Working in the insurance industry and developing exposure management solutions for insurers, I deal in risk every day. However, in the last 100 days or so since China reported its first case of the coronavirus, risk has taken on a much more personal meaning for me.
Like billions of people worldwide, at the time of writing this, I’m currently adjusting my life in response to a major global risk, in order to limit its repercussions. I am now working from home full time and adapting to a temporary new reality.
Like all major events that change our perception of risk, COVID-19 will most definitely make an indelible mark on our psyche for years to come.
COVID-19 has blindsided many people across the world. Not one country is immune from infection, despite some countries reacting quicker to close down their borders and send everyone home, literally.
Once we are over this crisis, governments will, if they haven’t already, be launching investigations into their response to the outbreak and whether the measures they put in place were quick enough to reduce the impact of coronavirus. We are still in the midst of the pandemic and league tables are being drawn up on which countries are ‘doing the best and worst jobs fighting coronavirus’.
The silent risk
In all my time working in exposure management, pandemic risk was not something that was habitually discussed. Sure, it featured somewhere, but I never really saw it talked about as a high priority risk to be addressed with any urgency. That’s partly because the last worldwide pandemic, the Spanish Flu, occurred over 100 years ago, and people’s minds tend to be drawn to more recent events. When we talked about risk, there was a natural tendency to focus on those front-of-mind risks such as natural catastrophes, terrorist attacks, or cyber incidents.
Pandemic, perhaps one of the more obscure threats in the pantheon of risks, has proven to be one of the most disruptive risks on a global scale.
The IMF has projected that the global economy will face its deepest recession since the Great Depression, with the global economy expected to contract by 3% in 2020. Some countries are likely be hit even harder, with the UK’s Office for Budget Responsibility predicting a scenario in which the economy will shrink by 35% in the second quarter, and by 12.8% over the year as a whole.
Pandora’s box of exposures
The economic repercussions of worldwide lockdowns are still to be seen, but what we have witnessed so far is that a pandemic highlights the fact that we can have potential exposures across many classes of business. In many countries, all businesses have closed down except for those that provide essential services and products like supermarkets and pharmacies.
These Business Interruption exposures on their own would be enough to put many insurers out of business if they were forced to pay them. The legal battles over these claims are still playing out in the courts, but there are more concrete losses in other lines of business.
Some of the most significant losses are expected to be in the Credit Risk line of business because of the expected closures of businesses in affected sectors like travel, entertainment and retail. If the recession does worsen as expected, this is likely to spread to losses in other industries also.
We may potentially see losses for workers’ compensation due to illnesses or fatalities in connection with traveling for work to an infected area, or through being forced to work in unsafe circumstances.
Other forms of cover including Event Cancellation, D&O, General Liability and Medical Malpractice policies may be affected depending on policy wordings and legal judgements. General economic and societal affects may give rise to secondary forms of loss, particularly if there is a reduction in the efficiency of the emergency services.
Reinsurance losses are expected to be limited, given that most BI cover excludes pandemic. However, insurers are under pressure to interpret policies in a way that will support businesses, so this might change.
Looking forwards, there is potential for a spike in demand for pandemic insurance now, with dedicated policies or extensions. Although some will say that instigating pandemic cover now is a little like closing the stable door after the horse has bolted, the reality is that a pandemic disease is like an invisible wildfire which crosses borders and infects people when there is no immunity. In today’s mobile society, with thousands of daily international flights and where new diseases have no vaccine, we would be foolish to think that we are 100 years away from another pandemic. Moreover, because public and government awareness of pandemics is now at a high, the response to a future outbreak of a new virus is likely to be much more swift and severe than previously considered possible. This is likely to mean that similar economic disruption could be felt sooner in future outbreaks.
Reigniting the economy through insurance
The insurance industry has a pivotal role in helping communities and businesses to recover financially from COVID-19 and to show that it supports society when it’s at its most vulnerable.
Developing solutions to close the coverage gaps for pandemic risk is vital for the insurance sector, which is why at AdvantageGo, we’ve been working hard behind the scenes to bring pandemic support to our Exact products, and help our customers evaluate potential losses due to the ongoing pandemic. We have ensured that clients are able to rapidly assess their potential losses across all of the affected lines of business, including assessing potential BI exposures across their entire treaty book. With insurers looking to be more flexible in how they meet the changing needs of their clients, we believe it is important that they can rely upon robust, flexible tools that allow them to manage their risk effectively.
Helping insurers pay legitimate claims over in the coming months is one of the fundamental ways of helping and reigniting our economy. We want to provide insurers with the best possible solutions so they can better service policyholders and ensure that we all get back on our feet, fast.
In the meantime, I hope you and your families, colleagues and communities remain safe and unimpacted.
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