managers must pay attention to insurance limits and possible use of reporting forms.
  6. Is “people business” gone for good? Last, COVID-19 has disrupted the social aspect of doing business. Insurance and risk management have always been “people” businesses where relationships are highly valued. From the earliest days of marine insurance and the doctrine of uberrima fides or utmost good faith, underwriters and insureds sat across from each other and worked out the details of insurance. COVID-19 wedged us further apart. Thankfully, technology and social media platforms have made meetings, conferences, training, sales presentations, and underwriter presentations possible without a meeting room or travel expenses. Reducing travel expense also reduces travel hazards and potential risks to employees, another form of loss control.

Virtual golf, anyone?

There may be a hidden benefit (or curse) to conducting sales presentations via social media platforms with respect to the errors and omissions exposures. For example, presentations can be recorded, thus enhancing the memory of both parties as to what was said or not said. What is still to be seen is if internet golf will replace live golf as a means of developing business relationships between prospects and producers. Probably not.

The author

Richard G. Rudolph, Ph.D., CPCU, ARM, ARP, APA, AIAF, AAM, entered the insurance industry in 1972 as a sales representative for a major insurance company. In 1992, he joined a risk management consulting practice as a principal, and in 2010, he formed a consulting company to provide risk management and insurance education. In addition to being a national faculty member for The National Alliance for Insurance Education & Research, he was the primary editor of Risk Management Essentials and the author of Net Income Risk Management. For more information on the National Alliance’s Certified Risk Manager (CRM) program, visit

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