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Rethinking Risk Management in a COVID-19 World

If there was ever a moment for risk managers to shine, this is it. In many companies, risk managers have won kudos because backup plans have made the transition to telework smoother than it easily could have been (though I feel awful for those working in restaurants, hotels and other businesses who have been furloughed or fired because their jobs simply can’t be done at a distance.) Even when there have been unanticipated problems–and so very many companies face problems that go well beyond any telework issues–no one can play down the importance of risk management in a world turned upside-side so suddenly by the COVID-19 health crisis and the economic chaos that has followed.

Last week’s “Future of Risk” conference, held by The Institutes, hit some risk-management themes that I think will be key as we all prepare for the new normal, and I’ll highlight the boldest one I heard. It came during the opening session, a panel moderated by The Institutes’ CEO Peter Miller.

Markham McKnight, CEO of BXS Insurance, said the U.S. needs a national risk strategy, rather than the current piecemeal approach–one bit of legislation providing flood insurance, one addressing terrorism, etc., with much of the work being done through emergency legislation crafted in the middle of the crisis that a virus, a hurricane or a wave of wildfires produces. A robust national strategy would provide an overarching framework for assessing all the risks and for funding ways to reduce those risks, as well as to pay for redress when the inevitable occurs.

“The absence of a national program leaves us just kicking the can down the road,” McKnight said. “Legislation gets renewed, but only so we can keep doing business.”

He said there should be a national risk pool in the U.S. that would take a comprehensive look at exposures and suggested the insurance industry could provide leadership on how to quantify and mitigate the risks.

Tony Kuczinski, CEO of Munich Re America, agreed with the need for industry involvement, saying he had signed a letter encouraging such a plan. “It’s four or five times as expensive to fix a problem after the fact than it is to be proactive,” Kuczinski said. “You just have to have the stomach to tackle the problem up front.”

Joan Lamm-Tennant, CEO of Blue Marble Microinsurance, which operates in the developing world, said she’d “globalize those thoughts.” She said she’s “experiencing a real call to action on behalf of governments and quasi-governments and a willingness to work more with the private sector.”

She recommended a model along the lines of the Terrorism Risk Insurance Act (TRIA), enacted in the U.S. in 2002, following the 9/11 attacks. Under TRIA, insurance is provided via the private sector, but government acts as a backstop. That backstop “gradually recedes as the private markets get more data and get stronger,” Lamm-Tennant said. Such a public-private approach, she said, would let us avoid setting up “some new government agency”–a goal that I’m sure we all applaud.

Perhaps I’m jaded from decades of watching inaction in Washington, but I doubt Congress will get as far as a national risk plan. I imagine most risks will still be treated piecemeal. I do think that, as long as people are throwing trillions of dollars around, considerable resources could be brought to bear. Legislators, like generals, tend to fight the last war, so the focus will surely start with public health, but other risks could win attention if a compelling enough argument is made.

I like this one: The U.S. spends north of $700 billion a year on the military as a sort of insurance policy against the chance that Russia will lob a bunch of missiles on New York City; maybe it’s time to mitigate some other risks, too.

And I hope the insurance industry can lend its expertise in identifying, quantifying and managing those risks.

In the meantime, I dearly hope you all stay safe.

Cheers,

Paul Carroll

Editor-in-Chief

P.S. I was delighted to see that more insurance companies are staking a claim to the moral high ground in the pandemic. Following reports two weeks ago that some health insurers were waiving out-of-pocket costs for coronavirus patients, two auto insurers said Monday that they are rebating premiums to customers, as long as driving has dropped so much. Allstate said it is rebating $600 million, and American Family Insurance, $200 million. As I wrote a week ago, I hope the entire industry will do whatever it can for customers during what will surely be a defining stretch. So far, so good.