Tag Archives: pandemic

COVID-19 Trio Tops Global Business Risks

A trio of COVID-19-related risks heads up the Allianz Risk Barometer 2021, reflecting potential disruption and loss scenarios that companies are facing in the wake of the pandemic. Business interruption (with 41% of respondents citing it as a risk) and pandemic outbreak (at 40%) are this year’s top business risks, with cyber incidents (40%) ranking a close third. The 10th annual survey on global business risks from Allianz Global Corporate & Specialty (AGCS) incorporates the views of 2,769 experts in 92 countries and territories, including CEOs, risk managers, brokers and insurance experts. 

The COVID-19 crisis continues to represent an immediate threat to both individual safety and businesses, reflecting why pandemic outbreak has rocketed 15 positions up to #2 in the rankings at the expense of other risks. Prior to 2021, it had never finished higher than #16, a clearly underestimated risk. However, in 2021, it’s the #1 risk in 16 countries and among the three biggest risks across all continents and in 35 out of the 38 countries that qualify for a top 10 risks analysis. Japan, South Korea and Ghana are the only exceptions. 

Market developments (#4, at 19%) also climbs, reflecting the risk of rising insolvency rates following the pandemic. According to Euler Hermes, the bulk of insolvencies will come in 2021. The trade credit insurer’s global insolvency index is expected to hit a record for bankruptcies, up 35% by the end of 2021, with top increases expected in the U.S., Brazil, China and core European countries. 

Further, COVID-19 will likely spark a period of innovation and market disruption, accelerating the adoption of technology, hastening the demise of incumbents and traditional sectors and giving rise to new competitors. Other risers include macroeconomic developments (#8, at 13%) and political risks and violence (#10, with 11%), which are, in large part, a consequence of the coronavirus outbreak, too. Fallers in this year’s survey include changes in legislation and regulation (#5, with 19%), natural catastrophes (#6, with 17%), fire/explosion (#7, with 16%) and climate change (#9, with 13%), all clearly superseded by pandemic concerns.

Pandemic drives disruption — now and in the future

Prior to the COVID-19 outbreak, business interruption (BI) had already finished at the top of the Allianz Risk Barometer seven times, and it returns to the top spot after being replaced by cyber incidents in 2020. The pandemic shows that extreme, global-scale BI events are not just theoretical but a real possibility, causing loss of revenue and disruption to production, operations and supply chains. 59% of respondents highlight the pandemic as the main cause of BI in 2021, followed by cyber incidents (46%) and natural catastrophes and fire and explosion (around 30% each).

In response to heightened BI vulnerabilities, many companies are aiming to build more resilient operations and to de-risk their supply chains. According to Allianz Risk Barometer respondents, improving business continuity management is the main action companies are taking (62%), followed by developing alternative or multiple suppliers (45%), investing in digital supply chains (32%) and improving supplier selection and auditing (31%). According to AGCS experts, many companies found their plans were quickly overwhelmed by the pace of the pandemic. Business continuity planning needs to become more holistic, cross-functional and dynamic; monitor and measure emerging or extreme loss scenarios; and be constantly updated and tested and embedded into an organization’s strategy. 

Cyber perils intensify

Cyber incidents may have slipped to #3 but remain a key peril, with more respondents citing it than in 2020 and still ranking as a top three risk in many countries, including Brazil, France, Germany, India, Italy, Japan, South Africa, Spain, the U.K. and the U.S. The acceleration toward greater digitalization and remote working driven by the pandemic is also intensifying IT vulnerabilities. At the peak of the first wave of lockdowns, in April, the FBI reported a 300% increase in incidents alone, while cybercrime is now estimated to cost the global economy over $1 trillion, up 50% from two years ago. Already high in frequency, ransomware incidents are becoming more damaging, increasingly targeting large companies with sophisticated attacks and hefty extortion demands, as highlighted in the recent AGCS cyber risk trends report

See also: 3-Step Framework to Manage COVID Risk

Risers and fallers 

Macroeconomic developments is up to #8, and political risks and violence (#10) returns to the top 10 for the first time since 2018, reflecting the fact that civil unrest, protests and riots now challenge terrorism as the main exposure for companies. The number, scale and duration of many recent events, including Black Lives Matter protests, anti-lockdown demonstrations and unrest around the U.S. presidential election, have been exceptional. As the socioeconomic fallout from COVID-19 mounts, further political and social unrest is likely, with many countries expected to experience an increase in activity in 2021 and beyond, particularly in Europe and the Americas.

Changes in legislation and regulation drops from #3 to #5 year-on-year. Natural catastrophes falls to #6 from #4, reflecting the fact that, although aggregated losses from multiple smaller events such as wildfires or tornadoes still led to widespread devastation and considerable insured losses in 2020, it was also the third consecutive year without a single large event, such as Hurricane Harvey in 2017. Climate change also falls to #9. However, the need to combat climate change remains as high as ever, given that 2020 was the hottest year ever recorded. 

To learn more about this year’s findings, please visit Allianz Risk Barometer 2021.

A ‘Touch and Go’ Moment for the Industry

Sean Kevelighan, CEO of the Insurance Information Institute, said there was a moment in 2020 that was “touch and go” for the industry, in the face of the pandemic.

He and I were talking in advance of Thursday’s Joint Industry Forum, the III conference that is the first big event of the year and that sets an agenda for the industry (more on the forum in a bit), when he described how close the industry had come to being whacked with potentially hundreds of billions of dollars of business interruption claims. BI claims were obviously a potentially big deal, even though it was clear early on that few policies in the U.S. covered them, and I have seen that the issue faded, but I didn’t realize quite what a close call the industry had.

“The industry collaborated more than I’ve ever seen us do,” Kevelighan said. “Everyone has shown that the industry can come together and lead in a very disruptive time.”

Kevelighan said plaintiffs attorneys saw an opportunity early and won sympathy with state legislators, eager to help their small-business constituents. Some celebrity chefs formed a group to make the case publicly that they would go out of business if insurers didn’t cover their pandemic-related losses. Something called the Business Interruption Group even got businesses in Times Square to shut off their lights for a minute in May to dramatize the threat.

III countered with a campaign that made two main points. First, that the policies didn’t provide business interruption coverage for a pandemic and that rewriting contracts after the fact was unfair. Second, that a pandemic isn’t an insurable event. Yes, the industry had $800 billion in surplus, but covering all the potential BI claims would cost the industry $400 billion a month – so those small businesses could only be covered briefly by insurers, and then the money would be gone. Legislators would then have to face constituents who were hit by hurricanes, wildfires and so on and who had valid claims – but whose insurers couldn’t pay.

III got the word out through hundreds of media interviews, through email blasts to anyone who was in a position of influence and through a website. Kevelighan said the industry more than did its part as good citizens: providing more than $14 billion in rebates just in auto premiums, making $300 million in charitable contributions, paying claims in new and innovative ways and committing to keeping employees on the payroll. He says all parts of the industry are now hiring.

The situation was still touch and go until a hearing before a House subcommittee on May 21. But at the hearing, conducted via WebEx, the main plaintiff attorney didn’t even advance the idea that contracts should be rewritten to make insurers liable. Instead, he suggested that insurers could voluntarily cover business interruption and then, he hoped, be reimbursed by the federal government – an idea that went nowhere.

“Congressmen were very aggressive about defending their constituents – if a hurricane or wildfire hits, there needs to be money there,” Kevelighan said. “We all empathized with the customer. Sure, customers should be scared. But the response to a pandemic has to come from the federal government.”

He added that the quick mobilization in the face of such a threat “shows how nimble the industry can be.”

Building on that experience, Kevelighan said, the first panel at the Joint Industry Forum will comprise CEOs who will discuss other industrywide issues, including what the effects of the new Biden administration will be.

“You’re certainly going to see some things that were started in the last Democratic administration that kind of went by the wayside but that may well resurface,” Kevelighan said.

He cited the Federal Insurance Office and Consumer Financial Protection Bureau as potential examples. He added that “it’s been said that every part of the Biden administration has a climate change piece to it.

Kevelighan said the insurance industry can play a leading role on climate risk – which is the subject of the next panel at the Joint Industry Forum. He cited, for instance, a III project called the Resilience Accelerator, which is trying to drive behavioral change to reduce risks such as those from wildfires and floods.

“Risk never really comes into play in the property-buying process at the moment,” he said. “You go into the beautiful forests in California and decide you want to build there, but nobody talks to you about the wildfire risk. We’re trying to change that.”

He’ll close the brief event with a fireside chat with Richard P. Creedon, chairman and CEO of Utica National Insurance Group, that will, among other things, cover that old favorite: regulatory issues.

I’ve found these events to be very useful in the past and hope you’ll join me at this virtual event, then hope we’ll all see each other at what III expects will be an in-person event in Washington, DC, in June.

Stay safe.

Paul

P.S. Here are the six articles I’d like to highlight from the past week:

20 Issues to Watch in 2021

Presumptions for COVID-19 show how the line between workers’ comp and group health continues to blur.

Crowdsourcing 6 Themes for 2021

Trust in insurance has been dealt a double blow in 2020 — and resolving that must be a priority in 2021.

Despite COVID, Tech Investment Continues

Interest remains high in technologies like artificial intelligence and big data.

Did Biden Just Kill Wellness Programs?

Advisers need to be aware that many if not most clinical wellness programs now expose clients to employee EEOC actions.

What 2020 Taught Us on Selling Insurance

Insurance policies that are sold online need to be packaged and priced differently than those that rely on face-to-face sales.

Home Insurance for Those Needing It Most

Sugar, a startup in South Africa, provides home insurance even for shacks costing a few hundred dollars, and without a street address.

The Next Normal

While I’m less optimistic than I was a week ago about the speed of a return to normal — a riot in the U.S. Capitol building will do that to a guy, as will a week of record deaths from COVID-19 and growing concerns about the rollout of the vaccine — I remain confident that we’ll get there some time in 2021 and that we all need to be ready for the next normal.

Having read everything I can find about how that next normal will take shape, I commend to your attention this article from McKinsey, which draws on surveys and on evidence from nations that are further along in the recovery from the pandemic than the rest of us. Among the predictions: that 20% of people could work the majority of time away from the office and that we are at the beginning of a new wave of innovative startups — while the risk of failure for established businesses has increased.

The McKinsey Global Institute isn’t saying that 20% WILL spend most of their time away from the office, merely that they could, while remaining just as effective. The McKinsey research arm says the switch to remote work will, in any case, be “a once-in-several-generations change.”

The authors add that a survey finds that business travel in 2021 will be roughly half what it was in 2019 and may never recover to 2019 levels.

Trying to take advantage of the disruption — not just in the work environment, but in shopping behavior, in supply chains, etc. — small-business formation is surging, the article reports. The authors acknowledge that the numbers surprised them. In the 2008-09 financial crisis, small-business formation tumbled, and in other recessions in recent decades it has risen only slightly. But 1.5 million new-businesses applications were filed in the U.S. just in the third quarter of 2020, nearly double the number in the year-earlier quarter. The number of “high-propensity” applications (those considered likely to lead to businesses with payrolls) grew 50% year over year. France, German, Japan and Britain have also seen surges in new businesses, albeit smaller than in the U.S.

The innovators are coming.

They will benefit from what McKinsey sees as a burst of “revenge shopping” once the vaccine kicks in and it’s safe to move around freely again. That burst will mostly occur in services, where demand has been hit so hard, and less so for physical products, which Amazon and others have delivered to our doorsteps in such impressive fashion. The authors cite Australia, which has largely contained the pandemic and where “household spending fueled a faster-than-expected 3.3% growth rate in the third quarter of 2020, and spending on goods and services rose 7.9%.” The authors say leisure travel will rebound quickly even though business travel won’t — in China, domestic travel is almost back to where it was before the pandemic, and what they call “high-end” travel is actually ahead.

The article does warn about what it euphemistically labels “portfolio restructuring.” Basically, that term means: You’d better be getting stronger in these turbulent times or… look out.

A McKinsey survey of 1,500 companies in October found that the top 20% had seen their earnings before interest, taxes, depreciation and amortization increase 5% during the recession, while those not in that top tier had registered a 19% decline. The article argues that those thriving will be able to lock in their advantage by buying weaker rivals.

Private equity is also on the prowl, looking for bargains. Firms are sitting on $1.5 trillion of “dry powder” that is ready to invest, and the authors say that “we don’t think the PE industry is going to keep its powder dry for much longer; there are simply going to be too many new investment opportunities.”

We still have to make it through these next weeks and months; at this point, I’ll be happy just to get to Inauguration Day on the 20th. But the next normal looks reasonably promising — as long as we stay among the innovators or that top tier of incumbents and don’t get numbered among the prey.

Stay safe.

Paul

P.S. For those of you who’ve stuck with me to this point, here is a bonus, a thought-provoking piece about Brexit from Peter Gumbel, who is the editorial director of the McKinsey Global Institute and who was a longtime colleague of mine at the Wall Street Journal. I met Peter when, as a smart, young Brit with a facility for languages, he became a correspondent for us in Germany in the mid-1980s. I followed his career through other posts in Europe and more than a decade in the U.S. What I didn’t know until his piece ran last week in the New York Times is that Peter’s grandparents had fled Nazi Germany just before the outbreak of World War II. I also learned that, despite pride in his British roots and deep gratitude to the country that took his family in, he was wrestling with his homeland’s choice to withdraw from the Continent and was heading toward a gut-wrenching personal decision. (I won’t spoil his punchline here.) In case you find the piece as moving as I did, here is a link to the book-length ruminations he recently published on the topic, “Citizens of Everywhere: Searching for Identity in the Age of Brexit.”

P.P.S. Here are the six articles I’d like to highlight from the past week:

3 Trends That Defined 2020

The solution for 2021? Reframing digital transformation as an iterative process as opposed to a one-off, wholesale solution.

How to Start Selling on TikTok

A few months, 50 million views and almost 100,000 followers of our channel later, we think Tiktok may be the next big thing.

Perils of Pandemic Premium Audits

Controversy relating to workers’ comp premium audits existed long before COVID. However, the pandemic made things much worse.

Has Pandemic Shifted Arc of Insurtech?

Have events of 2020 permanently altered the trajectory of the insurtech movement and thrown predictions out the window?

How Carrier Tech Drives Agency Change

Adapting to carriers’ new technology is a challenge, but it gives agents the opportunity to move from distributors to true business partners.

Tapping Cloud’s Ability to Drive Innovation

There are three key forces that the cloud can unleash: speed of operations, an intelligence premium and innovation.

COVID and Power of Personal Connections

We are at a moment in history when businesses in all sectors are rapidly reworking how they interact with customers, to see how they can remain a valuable part of people’s lives as so much is changing. The pandemic has accelerated these changes, of course. In its massive disruption of daily life, shaking people and societies out of familiar routines and forcing new ways of pursuing their professional and personal interests, COVID-19 has created a new space for changes in behavior.

The insurance industry — long known for offering peace of mind, stability and trust — is adapting. In fact, the insurance industry is expected to spend nearly $28 billion annually on customer experience solutions. But many people still lack trust in insurers. Fewer than half of those surveyed in EIS Group’s Customer Compass Report say they trust insurers to respond to their basic needs. That is troubling and should be a wake-up call.

Now is the time for insurers to check their headings and set new courses to gain the trust and satisfaction of customers. To start, insurance companies must focus on adjusting two major components found throughout the customer journey — customer experience and personalization.

Customer experience and personalization — which have been predominant concerns in retail for some years — are now only second and third to price when it comes to main reasons why people might switch insurers, according to the Customer Compass Report. A full 28% of policyholders stated that poor customer experience is a “main reason” for leaving a provider, and 20% cited lack of personalization. Getting experience and personalization right is no longer a “nice to have” for insurance providers; it is quickly becoming a crucial element of what insurers offer to customers.

As the world becomes increasingly digitized, opportunities abound. Fitness trackers, for instance, help their users with real-time insight into their health and activity — but the same data can be fed into a health or life insurance product to provide personal rewards and discounts. A few insurers, including John Hancock with its Vitality program, have been successful with this model. Similar approaches are relevant for automotive insurance, rewarding users when they avoid risky activities or drive responsibly, while giving them options for more extensive insurance if that’s what is appropriate for their lifestyle and behavior. 54% of consumers indicated they would consider car insurance they would pay for only when they drive. 60% would consider car insurance that costs less if they drive at low-risk times of the day.

See also: How Insurers Are Making Connections

Customers can be offered multiple ways of communicating, including email, self-serve interfaces and automated chatbots as well as phone and instant messaging. However, consumers have astonishingly low expectations of insurers — only 23% expect insurers to integrate their experience across mobile, web and in-person channels.

For a truly satisfying customer experience, insurers need to ensure that customers can move seamlessly between those channels as they wish. As an example, a buyer might receive some initial information about an insurance offer via email, then use a messaging app to get further details in a conversation facilitated by a chatbot. A web form would then be pre-populated with the information from that chatbot conversation, and a quote sent. At the same time, a call center would be available where a representative can see an overview of progress, if the buyer has any final questions before completing the purchase. While this example may seem commonplace for many consumer buying cycles, it is not for insurance buyers.

One truth of the digital economy is that people are willing to research and assess which products are right for them. But they are also interested in simplicity and want a “one-stop shop” for products that meet their specific needs. With data and tech accelerating faster every day due to the pandemic, insurers must embrace the challenge and seek all the potential opportunities that can improve customers’ lives.

Accelerating Into 2021

As we close out a year that brought “Blursday” into the lexicon and that feels like it’s been going on for decades, I’ll actually stick with the prediction I made at the start of the year: that innovation is poised to accelerate greatly in the insurance industry.

As I wrote in Six Things on Jan. 7, I thought the industry had been focusing on innovation for long enough that it had begun to see what worked and what didn’t and “will begin to get better at… getting better.” I had no idea, of course, that a global pandemic would compress five years or so of digitization plans into one. But I don’t think this year’s phenomenal progress marks the end of a round of innovation. Rather, I think we’re at the beginning. The structural pieces that were in place at the start of the year, because of our collective experience, are still there, and this year’s progress creates lots of opportunities as we come out the other side of the crisis that has gripped us all.

We certainly have hard days still ahead of us. Vaccines won’t inoculate enough people until perhaps May or June to let life even begin to return to normal, and an awful lot of people will die between now and then. Although the economy could be poised to snap back, many economists warn that the stimulus plan just passed by the U.S. Congress will soon need to be reinforced to sustain small businesses (and their many employees) until next summer. In normal circumstances, Washington, DC, could be expected to respond to the nation’s needs, but the capital seems to be getting more dysfunctional these days, not less.

Still, needles are going into arms with COVID vaccines a month or two sooner than I had thought possible and with far higher effectiveness. Lots of good things can happen once the virus is vanquished.

I may be a tad biased as I write this — I somehow always feel lighter when we pass the winter solstice and I know the days are getting longer, even if I won’t feel the difference for a good while — but I’m confident that insurers will be creative once employees start returning to offices, perhaps in new physical and temporal arrangements, and as customers’ lives and businesses start to return to normal.

Customers can continue to be steered to online resources for much of the drudgery, such as supplying basic information, while agents will be able to provide more of the high-touch counseling that they’re trained for and enjoy. Likewise, now that clients have become more accustomed to digital connections, companies will be able to expand on what they’ve been doing with automated and semi-automated customer service systems, such as chatbots that rely on artificial intelligence. Such systems not only lower costs but eliminate often-boring work while providing better service — what customer wants to call in and wait on hold, listening to bad music or sales pitches, when she can just text the insurer and get an immediate response about the status of a payment?

With customers now used to avoiding personal contact when processing claims, insurers have license to continue developing the processes for no-touch or low-touch claims, especially in auto insurance but increasingly in homeowners insurance, too. Such processes, like AI-based communications, cut costs while speeding processing and making customers happier. What’s not to like? And what now stands in the way?

Work processes can go to the next level, too. Much of the hard work of digitization has been done over the past several months. It’s not as though people working remotely can share paper any more. You don’t just casually walk a file upstairs to the coworker who is the next stop in the process, not with that coworker somewhere across town. So just about everything has at least been scanned and exists in digital form. Companies can now build on that digitization to optimize a host of processes. No more phone tag required, or even emailing in most cases. In optimized processes, documentation can take care of itself, making queries of data bases or of people when information is needed and then automatically moving on to the next stage of the process. AI can help manage the workload, using all this newly available digital information to prioritize where adjusters or underwriters should be allocating their attention.

We’re still months away from relief from the COVID scourge, but at least we can all start planning, with confidence, for what comes next. And I’m betting that 2021 will see at least as much innovation as 2020 did.

In the meantime, I wish all of you a joyous — and safe — holiday season.

Cheers,

Paul

P.S. We’ll send a year-end wrap-up of the most-read articles of 2020 next week. Six Things will return in early January.

P.P.S. Here are the six articles I’d like to highlight from the past week:

Record Insurtech Fundraising in Q3

Relatively well-known but not particularly well-established insurtechs across the board could be about to face their toughest moment to date.

No More Apples-to-Apples Comparisons

Yes, insurance is complex, but such comparisons oversimplify insurance, make it a commodity and serve neither the client nor the agency.

Long-Overdue Change in Commercial Lines

Commercial insurers need to leap forward with a big vision for the future of underwriting, then reverse-engineer a holistic strategy to deliver on it.

Diversity and Respect: Best Insurance Policy

“Insurers must not only diversify their agent base but create and market plans that reward those living in areas they once punished.”

5 Risk Management Mistakes to Avoid

Because of the dynamic nature of markets, risk management programs need to be regularly updated or they, themselves, become at risk.

5 Things to Keep in Mind for Benefits in ’21

Insurance providers looking for a reset that strengthens relationships with customers and HR departments have a real opportunity here.