Lessons in risk management: 2020 taught us as much as it challenged us

2020 may well go down in history as one of the most challenging years of the modern era. From the COVID-19 pandemic to civil unrest and a contentious political climate, this year required more flexibility and resilience from individuals and businesses than any in recent memory. Yet, these challenges also shed light on issues both old and new. And for those with an eye for opportunity, 2020 brought many lessons that can help grow and improve their businesses for the future.  

Here’s what we learned about managing risk that we’ll carry into 2021.  

Crisis management and business continuity planning  

The disruption businesses in nearly every industry saw this year made one thing abundantly clear—you need a business continuity plan. It’s essential if you want to be truly prepared for the future and safeguard your business.  

If you don’t already have a business continuity plan, make it a priority to create one as soon as possible. If you do have a plan in place, be sure to review and update it to include risks that emerged in 2020, including a global pandemic, civil unrest, rioting and vandalism.  

When creating a business continuity plan, it’s also a good idea to reach out to your insurance agent or broker. They can help you through the process, highlight additional risks you may not have considered, and ensure you have the proper coverage in place.  

Social inflation is real  

Social inflation (i.e., when the price of insurance coverage increases because of what’s going on in the world) can seem a little intangible as a concept. However, 2020 has shown that it is very real. Social factors over the last decade have resulted in not only harsher judgments, but also higher payouts in the court of law.  This is driven primarily by three factors: 

1. People distrust big business – From issues of privacy to economic inequality, jurors are more likely to side against companies in a suit. The result is an environment where it’s easier to sue companies and win large settlements, in turn driving up the costs of insurance claims and coverage.   

2. It’s easier to fund lawsuits – In the past, many plaintiffs were deterred from going to trial by the high cost of attorney fees. Now, third parties will cover the costs of litigation in exchange for a cut of the settlement. This leads to more lawsuits that go further, last longer and, ultimately, cost more.  

3. Massive verdicts are the new norm – Along with the cultural shift toward distrust for large companies, there’s a growing perception that companies can afford anything. This is why it’s now common to see multimillion (or even multibillion) dollar settlements. 

Fortunately, there are ways to prepare your business for the impacts of social inflation. Purchasing commercial excess insurance is a great start, as it provides coverage beyond the limits of your other policies. In addition, because employment practices are especially susceptible to social inflation trends, it’s a good idea to purchase standalone employment practices liability coverage. It’s also vital to ensure your company has sound policies in place relating to sexual harassment, workplace violence, etc. 

Ongoing challenges of the remote work environment 

It’s becoming almost cliché to say, but the truth is—business will never be the same. One of the biggest shifts resulting from the pandemic was moving employees to a work-from-home environment.  

When employees began working outside the security of an in-office network, cyberattacks immediately became more prevalent. According to one report, ransomware attacks jumped by 148% in March of 2020. It makes sense—the easiest way for a hacker to infiltrate your company is through your people –yet many businesses still do not have adequate protections in place. 

As businesses continue to operate in remote environments to varying degrees, it’s vital to ensure that you have the necessary network protections in place, train employees on security best practices, and ensure you have adequate cyber liability coverage. 

In addition to technological hurdles, the ongoing and often complex challenges for employers are more people centric. Between social isolation and distractions at home, employers must find ways to keep employees feeling engaged, motivated and valued, while continuing to serve customers and maintain productivity. To address these challenges, it’s essential to communicate regularly to employees about the business and plans for the future. Ensure expectations for work are clearly defined, celebrate wins often, and ensure employees are supported to maintain a healthy work-life balance. 

In conclusion 

When so few things are certain, it’s essential to prepare for the risks you can. Many businesses added incremental products, diversified their offerings, and changed the way they serve their customers and patients. These changes have helped many businesses stay afloat, or even thrive, during the pandemic. But new opportunities can bring new risks. Talk to your insurance provider about any changes in your business model to ensure you have the coverage you need.  

Bill Wilson is Senior Vice President for VGM Insurance Services. For more information about VGM Insurance’s risk management resources, get in touch today at 800-362-3363 or info@vgminsurance.com.