Insurance offers solutions to pandemic’s financial fallout, says Marsh

Insurance may not have initially responded well to the pandemic, but it can help organisations deal with its financial consequences, according to a Marsh-hosted session at Airmic Fest. James Crask, resilience advisory lead at Marsh Risk Consulting, said the financial impact of the coronavirus pandemic will be the next phase of the crisis. Financial challenges will be reflected in cash demands on businesses, as well as record government deficits, rising unemployment and structural changes to the economy, he explained. So far, insurance has not covered itself in glory during the pandemic. Business interruption (BI) losses have sparked coverage disputes and litigation. In the UK, this culminated in a test case brought by the Financial Conduct Authority. The judgment sided with policyholders on the majority of key points, but appeals and individual contract interpretation may yet affect insureds’ ability to recover Covid-19 BI losses from insurers. “Let’s face it, during the pandemic insurance has not exactly performed heroics for most companies in addressing the core pandemic business interruption risks,” said Steve Harry, senior vice-president at Marsh Risk Analytics. “So you might not hear the CFO, treasurer or board member say, ‘what we need to get us out of this crisis is more insurance’. But what you may well hear are references to financial issues that your firm will probably face as a result of the pandemic. These are issues that present opportunities for insurance and risk to play their part,” he said. According to Mr Harry, risk managers can turn Covid-19 from a threat to an opportunity. However, they will first need to bridge the “language gap” between insurance and corporate finance, and match insurance solutions to Covid-19-related financial risks, he said. “It is important for risk managers to listen to what is happening at their firms and pick up what is going on financially to make the risk financing programme more relevant,” said Mr Harry. “Insurance should be part of the discussion when these financial issues are being discussed. There is a toolbox of capital and a toolbox of expertise that can be deployed to help companies through these financial arrangements. There are solutions out there. It does protect the balance sheet but it can also do a lot more,” he said. The pandemic will see companies seek to reduce cost, maximise cashflow, protect revenues, secure balance sheets and restructure. These are all areas that insurance can assist with, according to Mr Harry. For example, there are opportunities to reduce costs through optimising insurance programmes and premium flexibility. In particular, there are still good cost savings – in terms of premiums and premium taxes – to be made through restructuring and remarketing benefit programmes, he said. More effective revenue protection can be achieved by shifting spend on BI to cyber BI, especially for companies that are seeing more business conducted online during the pandemic. Companies can also protect their balance sheets by tidying up past liabilities, such as legacy disease claims, or take insurance to cover future litigation. Premium financing, surety bonds and captives can improve cashflow, according to Mr Harry. “Consider spreading the cost of insurance through premium financing, claims payments or use parametric triggers that can speed up claims payments… Captives can return money to owners or pay for risk management,” he said. According to Brad Saunders, industry risk leader at Marsh Advisory, companies can optimise their risk management and financing programmes to ensure they respond to the next crisis. “For most organisations, insurance has not responded to Covid-19 as hoped and pandemic risk in general has slipped through the gaps of existing risk frameworks. As such, many have asked the question: How do I optimise my risk programmes so it does not happen to me again?” said Mr Saunders. He recommends using data and analytics to update risk registers and map these risks against transfer solutions. He also advises optimising risk management strategies by comparing major risks with risk management maturity.

Insurance offers solutions to pandemic’s financial fallout, says Marsh

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