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Tech, Media & Telecom (TMT) Industry Brief

Risk management and insurance briefing in response to COVID-19

Risk & Analytics|Insurance Consulting and Technology
COVID 19 Coronavirus

June 1, 2020

Insurance and risk considerations for the TMT industry surrounding people, assets, financial issues and cybersecurity while navigating during and after COVID-19.

This short briefing serves the following purposes;

Checklist – to share feedback on operational client issues and frequently asked questions that Willis Towers Watson colleagues have received during these past few weeks. This briefing is applicable to tech, media and telecom companies, although we appreciate relevance will vary by organization. We group issues under four main headings; People; Assets; Financial; and, Cyber.

Points of view – to provide some initial thoughts for consideration to help during an intensely challenging time when your focus is clearly on your business. Further support can also be offered if more information would be helpful.

Looking ahead – to raise awareness and trigger some thinking as to crisis consequences and potential future challenges that may be faced. Thinking beyond the here and now, once we transition back towards a more ‘normal’ situation.

Checklist - operational risk management and insurance issues

Technology, media and telecom companies are contributing to the fight against COVID-19. The whole industry is providing vital services to deal with the global pandemic in hugely challenging and uncertain circumstances. The following list is far from exhaustive and is intended to highlight some of the most commonly raised issues and challenges to be aware of and consider in the context of your own TMT organization. You may wish to prioritize accordingly and no doubt, there will be many other issues not mentioned below that need to be considered. Please do reach out to your Willis Towers Watson contact to discuss the relevance of any of these or other issues.

People

Key workers and duty of care – there is likely to be an immediate and ongoing employee exposure to COVID-19. You have a duty of care to your employees from health and safety perspective. Ensure your policies and decision making regarding the provision of Personal Protective Equipment (PPE) and many new working practices are clear. There has already been much media attention around PPE supply, distribution and the prioritization of resources and clearly significant concerns are warranted. It is recommended the recorded narrative and context is properly crafted and accompanied by statements which portray best interest decision making.

Employees working from home – non key workers have been required to work from home and again, the employer has a continued duty of care to employees to ensure a safe working environment at home. Consider clarity of working practice, provision of IT and help-desk support, conducting home working self-assessments and providing training and awareness around ergonomics. For employees moving to more permanent home working arrangements, consider whether reclassing these employees to ‘Telecommuters’ will impact your workers compensation premium.

Employee’s returning back to work – As your company pivots into an uncertain “new normal”, you will need to ensure compliance within the COVID-19 environment to include health & safety measures around personal hygiene, employee social distancing, and employee education to reduce the exposure of this disease. In restoring stability, you will need to prioritize your concerns and understand specifically how COVID-19 is impacting your organization.

Social distancing rules – there is a huge impact on certain roles within the industry such as infrastructure creation and maintenance, installation and service provision, content production etc. You must do your best in what is practically possible, so again record policy and decision making and revisit both as circumstances change.

Employee COVID-19 Testing – If providing testing at your business premises, such as temperature checking, consider conducting a specific risk assessment for this activity including identification of PPE and equipment to be used, personnel to carry out testing, where testing will be conducted and the probability the risk will result in an incident. Insurers may consider this activity a ‘medical professional exposure’ which falls outside of your current General Liability coverage. Consider whether additional insurance is required to cover the exposure created from this activity.

General employee wellbeing – the relationship between employee and employer may come under strain, if not currently, then perhaps retrospectively. Look at what support you currently provide to employees, ensuring the frequency and style of employee engagement has been adapted. Concern has been expressed for employees in many scenarios, examples include; remote working; need for isolation; staffing levels being under strain; stress; burnout; general feeling of fear and anxiety; dealing with grief; and many more.

Assets

Notifying insurers of changes in organizational business model – please remember your duty to disclose material facts to your commercial insurers. Obvious examples of significant notifiable changes may include; changes in the provision of services; closure of R&D facilities; and, significant changes to revenue and payroll. The same principle will also apply once we transition back to work.

Engineering inspection services – some surveyors have been deemed key workers and we have received confirmation that most insurers will continue to carry out some engineering inspections, with inspection companies prioritizing critical service providers given their criticality. On the other hand, we know some maintenance engineers have cancelled scheduled inspections and maintenance services for sprinkler systems, specific facilities and other technical equipment. Insurers have acknowledged that these are exceptional circumstances, and many have relaxed their approach to requirements, but we recommend you confirm with your advisor or insurer. We also recommend you consult a Property Risk Control expert regarding loss prevention in idle facilities, sprinkler system inspections etc.

Exposure to Natural Perils – As we approach the storm season, consider what measures need to be put in place to handle damage caused to key infrastructure as a result of natural perils, including the personnel required to make critical repairs.

Unoccupied premises – there is a need to check property insurance policies for an “Unoccupied Premises” clause as it is common for insurers to apply conditions for premises that will be closed for long periods. These clauses can include a requirement to turn off all sources of power, fuel and water at the mains; regular internal and external inspections of the building; and to secure letter boxes. Your policies should be reviewed to ensure all the conditions are met. Also, there is likely to be restrictions in coverage like malicious damage and escape of water. While most insurers are removing their unoccupancy conditions, some will apply after 30 or 60 days of unoccupancy. Again, best to check with your advisor or insurer.

Intellectual Property – In economic downturns, companies monetize their patent assets as an alternative revenue stream through licensing, litigation, or sale. Opportunistic patent monetization entities backed by large hedge funds and private equity funds are the primary purchasers of those assets. There is increased misappropriation of trade secrets due not only to employees working from home and increased network vulnerabilities but also to laid off, disgruntled employees. Coverage for most IP risks, including patent infringement, is not included in standard lines of insurance but standalone insurance coverages are available to address these exposures. Contact your risk advisor for effective ways to financially manage these risks.

Motor insurance – you may have seen some press coverage reporting that some personal auto insurance companies are giving money back to their customers because people are driving less during the pandemic. For example, Allstate, Geico and Liberty Mutual have all claimed that they will refund about 15% of premiums paid by customers during specified time periods. The personal auto market is a very profitable segment - in contrast to the commercial auto market. We have no expectation that there will be any similar initiatives for commercial auto policyholders.

Financial

Business continuity plans and building organizational resilience – it is likely that plans have now been reviewed and you have captured lessons learned. Something perhaps to also consider again post crisis given the likely governance focus and regulatory drive to do so.

Insurance cost containment – there may need to be significant changes to rateable (insurance premium) values such as revenues, wage-roll, motor vehicle usage or other. There is potential for insurers to be flexible in some circumstances even if a policy was written as non-adjustable. The circumstances clearly vary on a case by case basis, but as you prepare for upcoming renewals the use of analytical tools to adjust forecasts and empower outcomes becomes more and more important. Plan now for 7/1 renewals, remodel your exposures and determine if your insurance and risk management structure is optimized for the future and tuned to new financial realities of the business. Please speak to your advisor or insurer for further clarification.

Cashflow – if cashflow may be a challenge, consider paying annual premiums by instalments via premium financing arrangements. Please speak to your advisor or insurer for further details. Please note, providers may need supporting information about how the business is affected by COVID-19 and what measures are in place to mitigate financial pressures – expect a request for financial information such as latest management accounts.

COVID related Loss Tracking and Quantification – the accurate quantification of loss costs is certainly advisable if a claim is to be considered and, potentially, for reasons other than insurance. There may be governmental funds made available (e.g. FEMA, CARES Act) that will require a valuation of the loss. Forensic accountants are available to assist with the preparation, support and quantification of economic damages resulting from COVID-19 related costs.

Accelerated Claims Closure – projects should be considered for organizations in favorable cash position.

Capitalize on provisions of the Coronavirus Aid, Relief, and Economic Security (CARES) Act

  • Corporate Net-Operating-Loss (NOL’s)The CARES Act enacted on March 27, 2020, provides a temporary five-year net operating loss (NOL) carryback for losses generated in 2018, 2019 or 2020, which may allow your company and other taxpayers to generate immediate cash flow through the recovery of prior federal income taxes (with carrybacks to years prior to 2018 creating a refund of $0.35 cents per dollar of NOL in lieu of only $0.21 cents per dollar using current corporate tax rates).
  • Employee Retention Tax Credit – The CARES Act provides for a refundable payroll tax credit of up to $5,000 per employee for qualifying employers that have fully or partially suspended operations or experienced a significant decline in gross receipts related to the coronavirus pandemic (credit based on comp, including certain health plan costs, paid from March 13, 2020, to Dec. 31, 2020).
  • Accelerated Alternative Minimum Tax (AMT) Refundability – The CARES Act provides that remaining minimum tax credit carryovers from AMT years become 100% refundable in 2019 or, alternatively, corporations can claim a refund for the unused carryover in 2018 by filing a tentative refund by December 31, 2020.

Tax insurance can provide the needed certainty with respect to the carrying back NOLs and to claim tax refunds without concern that the NOLs or refunds may later be challenged by the IRS. Contact your risk advisor for effective ways to financially manage these risks.

Balance sheet management – you may be required under Generally Accepted Accounting Principles (GAAP) to book a liability on your balance sheet for the potential negative tax outcome of an uncertain tax position taken by your company. The booked liability can have a negative impact– for example the reserve could cause a failure to meet the debt/equity ratio covenant under the terms of a credit agreement. Tax insurance if timely placed can help avoid having to book such a liability.

Cybersecurity

New systems and applications – every organization will be more reliant on IT than ever before. Reliance on mobile apps and homeworking has likely increased your exposure to network breaches and personal data security. Understand which new systems and applications are being used and assess how this impacts the overall cyber risk position within the business.

Personal email addresses – It may be necessary to periodically remind staff to only use approved IT systems when handling personal data and not to send it to their personal e-mail addresses. Whilst this may allow them to do their job, it does increase the risk of it being compromised.

Increased phishing activity – criminal organizations are targeting businesses with coronavirus themed e-mails. Ensure that your organization takes regular backups and can defend against ransomware attacks. You may want to consider increasing the number of times when you take backups, and plan for a worst-case scenario of your network being taken offline (think pen and paper).

System updates – continue to patch and update systems as soon as possible after release. Ensuring your business is secure online remains key to minimizing your cyber risks.

Future crisis consequences and challenges

Having highlighted some of the issues that our clients have faced and have reached out to our Willis Towers Watson teams for support, we now seek to raise awareness and trigger some thinking as to other crisis consequences and potential future challenges yet to be faced. Thinking beyond the here and now, once we transition back towards a more ‘normal’ situation.

Crisis Management and preparedness for future pandemics – it is important to recognize what your business has learned, what needs to change and how can you as an organization be more resilient and better prepared next time.

Important: Make sure your broker and insurers are advised of any business changes

Finally, a quick reminder that as an insurance policy holder you are under a duty to make disclosure of all material circumstances and to make that disclosure in a manner that would be reasonably clear and accessible to a prudent insurer. This duty applies equally at policy inception, at annual renewal, alterations and where the insurance contract conditions so stipulate. A factor or circumstance is “material” if it would influence the judgement of a prudent insurer in deciding whether to underwrite the risk and if so, at what premium and on what terms.

Appreciating that you will clearly be focused on operations and the provision of services and responding to new and evolving challenges, it is advisable to summarize the major organizational changes or other significant developments that change the risk profile of your organization. Provide either a concise written summary or have a direct conversation with your broker who should be able to convey such overall messaging to your insurers. This will go a long way to avoiding potential dispute later.

Contacts

Please contact your Willis Towers Watson servicing team if you wish to receive advice regarding your insurance policies or for further risk management advice. Alternatively, please visit the Willis Towers Watson COVID-19 website for the latest information and articles.

Willis Towers Watson are here to support you, your colleagues and service users in these extraordinary times.

Disclaimer

Each applicable policy of insurance must be reviewed to determine the extent, if any, of coverage for COVID-19. Coverage may vary depending on the jurisdiction and circumstances. For global client programs it is critical to consider all local operations and how policies may or may not include COVID-19 coverage. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal and/or other professional advisors. Some of the information in this publication may be compiled by third party sources we consider to be reliable, however we do not guarantee and are not responsible for the accuracy of such information. We assume no duty in contract, tort, or otherwise in connection with this publication and expressly disclaim, to the fullest extent permitted by law, any liability in connection with this publication. Willis Towers Watson offers insurance-related services through its appropriately licensed entities in each jurisdiction in which it operates. COVID-19 is a rapidly evolving situation and changes are occurring frequently. Willis Towers Watson does not undertake to update the information included herein after the date of publication. Accordingly, readers should be aware that certain content may have changed since the date of this publication. Please reach out to the author or your Willis Towers Watson contact for more information.

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