Everything You Know Is Wrong
Feb 18, 2021

If you have teenage children, you've probably been told this already, but in this case we are going to talk about risk management and a new report from AXA and Advisen which has the cheerful title, "Everything you know is wrong". The overriding message of this report is that managing risks post-COVID is different, almost across the board, from our idyllic life pre-COVID. We recommend this essay as an important "think piece" to help you review what you have addressed thus far and what remains to be rethought in terms of policies, protections, and procedures.

The purpose of this report is to be provocative and it is best read with an open mind. The heart of its message is straightforward:

        

Pre-pandemic insurance and risk management strategies may not be relevant in the future. Risk managers and their brokers must understand how risk profiles have changed and ensure that risk management programs keep pace with evolving exposures.

One example - obvious, but striking in its impact: going forward, every enterprise must hedge against the possibility of another new pandemic*. The way COVID is spawning new variants as we watch should tell us that the last several decades when pandemics, like SARS, threatened but never materialized may have been an atypical quiet period. If you think this may be true, how does that begin to shape the next normal, from new ideas about business interruption coverage to major changes in office and factory layouts and other aspects of our business models?

Or another obvious - but not really - question: if we think telework is here to stay in some form or another, what does this do to how we hire, train, on-board, supervise, and promote new employees? What impacts might this have on what you need in a workers' compensation program? How do the current and pending cause presumption regs regarding COVID change what you need in terms of a clinical network for comp claims?

How do your needs for security and property/liability coverages change if you need to maintain physical retail locations when malls and downtowns are being hollowed out? What happens to risk when the stores on either side of your location are vacant long term?

Our point here is not to play Mr. Answer Man. It is only to suggest that you spend some quality time with the slew of new questions that 2021 is throwing at us. Some may not apply and you may determine that your existing provisions are still adequate for others, but let's be sure.

From the report's conclusions: "Many organizations changed their operating models in ways that will persist long after the current crisis has passed. As a result, pre-pandemic insurance and risk management strategies may no longer be relevant."

*Assuming that COVID runs out of new variations like the South African strain that may not respond to existing vaccines.

 

And Now a Few Words from the Coach

On the 23d of September, 1779, the captain of His Majesty's frigate Serapis demanded of the battered American frigate, Bonhomme Richard, "Have you struck (surrendered)?" The American captain, John Paul Jones, bellowed his reply, "I have just begun to fight." Jones rallied his crew and went on to take the Serapis in a hard fought battle off the coast of Scotland, on King George's doorstep.

That moment in our long struggle to throw off the yoke of British colonialism demonstrates resilience and mental toughness in dramatic form. According to a Gallup poll, 76% of our employees feel occasional burnout on the job and 28% endure it "very often" or "always." We mention this because National Comp's latest Comp Talk features former basketball coach Pam Borton's discussion of how we can help our people develop resilience and manage real life pressures and stressors. Risk management is more than policies and endorsements. It's also a culture of taking on risk and taming it, leading by example.

Any coach who has helped teams consistently move ahead in NCAA tournaments knows something about dealing with demanding times. One of the most daunting risks we all face now is maintaining the resilience and flexibility to deal with unusual and unexpected challenges of the sort we document regularly here in our Journal.

It isn't all gloom and doom. Take a few minutes to hear what a successful coach can tell you about how to get ahead of stress and doubt. We all need to know more for our own use and to guide our teams. Captain Pearson of the Serapis had a larger ship and crew and better armaments. The rag-tag Americans had the will to win and John Paul Jones. The rest, as they say, is history.


 
Bonhomme Richard vs Serapis
 

 

Quick Take 1:
After the Ball Was Over...

We love the name of this publication, Collision Week (CW), so imagine our delight when CW summarized a new survey looking into the next normal as it involves driving and, thus, potential collisions. The study asked about both current driving habits and plans once the pandemic wanes. We've heard the first part several times now: "A new study from the Insurance Research Council (IRC) finds that two-thirds of respondents worked from home at least part of the time during the COVID-19 pandemic."

But here's the news: the IRC asked the same folks what they see happening in terms of their driving practices after the pandemic. Fifty percent expect to continue working from home at least part time and forty seven percent expect to do less in-person shopping. In other words, the reduction in traffic flows that we have seen thus far will probably continue to some extent, as will the heavier use of delivery services. If you manage a fleet of any size, you may want to be thinking about what this means longer term for miles driven by type of vehicle. Your pre-2020 collision and damage stats have to be considered suspect for predictive and underwriting purposes going forward.

As we note in our lead for this issue, everything you think you know is (or may be) wrong. Might this be a good time to consider a new form of parametric insurance for A/L, especially for the PD component? We've never had a better opportunity to try new ideas.


 
Are all your A/L exclusions current?
 

 

Quick Take 2:
Want Chips with That?

If your company is in the business of making stuff - you know, manufacturing - you may already know this. If not, we'll try to break the news gently. The world is running low on semi-conductor components. The Detroit Free Press ran a story a few days back about how this ongoing shortfall is impacting our domestic auto industry and causing auto makers to either close down plants or reduce shifts. In addition to the Big Three automakers here in the US, global automakers that have been impacted by the chip shortage and have cut production include Toyota, Volkswagen, Honda, Mercedes-Benz, Audi, Subaru, and Nissan.

The shortage is not limited to auto manufacturing either. Essentially all equipment with significant tech inclusions is getting harder to find. The tech press has gone into eye-watering detail on the several interacting causes of these shortages, of which COVID is one, but only one, but the issue comes down to silicon wafers. Not enough are being cranked out in the right sizes. This in an age when everything, often including the RFID price tags on the products in question, uses chips. Add to this the fact that the US now produces only about 14% of the world supply of silicon chips and you have a recipe for potential bouts of serious business interruption.

Supply chain risk seems to us to be a growing area of risk concerns. Like so many other developing issues in business - the so-called retail apocalypse, for example - COVID has made supply chain risk much more visible. We think of COVID as the quintessential "risk amplifier" which magnifies the impacts of old risks while bringing new ones to the fore. What can we do in the risk community to develop new and better methods - from new policy and coverage definitions for business interruption protection to improved supply chain practices and internal audit protocols, to help our organizations cope with this cancerous risk?

While you mull over supply chain exposures, keep the following in mind:

It's not organizations that compete, it's their supply chains.
 

 

Say It Isn't So...

While the following report centers on retail insured auto thefts, it should be important to anyone who manages a fleet of cars or who has any form of exposure to losses caused by auto theft:

A preliminary analysis by the National Insurance Crime Bureau shows there were 873,080 auto thefts in 2020, or almost 2,400 a day. That's a 9.2 percent increase over 2019 when there were 799,644 thefts and an increase of more than 73,000 thefts - or about 200 more a day on average.

Anecdotal information also suggests that carjacking incidents are on the rise. Does your company have road warriors? Are employee parking lots secure? 2020 dazzled us with new risks, but the old ones never went away.


 
Trial of a horse thief, 1860.
 

 

Words to Remember

A cheery thought for the day:


 

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