May 1, 2020 by Canadian Underwriter Staff: Jason Contant, Greg Meckbach, Adam Malik and David Gambrill
Battle stations, everyone. This is not a drill. Repeat: This is not a drill.
COVID-19 has infected the world, and P&C organizations are not immune to the impact of the novel coronavirus. But a proper, well-rehearsed business continuity plan can help organizations inoculate themselves against a pandemic’s most harmful effects.
At the beginning of January 2020, in what now feels like a century ago, the World Health Organization first heard reports from China about the outbreak of the novel coronavirus. Three weeks later, there were 314 confirmed global cases of COVID-19, the disease caused by the novel coronavirus. As of Apr. 15, there were about 2.1-million confirmed cases of COVID-19 worldwide — including approximately 27,000 cases in Canada — and about 128,000 deaths globally (more than 903 deaths in Canada as of press time).
WHO declared COVID-19 to be a global pandemic on Mar. 11, 2020. Within two weeks, most of Canada’s property and casualty insurance professionals were working remotely from home, responding to calls from the country’s public health officials to prevent the spread of the virus so that the nation’s health care system would not be overwhelmed.
Canada’s P&C industry, which includes about 200 insurance companies and at least 1,770 brokerages, employed 128,300 people in 2018, according to information published by Insurance Bureau of Canada and the Insurance Brokers Association of Canada. That’s a lot of industry employees working remotely from home. But by most accounts, the transition was completed quickly, efficiently and effectively.
At the time of writing, the virus hasn’t yet reached a fever pitch. Three days into April, public health officials in Ontario predicted it might take between 18 months and two years for the pandemic to fully run its course. To forecast the economic impact of shutting down businesses to prevent the spread of COVID-19, Canada’s Parliamentary Budget Office assumed social distancing would remain in effect until August 2020.
So, as the pandemic drags mercilessly forward, and with the global economy on the brink of a major recession, the question becomes: What has COVID-19 taught us so far about business continuity planning in the pandemic age? How should we update our business continuity plans to prepare for the next pandemic?
Always be prepared
The pandemic is teaching P&C professionals, as well as their business clients, that it’s a good idea to have a business continuity plan.
“Certainly, a better-prepared company, a more resilient company, will be better-positioned for any unexpected event and will perform better, relatively speaking, during this pandemic,” says Eric Jones, vice president and global manager of business risk consulting at FM Global.
The thing is, Jones adds, “many organizations’ business continuity plans don’t address responses to pandemic risk or to worst-case scenarios in general, and those are being shown as very large omissions now. Additionally, pandemic-related policy decisions are being made by local, state and federal government officials in real time in reaction to the virus, making it difficult for businesses who lack business continuity plans. The types of lockdowns and stay-at-home edicts have varied greatly across the globe, for example.”
Research from Gartner indicates that fewer than 30% of Fortune 2000 companies have fully developed business continuity plans, observes Raymond Monteith, HUB’s senior vice president and practice leader in the area of organizational resilience.
“Certainly, in the midst of the event is not the time to begin preparing a continuity plan, so those organizations with limited or no plans in place are experiencing significant disruptions to their operations,” Monteith tells Canadian Underwriter. “They are forced to make difficult and sometimes urgent decisions they have not planned for and are unprepared to make.”
Chad Leibel, CEO at Leibel Insurance Group in Edmonton, says his brokerage was inspired to draw up a plan after seeing the impact of natural disasters on Alberta communities in Slave Lake (2011 wildfire), Calgary (2013 floods), and Fort McMurray (2016 wildfire). Should one of his offices be affected by a catastrophe, he says, “we needed to make sure that service levels remain high and people are answering calls to help out our customers in times of need.”
But a pandemic is no ordinary disaster, as the Canadian P&C industry is learning. The aggressive social distancing required to slow the spread of the virus has shuttered businesses, and the flow of supplies has been disrupted everywhere. Demand surge is turning out to be a major issue for businesses across Canada, particularly as the duration of the pandemic drags on.
“Generally, I think people associate business continuity plans with isolated events — floods, fire, also earthquake,” says Colin Simpson, CEO of the Insurance Brokers Association of Ontario. “And so, if you are at a bigger brokerage, for example, you may have multiple offices and part of your business continuity plan may be to revert to a different office. But in a situation like this, where [a pandemic] potentially affects the whole country, all at the same time, within a very quick timeframe, it certainly pays to have your planning in place.”
And so, what should a good business continuity plan have in place?
First and foremost, you need to establish communication trees to communicate internally within the organization. This can be done very quickly, Simpson says, and it involves figuring out whom to call when something needs to be decided. “What is the path for remaining connected when you all disappear to your home environments?”
But it’s not just a matter of communicating internally. You have to connect with the external world as well — including government agencies, suppliers, insurance carriers and broker partners.
“When it comes to these big scenarios, you need to get guidance from beyond the walls of your organization,” says Kareem Sadek, Toronto-based partner in the risk consulting practice at KPMG Canada. When it comes to a large-scale disaster such as a pandemic, risk managers need guidance from government and to keep in touch with local authorities who can guide them on how to react, says Sadek. “That linkage is faulty in many organizations.”
Communication with suppliers is also essential — and preferably before the crisis arises. “A lot of companies after this pandemic situation will take a look and say, ‘OK, who are our key suppliers?’” predicts labour and human resources lawyer James Fu, a partner with the law firm Borden Ladner Gervais. He cites telecommunications firms or other service suppliers as an example. “Have that discussion beforehand to say, ‘We understand that in a pandemic situation your services may be in high demand, or there may be products that are not available. Is there at least a point of contact to whom we can reach out in that situation so that we can try to ensure the availability of services or supplies for ourselves; so that we can service our customers?’”
Since the effects of the pandemic on the global supply chain shift rapidly, it’s important to make decisions based on the latest data available, says Chris Snider, interim head of risk services at Zurich Canada.
“One lesson learned [from COVID-19] so far is how conflicting information can have an impact on how some organizations have made decisions about their supply chain,” he says. “If you are following the advice of scientific organizations and understanding where the virus is moving, you can then use that information to solidify your supply chain.”
Emergency response team
Another lesson emerging from COVID-19 is the need for an emergency response team, representing all aspects of the business. The goal is to identify the go-to people who can make sense of the available critical information. It’s similar to having an executive committee that can make decisions quickly, as Fu explains.
For example, Western Financial Group has a specialist committee made up of 300 people who played a key role in setting up the brokerage’s 1,900 employees to work from home. “We call them a dedicated service team,” says Western CEO and president Kenny Nicholls. “They basically have a mandate to support all of our frontline people. We have IT specialists, marketing and digital specialists, communications specialists, HR specialists, and finance specialists.”
After Western first started to think and talk about closing its branches to walk-in traffic, “it took us about 24 hours to put everything in place,” Nicholls says. “And that includes providing people with playbooks. Early in the morning, before [our brokerages] opened, they had a complete list of instructions of what to do.”
Employee health checks
In a pandemic situation, Fu says, checking on the health of staff is crucial. How will companies handle an employee diagnosed with COVID-19?
“I think this pandemic has really shown the utility of having those plans set out in place,” he says. “What [will] the policies and procedures be once someone is identified with an infectious disease? How will you contact the customers? How will that contact happen internally? What will happen with the other employees who may have been exposed? Is it self-isolation? Self-monitoring? Those are the types of things that I think have come to fore.”
COVID-19 has the potential to disrupt smaller brokerages and businesses disproportionately based on size and geography, as the Insurance Brokers Association of Canada noted in an open letter to insurers.
“A real pandemic in the rural areas, depending on their local resources [e.g. capacity and proximity of local hospitals], would negatively affect certain brokerages more than others,” Simpson tells Canadian Underwriter. “I think the smaller brokerages may be at a risk of their whole teams getting sick if we can’t stem the pandemic quickly. If you are on a bigger team, you may be able to sustain a higher level of sickness in your staff before you end up at a critical point where you have to ask for help. It’s a scale piece.”
And that’s why cross-training should be a part of any business continuity plan. “We realized we need to have certain roles cross-trained,” Leibel says. “If our accountant goes down and is sick for a while, someone is trained to take over that role. We can’t go a month without transacting policies or accounting. We need to pay bills and collect that money as well. Without that, it could severely affect the business and the general workflow of the business.”
Today, IT is the engine of any business, wherever the employees work. But it’s one thing to have a few employees working from home on any given day; it’s quite another when a vast majority of Canadian workers are all operating from home. The strain on bandwidth for both teleconferencing and digital services has been noticed. There have been many tales of dropped teleconference conference calls and some have noted that residential internet service is slower than business internet service.
There is a difference, says Michael Strople, president of Toronto-based telecommunications carrier Allstream. Most residential internet service plans are “asymmetrical,” meaning the speed at which data is transferred to the home is much higher than the speed at which data is transferred from the home.
Note that a “bit” per second is a standard measure of how fast computers can send data to one another. A megabit per second is one million bps.
“You will get quoted the downstream number [e.g. the speed at which data is transferred to the home], so you have 50 [megabits per second] down, but you may find you only have 10 Mbps up [e.g. transferring data from the home], and that’s the nature of how most residential services are delivered,” Strople explains. “Typically, a business connection is required to be symmetrical, in that they will push data up as fast as they pull data down.” He cites Zoom, Webex and other conferencing products as an example.
Aside from having a good internet connection, Leibel says, working from home requires an Internet Protocol (IP) phone environment, which does take time to establish if it hasn’t been done already. “All these phones need is internet,” he says. “You could be in Tuktoyaktuk, NWT, or anywhere — just plug the phone in and it works. Previous to that, if you don’t have IP phones, you don’t have that flexibility.”
Leibel also preaches the importance of tech redundancy in case of server crashes or other system failures. “We moved over to a full cloud server infrastructure,” he says. “The reason why is because we used to have servers [but] if the server goes down, you could be down days or a week. By having these cloud servers, there is no downtime. If a server dies, we have multiple servers. It just automatically shifts people to the other servers. They’re not even on-site so that’s important to us.”
Leibel’s brokerage has even gone so far as to have two internet service providers. “We have 200 Mbps of fibre with Telus, which is quite high,” he says. “But if that were to go down, we have Shaw as a back up to kick in. So there again, we’re not going to experience any downtime.”
After the pandemic has run its course, expect the P&C industry to review some of the stresses placed on its paper-based business processes, Simpson says. For example, issuing paper cheques at a time when we are all supposed to be social distancing from one another.
“I think we in the industry still suffer from not being quite up-to-date on some of our processes, like electronic transfer of funds,” he says. “There are barriers to getting this stuff in place, one hundred percent, but we do need to be able to do things electronically. So, you might find that these priorities for businesses start to shift to accommodate that [in a post-COVID business continuity plan].”
Prepared for the next pandemic
Everything that P&C professionals are learning live, in real-time, during this pandemic should find its way into their organizations’ updated business continuity plans after COVID-19.
“What people should be considering right now is that this is a real event and when an organization comes out of this, they should be taking it seriously,” says Snider.
“We should not just be wiping our brow and saying, ‘Whew! Man, we made it through that.’ There has to be an action plan and organizations should start thinking about their supply chain. How did it perform during this event? And how would it perform during the next event?”
An updated business continuity plan should review the performance of all aspects of the organization’s performance, including the supply chain, so that the business will be better prepared for the next time. And there will be a next time, Simpson cautions. After the SARS virus in 2003 and COVID-19 now, it would be unwise to think a global pandemic could never occur again.
In an ideal world, businesses would have already battle-tested their business continuity plans in some form of an exercise or drill. Strople says his company conducts at least one trial run each year to test the business continuity plan in a crisis situation (pandemic is included in the Allstream business continuity plan).
And in this instance, COVID-19 has brokers such as Laura McQuarrie, marketing director at Gillions Insurance (based in Fort Frances, Ont.), as well as many other Canadian businesses, thinking about advanced preparation.
“I think revisiting that business continuity plan has definitely been brought to the forefront,” she says.
“It’s one of those things where you think, ‘Oh, yeah, we should make sure we have this,’ but then it gets put to the backburner as other things take priority throughout the year. But I think revisiting this when [the pandemic] is done and making sure it’s up to date [is going to be a priority].”