Shifting political winds
The last two months of 2020 saw key political moves and decisions that will shape the global economic and social landscape for 2021. Events included the globally-watched US election – where Joe Biden defeated President Donald Trump in a victory that turned contentious and, more recently, violent as rioters stormed the US Capitol – as well as the ongoing Brexit negotiations, for which an agreement on future EU-UK relations was concluded in December (though the European Parliament still needs to approve the deal).
In the US specifically, the Biden administration is likely to have several key impacts on the insurance industry, from healthcare reform to the business interruption landscape as experts predict stricter lockdowns are sure to follow his inauguration on January 20. On a global level, Biden’s environmental policies will have implications for political risks since the embracing of greener policies by the US could mean that global insurers will face more widespread pressure to stop insuring and investing in environmentally harmful projects, while the banning of new permits for oil and gas production on federal lands could have implications for insurers working in these industries and the regulatory risks their clients may soon face.
Moreover, as we’ve seen over the past four years, the US administration’s relations with its trading partners can have serious implications for supply chains and other related political risks for international companies. Biden’s likely more positive relationships with some leaders, and potentially more tense relationships with others could introduce a new climate that commercial insureds and their insurers will have to navigate carefully.
On the other hand, insurers have already adapted to a post-Brexit world, with many moving their financial centres out of London, though, again, the UK’s ability to move ahead and sign new trade treaties with its trading allies could bring challenges for supply chains and evolving political risk for companies operating in the region.
Rollout of the COVID-19 vaccine and ongoing pandemic impacts
Vaccines for COVID-19 have started to be distributed in many countries around the world by now, though some governments have been more effective than others at managing the logistics of a massive vaccine program like this one. Already, insurers have been dragged into the vaccine-related spotlight, with a US health insurer recently being criticised for prioritising the vaccination of its own employees over its clients.
Insurance marketplace Lloyd’s of London has also been heavily involved with the vaccine, offering cover for the delivery of any future vaccine to enable its safe transportation to low-income countries, and launching risk mitigation services designed to support the global distribution of the vaccines and critical health commodities. Additionally, Aviva Singapore has announced that its health insurance products will automatically cover side effects arising from the COVID-19 vaccination at no additional premium.
Meanwhile, in South Africa, medical insurers plan to pay for a COVID-19 vaccine for as many people who don’t have coverage as they have members and expect the program to cost as much as US$464 million.
More broadly, the rollout of the vaccine and its success in combating the deadly spread of the coronavirus will determine how soon global societies can return to normal – or as close to normal as is possible given the many permanent changes that COVID-19 has introduced. “Until the world has a vaccine and all borders are open and travel resumes, I believe we’ll continue to experience a very different face of business,” one New Zealand broker recently told Insurance Business.
Many insurers have upended business as usual for the longer term, such as Gallagher Bassett, which made significant overhauls in how it hires and trains new frontline staff, with the focus now being placed more on empathy and setting expectations, rather than the ‘order taking’ that might have been the norm in the past. These changes are reflective of the ways in which many insurance companies have had to evolve over 2020, taking into account the widespread move to remote work. Workplace evolutions will be ongoing throughout 2021, and will be determined by how successful the vaccine proves to be.
Moreover, as was the case in 2020, the COVID-19 pandemic will continue to be the greatest threat to global financial stability in 2021, according to the annual Systemic Risk Barometer published by the Depository Trust and Clearing Corporation (DTCC), which will in turn have implications for the operations of insurance firms and their insureds.
Unknown big-ticket risks
There have been many ‘lessons learned’ from the coronavirus pandemic so far, one of which has been that the biggest threat to the insurance industry and other industries could at this point be a relative unknown (or more likely, a largescale event on an unimaginable scale). While pandemics were a clear and present risk before 2020, few risk models took this type of one-in-a-100-year event into account. Now, risk and insurance professionals are becoming keener to better understand the impacts of such events, many of which we’ve had plenty of warnings about already, such as the risk of a massive cyber breach that leads to a global outage, or the fallout of increasingly catastrophic natural disasters and related insurance implications.
The coming year and beyond will hopefully see greater emphasis placed on preparing for such an event to ensure that similar issues that arose during the pandemic, such as the business interruption legal mess, and financial strain on businesses and individuals, don’t happen again.