The COVID-19 pandemic has affected industries around the world. Restaurants and stores have closed while people quarantine inside their homes.
Governments are continuing their efforts to try to slow the reach of the virus. Companies are similarly trying to protect people, while also evaluating their financial losses. Many are looking to their insurance policies for an answer.
The insurance industry is more important than ever as people try to manage risk during such uncertain times.
Keep reading to learn some of the insurance supply chain risks that COVID-19 may cause and how to manage these disruptions.
How Is COVID-19 Affecting the Global Supply Chain?
It’s important to first start by understanding how this pandemic is affecting the overall global supply chain.
Abrupt shifts are happening to business models with company revenues falling globally. This is mostly due to both disruptions in production and weakened demand. These changes also impact third-party contractors and vendors.
To adjust to the new way of the world, businesses are changing their operation models. For example, restaurants can no longer serve customers in person, so they are relying on take out and delivery.
The rapid change of risk profiles is happening everywhere in the market today with businesses closing their doors in an unstable financial market. Some of this change will be permanent. This is serving as a wake-up call for many business leaders and risk managers, including those in the insurance industry.
What Is the Risk Management Dilemma Now?
Insurance agencies are still trying to understand the impact of the pandemic at this stage, whilst some may be very obvious for example Travel insurance others are yet to be realised. Conditions for businesses and the economy are changing every day, as are the plans from governments around the world.
It’s also possible that the worst is yet to come in many countries globally. This is because those affected seem to level out in some areas of Asia and are rising in others, like the US.
Some of the immediate issues insurers and brokers are dealing with include coverage details, claims handling, loss control and more. A lot of clients are reaching out about their policies and asking if they’re covered for different aspects of their business.
With that, the pandemic is revealing gaps in coverage that may prove to be costly. Risk managers are planning for the new insurance situation. Insurance companies will look at their clients’ prior claims history.
If someone filed a claim, it’s important to tell a story around it. What the person learned from the prior incident and what steps they’ve taken to avoid it happening again are important.
What Will This Look Like Going Forward?
Going forward, it will be important to engage with brokers and the market early, and then get a reading on how insurers are feeling. Most likely, every business will reassess their risk management strategy because of the pandemic. So listening to CFO’s will also be important.
Forecasting financial performance will be nearly impossible since there is so much we cannot predict in the world during these unprecedented times. This type of unseen forecasting should be reflected in any rating charges as well.
Also, as business strategies evolve, it’s important to think about the total cost of risk. If a business has all employees working remotely, how does that affect exposure to any kind of future incident? How will businesses plan for changes once the pandemic has been resolved?
When thinking about the global supply chain, it’s important to know how third-party vendors change their risk profiles. So, if they start using different contractors or change their business practices, that will affect the supply chain. Thinking about efforts to mitigate risks is important in every aspect of the supply chain.
What Lessons Can COVID-19 Teach Businesses?
The basics of risk management include identification, quantification, mitigation and transfer. This global pandemic is offering the chance to look at businesses with a new perspective on risk.
Many companies were caught off guard when COVID-19 hit, so there are a lot of risks that are challenging to the supply chain. It’s important to identify where the risks occur and create business models that address these issues.
Businesses might be choosing to disperse manufacturing and production, and employees might start working remotely on a long-term plan. When it comes to quantification for the global supply chain, you must first understand each aspect of your third-party vendors. So if you want to understand the level of exposure, you need to know who supplies your supplier.
Business risks also include the strategic objectives of a company, so analyzing where the risk occurs here is important as well. Some businesses may choose to let employees go and use freelancers, especially for media companies.
Changes in Risk Management
Uncertain business conditions will make risk transfer difficult right now as well.
By having conversations with brokers and insurers, risk managers might be able to test their coverage. Discussing different degrees of unclear futures, while thinking about corporate strategy and risk management will be important. By creating tight processes around risk management, businesses can have a better chance of handling this pandemic.
Insurers will also likely seek to offset the impact of interest rates, and overall market changes so the insurance market could look different in the future. Keeping an eye on global supply chain coverage, like business interruptions, will be helpful.
Risk managers and insurance partners are experts in dealing with traumatic events. Even if this pandemic is unprecedented, there are ways to assess the market in order to move forward. This is a wake-up call for a lot of businesses to create better plans for risk management.
Understanding Insurance Supply Chain Risks From COVID-19
Learning about insurance supply chain risks from COVID-19 is not an easy process, and will need to be assessed from many angles. This pandemic is clearly affecting the global supply chain, making it important to have clear risk management strategies.
It will also be helpful for businesses to diversify and for risk managers and insurers to continue to work on evaluating the situation as it grows.
Contact us today to find out how we partner with insurers, brokers, government entities and businesses around Australia to develop custom claims solutions.
