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COVID 19 – indirect effect coverage gap on steroids

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Unlike a typhoon or hurricane, the current catastrophe cannot be seen, just its effects.  The novel coronavirus (COVID 19) is now and will be causing personal, business, and government disruption and economic loss.  You can’t see the virus, has relatively small direct effects (120,000 persons contracting the virus of some hundreds of millions exposed), but it’s secondary impact ripples widely.  It’s economic impact will eclipse that of natural disasters of the past several years.  Analogous to the concept of velocity of money there is a ‘velocity of consumption’ that has economic loss effects that are not subject to indemnification. 

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 is on the front risk burner of pretty much everyone on the globe, and as discussed in a prior blog the effects of the outbreak are wide and deep in the business world.  It is becoming clearer how those effects are impacting the global economies, and if the risk exposure has potential insurance recovery:

There sure are other unexpected influences on business that may benefit firms due to reactions to an economic downturn., e.g., the US Fed’s action to drop US interest rates 50 basis points, the erosion of market capitalization from stock price drops (leverage, pension values), or spot shortages of commodities due to reaction purchases.  A real issue is the non-recoverable gross domestic product that results from drop in production and ensuing drops in consumption.  A double pronged effect- supply and demand effects- will take an absolute half percent off of 2020 global GDP increase, or an almost one half trillion US dollar impact.  The reader surely realizes this impact intuitively or by other sources, but a good overview of COVID 19 global GDP impact can be found here.  One must remember- lost production is seldom fully recovered.

As for now and during the outbreak’s spread, consider the far-reaching economic impacts of COVID 19, have contingency plans as one best can, wash your hands regularly, try to not touch your face, stay home if you feel unwell, and have plans for recovery once the outbreak ebbs.  Oh, and realize there will be another similar occurrence in the future, and have insurance plans to reduce your coverage gap.

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