In times of crisis, human nature dictates that we focus on the present with microscopic vision. As COVID-19 wreaks havoc worldwide, businesses have entered survival mode. They’re focused on the short-term impacts of the pandemic, with their top concerns being whether they’ll be able to meet payroll and pay next month’s rent. Other medium- and longer-term impacts of the coronavirus pandemic are very much “tomorrow’s problem”.
While the immediate safety of employees and short-term business contingency are vitally important, businesses should not make the mistake of ignoring the potential longer-term impacts. Some risks associated with COVID-19 may not fully materialise or crystallise for years to come. As the coronavirus crisis extends, there could be a domino effect where one risk triggers another in a cascading nature, according to Victor Meyer (pictured, below), chief operating officer at Supply Wisdom, and former vice-chairman of the World Economic Forum’s Global Agenda Councils for both Pandemic and Catastrophic Risk.
“Some of the more difficult perils to predict are going to be around governance, regulatory and compliance risks […] and the knock-on effect they can have on directors’ & officers’ (D&O) insurance,” Meyer told Insurance Business. “In the United States, for example, it was reasonably easy to anticipate that those listed firms that took Paycheck Protection Program (PPP) money under the CARES Act would come under direct criticism and have to return that money. It is also relatively easy to anticipate that banks in the US that have partnered with third-party firms to help them process PPP applications […] will come under incredibly scrutiny, just like they did in 2008 [after the subprime mortgage crisis].”
If firms who administer or use the PPP haven’t put in place mechanisms to monitor compliance on a continuous basis, they’re looking for problems in the future, according to Meyer. This rings true for countries with similar financial relief mechanisms around the world.
A second long-term risk that Meyer believes has been under-priced for by insurers and underestimated by businesses is the impact of the pandemic on mental health. He commented: “Businesses are absolutely going to be impacted by that, and the healthcare industry is going to be impacted by that in ways that they haven’t even begun to think about. It’s almost axiomatic that healthcare insurance premiums are going to go up. We could also get into a whole litany of litigation risks associated with firms’ inability or unwillingness to protect their employees during this time.”
Again, that ties into D&O insurance and Meyer’s comment about the coronavirus crisis leading to a domino effect where one risk leads to another. The risk management veteran and former US Navy SEAL, who held a wide variety of global roles at Deutsche Bank prior to joining Supply Wisdom, stressed that businesses need to look at the decisions they make amid the COVID-19 pandemic a little bit differently and “start to look ahead rather than get stuck in a business continuity loop” with a short-term time horizon of around a week.
“Businesses need to start looking at and applying scenarios to how these different risks might crystallise in the future, in terms of what the impact might be from a litigation point of view, from an insurance point of view, and from a business model point of view,” said Meyer. “I’m sure that business models will change on the back of this pandemic, particularly for firms with exposure to continental Europe. Some of these changes are almost too big and complex to get your head around, but it’s important to think about them. Businesses have to challenge their assumptions and use techniques based in scenario analysis to consider a worst case, a best case, and a base case scenario – and they should have an internal process that continually challenges those scenarios.”