It’s getting more and more difficult to keep track of economic responses to COVID-19 without a scorecard; new or updated grant, loans, fund discussions and press releases fill the news each day. And why shouldn’t that be the way? It’s a multi-trillion (fill in currency of choice here) issue for economies with current and future ramifications. This column has discussed COVID-19’s effects in depth since February; let’s consider a response score card as this week’s effort. And for those who are patient to the end- some bonus business interruption content!
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’.
Before we fill in the current scorecard let’s agree that governments’ central monetary authorities have been throwing a lot of liquidity into the markets, and treasuries have been distributing direct funds and issuing loans to buoy up businesses during lock down periods. That’s all well and good but it’s reactionary, inefficient, and ignores in most part the resources of private capital markets. Ironically in some fashion government efforts have been ‘sending riches to the rich’ through distributions that end up in those same cap markets.
Setting government actions aside we again find not much from the indemnity world of insurance, although John Neal of Lloyd’s and Evan Greenberg of Chubb might disagree since their published assessments estimate that COVID-19 insurance exposure is $100 billion. Place that estimate in perspective of the pre-COVID insurance market that approximates $5 trillion annual revenues and its magnitude becomes less impressive.
Let’s not belabor what is known and focus on how the industry and governments are working to anticipate responses to future like events. Any chosen option needs to be affordable for businesses, provide prompt and/or efficient payment, not be politically expendable over time, have stable, uniform funding, and not be complex to administer. That’s all.
There are several prominent fund/backing proposals and while the exemplars are not exactly all apples or all oranges, we can contrast them by:
- Fund size
- Distribution model
- Backing /funding
That scorecard shows the who’s, how’s and how much, but what of potential fund efficacy?
Review of these general data prompts some caveat observations:
- Often the correct answer is not the right answer, as is suggested for option C. Having pre-purchased recovery insurance at a level supported per each customer’s business activity is smart, but will the program be caught by moral hazard issues, and what of those businesses that do not participate? Another (yet smaller) PPP experience?
- Option G is untried collaboration in private insurance and capital markets, but will government backing be available for early years of the program?
- A, C, and D require significant government funding or admin. Considering that administrations change and budget issues crop up, will the finds have political interest that outlasts short memories?
- F existed before COVID-19 was known, with no takers. What will change that reality now?
- Will B have the buy in of the balance of the EU, or will the members need to revert to individual plans?
- How scalable are E and F, or will other carriers need to come on board?
- Are any of the plans looking to leverage private capital markets?
There are scores but we don’t know the score- yet. What is certain after the discussion is as was at the beginning- it’s a multi trillion (fill in the currency here) concern that needs one or more solutions. Status quo keeps all with zeroes on the board.
(Full disclosure- the author is a co-founder of the Ten C’s Project, but is agnostic on which type of fund is supported as long as insured companies benefit.)
Now for your bonus-
I came across a fascinating infographic representing COVID-19 insurance around the globe published by P2P Protect Europe :
I reached out to the firm for any further comments they may have to accompany the infographic and my expectations were exceeded by the comments made by P2P President/Managing Partner, Tang Loaec.
Mr. Loaec provided a different view of business interruption (I’ll use the full quotation):
“As regard property insurance and the embedded business interruption insurance, there is a catch 22 between the desire to exclude the massive concentrated financial impact – which can threaten insurance stability – and on the high frustration of the insured which remains exposed while they thought their business interruption insurance was ensuring their business continuity.
What P2P Protect Europe recommends to its insurance clients is to approach it from an assistance logic. For example, if you want to include a mechanism protecting a university against the impossibility to use its premises when pandemics strikes, you may extend the coverage not by opening you to monetary claims (the sky is the limit sometime), but by integrating a pedagogical continuity service with a dedicated online classroom provider such as for example LiveClass.fr to deliver protection against the business interruption risk without opening up to massive liabilities. Similar approaches can be envisaged for many other types of business activities. Through innovative assistance services, we can improve the resilience of our society to pandemics, reduce the negative impact on the insured business, while not bankrupting insurance either.”
Well that gives the issue a whole new viewpoint.
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