It’s beginning to wear on the insurance industry. COVID-19? Kind of. Moreover it’s the unexpected ripple effects of the outbreak on how lives are led, how insurance intersects life, how perspectives color how insurance news is celebrated or questioned. We’ve discussed much of COVID-19’s current effects on business and how the future of insurance will need to adapt. Let’s take this week to see insurance happenings through different lenses, or from a reverse of the Insurance Elephant- from differing perspectives as per sight-impaired gents in the image.
image- MA Devine
Patrick Kelahan is a CX, engineering & insurance consultant, working with Insurers, Attorneys & Owners in his day job. He also serves the insurance and Fintech world as the ‘Insurance Elephant’.
- COVID-19 cannot be overstated as being a health danger/terror. People have minimal control over exposures, and no control over the extent of symptoms if infected. Similar thought process applies in business livelihoods of employees and SMEs – there’s little control for an individual over business operations, closures, availability of customers, and recovery funds. Social distance helps in one aspect, but could be business fatal for the other.
- Reductions in driving due to implementation of working from home protocols and staying at home is resulting in renewal of discussions for mileage-based auto cover. While that’s being considered carriers in the US announce premium rebates (Allstate, Liberty Mutual/Safeco, American Family, and now Progressive) and/or premium credits for renewals (GEICO). Overall the rebates/credits are estimated to total $3.5 billion; contrast that with the findings of The Consumer Federation of America estimating US carriers are benefiting in additional profits in the amount of $2 Bn per month. Carriers need to ensure this does not become a PR issue like business interruption cover has. The upside? Fewer auto accidents.
- Government financial recovery programs have been announced in most countries, building optimism for the citizenry and businesses. Problem with government programs for disasters like pandemics is it’s easier to ramp up politicians/ rhetoric than it is to implement and produce the programs’ results. Example- US Small Business Administration has an effective economic injury loan program, in essence a working capital backstop. Plenty of funding has been planned but few loans processed to date. Scaling up and staffing has been a significant challenge.
The time is nigh for the SBA to hand off disaster financial response to fintechs and InsurTechs– the vetting process for disaster loans is just right to digitize, from app to approval to funds distribution. Just need to change some of the Code of Federal Regulation.
- AXA’s CEO, Thomas Buberl, has suggested formation of a government/insurer risk pooling scheme to hedge future pandemic responses by insurers. Other similar schemes exist for property damage; need to ensure more than just cost hedging is planned (see Ten C’s Project and broadening the spectrum of change).
- Lloyd’s offered a parametric hotel product last fall that would provide payments to hoteliers when occupancy rates fell beyond an agreed index. Few chose to participate; all now have regrets post-COVID. Whether there was sufficient capacity to take care of all potential interested parties will not be known. My drumbeat – parametric will become the cover of the coming decade.
- Worker injuries will be reduced due to business closures and work from home status (hmmm- what if an employee gets injured during mandated work from home sessions?), but potential high severity COVID-19 claims will be prompted for WC due to exposures during work. It’s not just state regulators in the U.S. who see the virus as a potential occupational disease, the Social Security Organization in Malaysia has deemed the disease as such, India has guidance to employers that WC applies if an employee contracts the disease (and has advised salary compensation applies for quarantine ordered staff). The Province of Ontario, Canada has also followed suit for WC guidance for essential workers .
- A promising entry into risk financing is the principle of Insurance Linked Securities (ILS), or capital vehicles used to hedge risk, provide coupon return, and widen the source of risk funding into the huge capital pool. Who wouldn’t want to obtain a return on bond investment that is greater than Treasuries, and certainly better than potential negative rates? Well seems the reinsurance world has some early grumblings that ILS are muddying the water and softening the rei market. The remarks in the market that ILS have a destabilizing effect can be read through as injecting some competition and perhaps scraping some cream off the glass of whole rei milk. Thanks to AM Best and Steve Evans of Artemis.Bm for that commentary.
As is typical- insurance doings are strongly influenced by perspective, and little is as it first seems. Stay safe and well.
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