Advisen

Idle properties still face the usual range of risks, even in a pandemic

With businesses in every industry shut down due to the coronavirus pandemic, insurers are warning that idle commercial properties can still face losses, especially with spring flooding and hurricane seasons approaching, but there are steps clients can take even amid a lockdown to mitigate risks.

“While a facility might go idle, Mother Nature doesn’t,” said Brion Callori, senior vice president and manager of engineering and research for FM Global. The property insurer has about 1,200 properties that went into an idle status as a result of the coronavirus pandemic and has focused on alerting clients to what “safe shutdown” of buildings requires.

According to FM Global, even with a skeleton crew, businesses can effectively secure their properties against vandalism, theft, fire, and natural disasters. Part of prepping for shutdown also means prepping for future risks that a business would ordinarily face at this time of year, including putting up flood barriers or hurricane-proofing systems.

“Any of these events could delay a company’s rebound when the pandemic wanes, causing irreparable financial harm such as lost revenue, market share and reputational damage,” said Kevin Ingram, executive vice president and chief financial officer for FM Global. “Countless companies across many industries have paused operations around the world in what has been billed as the biggest factory shutdown since World War II, and more closings are expected.”

Focus on property security, and maintenance will speed up the recovery process once businesses are back on the job, say insurers. Property losses are frequently avoided by having people on the property regularly, but with shutdowns, that “alarm” system of noticing something going wrong has been limited.

“Short-term shutdowns are fast becoming the norm in many sectors, but companies still have to be vigilant about the risk environment,” said Nicolas Lochet, regional technical manager for Allianz Global and Corporate Specialty in a recent risk bulletin. "Businesses should also pay particular attention to the condition of electrical equipment and installations, as around 20 percent to 30 percent of fires we see are related to these. Meanwhile, inadequate, or postponement of, maintenance of equipment during a shutdown can result in a loss occurring at the worst possible time for a business – when it is finally able to restart operations.”

For many property owners, the shutdown risks can vary by type of property, according to James “Chip” Stuart, chief sales officer for Hub International of California.

Retail building owners may be feeling the strain of the loss of rents. They may also face higher costs due to hiring security, he told Advisen. Much of the recovery available hinges on whether the policy will respond. And as properties sit idle, owners also face the risk that vacancy clauses could kick in, if businesses are forced to close.

“It gets even more complicated, since policies have different definitions of ‘vacant’ or ‘unoccupied,’” Stuart said.

While some businesses have been “mothballed, for the time being,” said FM Global’s Callori, others have shifted purpose. Some facilities are being repurposed into hospitals and many manufacturers have shifted to making hand sanitizer and face masks. For those properties, FM Global has “pretty seamlessly turned out field servicing efforts into remote servicing” to keep tabs on the shifting risk via virtual walk-throughs.

“You’ve got industries that are booming,” said Callori. While FM Global hasn’t seen any claims yet at idle properties, the insurer’s policy offers some communicable disease coverage for clean-up. Those claims are “processing,” according to Callori.

Where property risk once focused significantly on the threat of fire, business continuity planning has now shifted to encompass a wide range of risks that could shut down productivity and global supply chains, including cyber threats, pandemic, and more.

“It’s not your grandfather’s old emergency plan,” said Callori.

“It’s human nature to focus on the most sensational risk, in this case a terrible one that’s commanding attention around the globe,” added Ingram. “Yet it’s important to remember that other serious risks haven’t gone away and continue to affect organizations’ resilience. Firms that stay vigilant are more likely to be the winners that get back to business at the earliest opportunity.”

Editor Erin Ayers can be reached at eayers@advisen.com