Staff working from home.

Premium growth or reduction?

Staff being repurposed or subject to RIF.

Claims- virtual handling or on-site assessment?

Innovation efforts underway- suspend or continue?

Customers with reduced access to the firm or agents.

Supplies- how much to stock, if the supplies can be found?

Start ups- traction had been tough, now there is no friction.

VC’s and funding orgs- how can we support any investment?

Coverage determination for pandemic or microbial infestation.

Vendor partners- how to maintain relationships or leverage their skills?

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’.

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InsurTech funding efforts produced $6.6 billion globally in 2019, and plans for 2020 suggested a similar level of interest for this year.  That was until a few weeks ago, when coronavirus caused insurance companies to radically shift focus from growth, innovation, partnerships, and lowering performance ratios to a focus on cash conservation, staff support, changes in customer contact protocols, and concerns about pandemic coverage, maintaining policies in force, and stability.

The outbreak is a seismic strategic change event.  Not just issues, but fundamental concerns that suggest fundamental responses by the insurance industry, although I’ll admit there are too many ramifications to fully organize and upon which to comment.

Without question insurance incumbents and startups will feel the effects of Covid-19 on how business has been conducted in the industry during the past several years.  The relationships and collaborations between incumbent/InsurTech will be tested in significant ways, including:

• Will financial support for innovation contract substantially as carriers move to protect liquid assets?
• Will personnel investment in carriers’ efforts in effecting change be altered to better focus on customer needs and staffing challenges brought by the simple acts of existing in an uncertain world?
• Startups that have not yet come close to revenue generation- will they be left to wither on the development vine as VCs reconsider asset allocations and reduced confidence in profitable scale up.
• Will incumbents temporarily abandon new projects/innovations in order to concentrate on core functions?

It’s clear that in the current economy organizations will be moving down the business version of Maslow’s Hierarchy of Needs, from the optional to the basics, from discretionary spending to conservation of customer base.

These and other strategy thoughts found their way across my feed during the past week (with the author’s observations added):

• Coverage for effects of pandemics have in general been excluded from cover for personal lines and commercial policies, physical, business interruption and liability covers. Simply too broad of a risk (akin to flood) for carriers to underwrite, and typically not direct physical damage.    Put the effects into a global context that affects almost every business and there will be push back.  Arbitrary actions on the part of carriers to afford coverage where there isn’t any has ramifications in uniform claim handling and fair practices- shouldn’t do for one that you can’t for all.  Unfortunately the insurance industry will be seen as the ‘bad guys’  for avoiding cover.  There will be efforts that are ‘fashionable’ to force coverage, for example the US state of New Jersey is considering suggested legislation that will require carriers in the state to provide coverage for the effects of the crisis.  Not the insurance commissioner, the legislature.  Not amending a condition like California’s commissioner did requiring full replacement payment for contents instead of actual cash value, but altering terms of the insurance contract after the fact, and outside the privity of contract.  No one wants customers to have unexpected costs of risk, but the legislators’ suggestion is fraught with many cascading consequences.  Those broad brush benefits reside within the legislature’s grasp, but not using insurance carriers as the delivery pool.

• John Neal’s Lloyd’s of London office put out a request to its member firms for estimates of potential current and final losses from coronavirus. Certainly, that is good information to know, but it’s due time for Lloyd’s to be able to access those data with a few clicks of a mouse or database query.  Surely the firm’s exposure to probable maximum loss for a peril is a strategic data point to have at arm’s reach, and the unique nature of pandemic cover would suggest PML for any policies in force.  It seems the integration of Blueprint One cannot come soon enough for Lime Street.

• Worldbank’s Pandemic bonds are on the verge of being triggered to benefit the poorest countries in the world. The primary criteria for triggering have been met, with proof of economic growth among the beneficiary countries remaining to be confirmed.  These bonds provide quick response finds for the countries, and have proven to be a successful alternate risk funding vehicle for capital markets.  This bond type and other cat bonds/ILS are a significant future source of risk financing, with reinsurers and bonding companies working in concert.

• How insurers work has been shaken with the almost universal shift to remote work (work from home, WFH). Insurance consultant Alan Walker composed a fine list of questions within an article posted this week, “Covid-19: Implications for Insurers.” :
  • How will we plug the service gaps that will arise if a large proportion of staff falls ill at the same time?
  • How long will remote working be required?
  • Do any of our product wordings need to be changed to deal with the return of Covid-19 in future years, or possible future pandemics? (author’s note- perhaps it’s time for parametric cover to take a leading role in dealing with effects of broad effect perils/covers)
  • Do we need to reduce our reliance on people being co-located… and the degree of “remote working as standard?”

• Rosenblatt Securities published a short analysis of the Implications of COVID-19 and Market Disruption on Private Fintech, and while the report included many important concepts, there was a historic treatment in graphical form of the Correlation of S&P performance and private capital investment in the U.S. that caught the author’s eye:

This chart from the 2008-10 market recovery period indicates a six-month lag between market recovery and investment level recovery; the current outbreak is of such broad spectrum and probable duration that investment recovery will take longer than that.  Consider the outbreak disruption to last several months and investment confidence to take an even longer period to come back, and strategy decisions made now are even more important than in 2008.

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