Tag Archives: recession

COVID-19: ‘The End of the Beginning’?

Over the past few weeks, as I’ve watched the developments in the pandemic and its repercussions in the global economy, I keep coming back to one of my favorite Winston Churchill quotes. It came in November 1942, after the Allies had won the Second Battle of El Alamein, setting them up to sweep German troops out of North Africa and starting to reverse the tide that had run so hard against the Allies for more than three years. Putting the victory in context, Churchill said, in his blunt way: “Now, this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.”

That’s about where I think we are now. We certainly aren’t at the end of devastation from the pandemic and can’t even see the beginning of the end from here, but we may have reached the end of the beginning.

The danger of the pandemic itself isn’t even remotely gone, and we need to be very careful that it doesn’t come sweeping back. But I suspect that we’re entering a new stretch that will last six months or so, until we either learn that we have a vaccine or learn that we don’t. During that stretch, I think the insurance industry will need to adopt a sort of hybrid approach both for how companies view internal operations and for how they view customers, many of which will be open for business — but only cautiously.

The best news is that the lockdowns seem to have worked. A study just published in the journal Nature estimated that they prevented 60 million COVID-19 cases in the U.S. — some 30 times the roughly 2 million that have been diagnosed — and 285 million cases in China. Another study published in Nature took a different approach but found a similar effect in 11 European countries: The study estimated that lockdowns saved 3.1 million lives, including 500,000 in the U.K., and reduced infection rates by 82%.

We’re also learning things about this mysterious killer that could help us manage its dangers. For instance, it now seems that we’re unlikely to pick up the virus by touching surfaces and that we’re much less likely to contract it from people with whom we interact outdoors. Though no magic drug or other treatment has appeared, doctors are learning a great deal about how COVID-19 kills and are fine-tuning their approaches. For example, we’ve learned that this coronavirus doesn’t just attack the lungs, as other coronaviruses do; ventilators aren’t as crucial as once thought, while treatments for blood clots and “cytokine storms” can be important.

Still, the pandemic continues to expand globally, with more than 7 million cases now reported and over 400,000 people dying. Even in the U.S., where the curve has been bent well downward, there isn’t the sort of straight-up, straight-down path seen in some countries that acted earlier or were stricter about their lockdowns. Here is the latest count of daily deaths from the Washington Post:

When you break the count down by state, the slow decline looks even weaker. You see that the vast majority of the improvement nationally has come because hot spots, especially in the Northeast, have been extinguished. Much of the rest of the country has been flat or even seen increases in the daily count of new cases and in deaths. While dire predictions about Florida and Georgia don’t seem to have been borne out despite relatively lax lockdowns, Arizona and Texas, both of which reopened early, have seen surges in cases and hospitalizations.

National capability for testing has steadily improved but still isn’t where health authorities have said it needs to be. In the face of massive complexity, government officials seem to have given up on even trying to build massive networks for contact tracing. So the tools aren’t even in place yet to deal quickly and decisively with new outbreaks.

Yet the country seems to have decided to move on. So, move on we will, in however halting a fashion (at least unless there is a dramatic resurgence in COVID-19 cases).

What will this world look like in what seems likely to be several months of limbo, and how should we manage our businesses during this stretch?

From an internal standpoint for insurers, I’m not sure that much will change. Some people will return to some offices, but much of the work will continue to be done remotely. As much as possible, sales will still be handled remotely. So will claims. Companies will continue to take this opportunity to accelerate their move to digital and become more efficient — this McKinsey article lays out an aggressive agenda for the next 90 days and says companies have a rare opportunity to shape the behavior of their customers; insurers should note that 35% of their customers now interact with them online, up from 27% just since the start of the pandemic.

How the rest of the economy functions is much harder to predict. Restaurants and hotels are reopening, but at maybe half-speed or even quarter-speed. Offices will reopen — sort of. The healthcare system will head back toward normal, as those who deferred care will return to their doctors; there will likely be pent-up demand for a while. Stores will re-emerge, especially if no evidence contradicts the current thinking about the lack of transmissibility from brief contact with surfaces, but restrictions will apply. (So, yes, Jeff Bezos will still win.) In the fall, it seems that schools will have to reopen, because distance learning didn’t work.

And so on. From a business standpoint, the only answer I know of for uncertainty is agility, so I think insurers will have to be unusually agile for the next several months. You don’t want to zag when your customers zig. I suspect that workers’ comp carriers will face particular pressure, as we see just how many COVID-19 claims are filed against employers and how regulators and courts treat defenses. Auto insurers will also be flying somewhat blind for a while because driving patterns will be in flux. Yes, traffic will pick up, but it likely won’t be the same — you get lots of fender benders in rush-hour traffic, so what happens if rush hour goes away, or at least changes because fewer people go to the office and go at staggered times to minimize clustering that might lead to infections?

There seems to be some optimism about how quickly the economic recovery will happen, especially if you trust stock markets. (Here is a piece from Fortune that takes a much more sophisticated look at the various scenarios for recovery.) But I don’t see a firm recovery until the virus is vanquished, whether through a vaccine, a treatment or some other huge diminution of the danger. The hope seems to be that lifting the lockdowns will make the economy snap back, but we learned this week that the U.S. recession actually began in February, before the lockdowns. People won’t act a certain way just because we tell them they can; they have to feel safe doing so, and I don’t think we’re there yet.

While it’s not entirely clear what comes next, even if we really are at the end of the beginning, it’s safe to say that we’re in a phase where rapid change is happening and big opportunities are in front of us. Although I’m far more likely to quote Churchill than Lenin, I think a Lenin quote pretty well summarizes what we’re going through: “There are decades where nothing happens; and there are weeks where decades happen.”

“Weeks” is too strong, but I’d say we’re in a stretch of months where decades may happen.

Stay safe.


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

10 Tips for Moving Online in COVID World

As cyberattacks on small to mid-size businesses escalate, cyber insurance presents an opportunity to rebuild an agency book of business.

How to Train Remote Workers as Teams

While we may not be playing golf or having an office party for a while, let your team bond over a virtual activity on Zoom or Skype.

How to Fight Rise in Cyber Criminals

IT security standards have sometimes been lowered or suspended for work at home in the pandemic, resulting in cyber security exposures.

BCPP Proposal: Summary, Key Risks

The industry’s proposal for a Business Continuity Protection Program raises risks related to compensating businesses during pandemic lockdowns.

Addressing the Rise in Topical Prescriptions

Insurers must help injured workers on topical prescriptions and compounds with the ultimate goal of returning them to work and more productive lives.

Tech Lets Freight Adjust to Pandemic

Freight carriers face extraordinary pressure to rush essential goods to market. Traditional human- and phone-driven processes can’t keep up.

How Life Insurers Prepare for Recession

Life insurance remains a foundation for transferring wealth to the next generation. But during recessions, life insurance companies could be under a threat of extinction as consumers may cut back on or downsize their plans and coverages, especially because life insurance might not be seen as a necessity to consumers.

As 2019 shapes up to be a banner year for some insurance carriers, concerns are being raised about a potential economic slowdown, if not a full-fledged recession, in as early as 2020. In fact, Vanguard Group Chief Investment Officer Greg Davis recently warned in an interview that the probability for a recession by late 2020 is a 50-50 chance.

Creating a consistent influx of commission-based transactions and keeping up with the market and competitors is crucial for life insurance carriers or an insurance agent.

To survive the next recession, insurers are adopting new technologies and investing heavily in insurtech initiatives. According to a recent report by McKinsey, titled “Life insurance and annuities state of the industry 2018: The growth imperative,” insurtech drew $140 million of investments in 2011, surging to $3.5 billion in 2017. The average investment stemming from insurtech grew from $5 million in 2011 to $35 million in 2017.

More than ever, carriers need to be prepared during a recession and maintain their growth momentum by adopting technology to streamline sales and distribution, adapt to the untapped millennial market and lower costs.

See also: How to Resuscitate Life Insurance  

Streamlining sales and distribution

Deploying insurtech is enabling insurers to create and launch digital life and annuity products in months instead of years that leverage publicly available data such as electronic medical records and health claims data, enabling real-time decisions so carriers can automate the underwriting and policy application process. Additionally, instead of weeks, consumers’ applications only take minutes to complete, with instant approval notification, omni-channel payment options and policies issued directly from the electronic customer portal to the policyholder’s email inbox.

Adapting to the millennial audience

According to a report from LIMRA, there still are approximately 50 million households (about 40%) that recognize the need for life insurance. However, 37.5 million households remain uninsured. With the number of consumers who have attempted to purchase life insurance online tripling since 2011, combined with the preferences of the vastly untapped and underinsured millennial and mid-market consumers to purchase insurance online, the need for an efficient and profitable direct-to-consumer distribution channel has never been greater.

Consumers are looking to purchase insurance faster as well as with the simplicity of a single click of the button, enhancing the insurance industry’s need for an efficient and streamlined distribution channel.

Along with changing the consumers’ views on the difficulty of obtaining life insurance, deploying a simplified technology solution can help insurance carriers reach an untapped, underinsured millennial market during low economic growth.

Lowering operating costs

In the report by McKinsey, the insurance industry has shown a disappointing track record of managing costs. A poll stated that senior executives from insurance firms estimated that the insurance industry needs to reduce its costs by 35% to sustain current expense levels.

See also: Making Life Insurance Personal  

Based on risks and opportunities, companies are encouraged to identify any cost savings. Companies are assessing revenue recognition and leasing accounting standards. Along with streamlining distribution method functions and adapting to the millennial audience, technologies like robotic process automation are being used to automate back office administrative tasks. Digitizing repetitive actions can allow insurers’ to focus on new business.

In difficult economic times, it is important that insurance carriers not only bring in new business but maintain existing client relationships, as it is better to keep a client at a lower cost than lose the account (and income) entirely. Showing concern for a business’ clients during recessions goes a long way to keeping clients for life.

How Insurers Can Prepare for Recession

After the 2009 global economic crisis, the U.S. economy has risen to strength once again. Yet certain economic indicators — both in the U.S. and abroad — indicate that prosperous times may be ending.

“The end is near for the near-decade-long burst of global economic growth. The U.S. outlook has declined, and moreover the outlook is even worse in many other parts of the world,” says John Graham, a finance professor at Duke University.

Economic downturns mean less spending, but they don’t mean fewer property and casualty risks. As a result, insurance companies that take steps to address coming economic slowdowns find themselves in a stronger position to weather a downturn or recession.

The Economic Outlook for 2020

In a recent Bloomberg survey, most economists agreed that the chance of a recession is high. “In fact, more than three-quarters of corporate chief financial officers expect one by the end of 2020,” say Scott Lanman and Katia Dmitrieva at Bloomberg.

Meanwhile, some economists are looking at the unemployment rate, which has been a consistently reliable indicator of a coming recession since 1948, adds Joseph LaVorgna, Natixis chief economist. LaVorgna says that the U.S. economy has entered a recession whenever the unemployment rate increased 50 basis points, or 0.50 of a percentage point, over its trailing cyclical low.

While unemployment is currently only 30 basis points over its low, it rose to 4% in January from a low of 3.7% in November. A rise to just 4.2% could indicate the start of another recession.

Many economic experts believe that business leaders are wise to expect a recession. “All of the ingredients are in place: a waning expansion that began in June 2009 — almost a decade ago — heightened market volatility, the impact of growth-reducing protectionism and the ominous flattening of the yield curve, which has predicted recessions accurately over the past 50 years,” says Campbell Harvey [subscription required], a business professor at Duke University.

See also: The Great Recession And My Business  

Research on the housing market also has some experts speaking in terms of recession. In January 2019, BuildFax CEO Holly Tachovsky noted a decline in single-family housing authorizations, which can be used to track economic decline.

“While this is only the second consecutive month of declining indicators, this shift is in stark contrast to the white-hot housing market that the U.S. has experienced since 2013,” Tachovsky says.

Not all experts agree that a recession is coming. For example, Anthony Chan, chief economist at JPMorgan Chase, has predicted 2% economic growth for 2019, based on his own examination of housing debt and housing growth. While Chan says the economy may slow in the next couple of years, he places the odds of a recession in 2019 or 2020 at about 15%.

What Insurance Companies Need to Consider

Among insurance companies, concerns about a coming recession are high. In the most recent Goldman Sachs Asset Management insurance survey, 41% of insurers said they believe a recession will occur in 2020 or in 2021, James Comtois at Pensions & Investments reports. Insurance companies are also forecasting fewer opportunities for investment in the coming years.

“Insurers predict a U.S. recession is coming, just not this year. As a result, they are continuing to commit capital but are more selective in the risks they are taking,” Michael Siegel at Goldman Sachs explains.

For insurance companies that often invest in bonds, concerns about rising interest rates or companies defaulting on debts tend to top the list of items to watch as the economy fluctuates. For insurers that want to weather an economic downturn, however, a broader view is essential.

For example, consumer confidence plays a significant role in economic health, but it’s a factor that many insurance companies tend to overlook. Consumer sentiments about the state of the economy have a profound effect on their spending behavior, which makes consumer confidence a key indicator of future economic behavior, says Jeffrey Gundlach, founder and CEO of DoubleLine Capital LP.

Currently, Gundlach notes a gap between consumer sentiment and future expectations. Small businesses also seem to be losing confidence in the economy, which could not only predict a coming recession but help to fuel it.

Certain political decisions could also hasten the economy’s momentum into a downward turn. In January 2019, government consultant and fiscal policy researcher Dan White testified before the Maryland state senate’s budget and taxation committee that an extended government shutdown could cause a U.S. recession. The implementation of tariffs could also expedite the arrival of a recession, Paul R. La Monica of CNN adds.

How to Prepare for a Recession

Businesses in every industry feel the effects of a recession, particularly when the downturn is severe or long-lasting. Fortunately, insurance companies can take steps now to preserve their strengths, shore up weaknesses and perform more effectively during periods of consumer and economic uncertainty.

The companies that fare best during a recession share several behaviors, say researchers Martin Reeves, Kevin Whitaker and Christian Ketels in Harvard Business Review. They take steps to prepare, consider long-term implications and focus on maintaining growth through a recession — albeit at a slower pace.

“The most effective way to prepare for a recession is to strengthen the way your business operates today,” says Sarah Meusburger, human resources director at Banner Associates, Inc.

Meusburger recommends adopting a culture of continuous improvement that incorporates the same behavior Reeves, Whitaker and Ketels discovered in their research: a long-term approach to business growth and stability.

The Importance of Customer Relationships During Lean Times

Customer relationships remain one of the most important assets for companies that seek to weather a recession. To thrive in any economic climate, it’s important to identify your most loyal and highest-margin customers and to protect your company’s relationships with them, says Michael Evans, managing director of Newport Board Group.

“In the event of a dip in business, rather than cutting costs across the board, be ready to shift resources to retain these high-margin customers,” Evans says.

See also: The Great Millennial Shift  

One way to strengthen customer relationships now is to focus on aligning internal culture with external branding, says Denise Lee Yohn, brand leadership expert and author of What Great Brands Do.

“To offset eventual price comparisons between your and competitive offerings, you should increase the perceived value of your brand now so that you can draw upon that brand equity in the downturn,” Yohn says.

Aligning brand identity and internal culture builds value, differentiates an insurer’s brand and encourages customers to choose your brand and remain loyal.

You can find the article originally published here.

What Trump Means for Business

Donald Trump’s stunning win in the U.S. presidential election, together with the election of Republican majorities in both the House and the Senate, has generated a wave of coverage about the deep changes that will surely occur with Obamacare but not nearly as much about what the voting will likely mean for businesses in general and the insurance ecosystem in particular. While there are far more questions than answers, I’ll venture a few observations.

The biggest concern is that Trump brings with him enormous uncertainty that could cause a pause in planning for investments, especially given that we are in the year-end budgeting season. Yes, a transition of power at the presidential level always brings uncertainty, especially when the new president is from the other party, but the uncertainty surrounding Trump will likely last longer than usual — possibly far longer — for three reasons and could cause significant problems for the economy.

First, while companies plan investments based partly on an incoming administration’s policies, it’s not at all clear what Trump’s policies are in many instances. Often, he said something startling during one portion of the campaign, such as that he planned a 45% levy on goods from China that would start a trade war, but then backed off and let the furor die. Will he try to impose that levy; build a wall that would damage relations with Mexico, one of our biggest trading partners; cut taxes so much that he adds $500 billion a year to the federal deficit? Who knows? He likely doesn’t even know at the moment on many issues.

He has expressed some plans consistently. For instance, he expects to lower nominal tax rates on businesses and simplify the tax structure, which businesses will welcome and which congressional Republicans will likely support. Trump plans to invest heavily in infrastructure, which draws mixed reviews among Republicans. He plans to reduce regulation, including defanging a major consumer watchdog group, which businesses generally welcome, though his thinking on regulation could cause consternation on health insurance. (He says he thinks health insurance costs can be driven way down by allowing any policy approved in one state to be sold in other states — an approach that state regulators would surely resist and that would leave many companies in limbo while the fight played out.)

But even when Trump has been thematically consistent, he has been shy on details or even contradictory — his campaign simultaneously cited two different versions of his tax plans that were $1.2 trillion apart in terms of how much revenue they would generate over 10 years.

Even under the best of circumstances, it will take many weeks for Trump’s team to build out the details of the many policies that an incoming administration needs to have — and that most have on Election Day. It could be months before the team even gets to the point of starting to turn the policies into legislation.

Which brings me to the second point about the unusual uncertainty surrounding a Trump administration: He doesn’t have a team.

He needs to build a team numbering in the thousands to take leadership roles in the vast federal bureaucracy, but he just has the core of a team at this point, which is very late in the game as it’s usually played. That core is mostly his family, four politicians and two political operatives. Two of those politicians — former New York City Mayor Rudy Giuliani and former Speaker of the House Newt Gingrich — have experience but have been out of office at least 15 years and don’t bring sizable organizations with them. The two sitting governors on the team — Indiana’s Mike Pence, the vice president-elect, and New Jersey’s Chris Christie — have access to organizations, though Christie may be hampered by the Bridgegate scandal. The two political operatives — campaign Chairwoman Kellyanne Conway and campaign Chief Executive Stephen Bannon — have only modest resources to contribute to a team, and Bannon’s organization, Breitbart News, is toxic to many.

Traditionally, the Republican Party would provide the core of the incoming president’s team, but Trump has been at war with most of the leaders of his party — notably not Chairman Reince Priebus — almost as much as he has with the Democrats. In addition, many politicians will avoid Trump, at least initially, because of the racist, xenophobic and misogynistic things he said during his campaign.

He will surely build a team. The lure of high office will overcome the scruples for many. But the mechanics will likely take longer than normal, and there could be more than the usual sorts of problems getting the people Trump wants in the jobs where he wants them.

My third and final point: Even once Trump builds a team, it’s not clear that he really wants one. He has said that he runs his business pretty much as a solo operator, reserving all key decisions to himself, and he certainly ran his campaign that way. He publicly contradicted his vice presidential nominee on a policy matter related to Russia. Trump and Gingrich reasonably often ventured contradictory opinions in public. Conway has said that she sometimes said things on TV to get Trump’s attention, because she knew he was watching her on TV and couldn’t always get his attention in private.

What will Trump delegate, and which decisions will he keep for himself? Will he be consistent in the division of responsibility? He has said that he trusts his instincts and doesn’t read, so how will he manage a bureaucracy traditionally built on careful analysis, detailed briefings and internal debate? Does he have something entirely different in mind?

Those answers aren’t yet clear, and they need to be as Trump figures out how to delineate policy and work with an enormously large team for the first time in his life.

This list of three reasons for additional uncertainty actually assumes otherwise benign conditions. It assumes that he controls his worst impulses, even though he surely wants to wreak revenge on or at least belittle so very many people at the moment. It assumes that he doesn’t get bogged down in the lawsuits that are either already proceeding (the Trump University fraud trial begins later this month) or that may be filed against him, including by the women who allege he sexually assaulted them. It assumes that no crisis erupts in, say, Syria or in the economy, which could well pose some problems.

For me, the first big test will be whether he can make peace with the congressional leaders of the Republican Party. If he can, then he has the chance of building a team quickly enough to eliminate much of the uncertainty. But that will be tricky. His personal relationships with many of the leaders are awful, and allying with them would mean turning his back on the many supporters who urged him to “drain the swamp” in Washington, by which they meant getting rid of the entire elite, perhaps mainly Democrats but with many Republicans included.

The uncertainty will be with us for a while – and could well cause a pause in investment during a still fragile time for the economy.