As discussed in our previous blog, the world has been shaken by COVID-19. The pandemic's shockwaves have shattered many of the pillars that support both society and business around the globe.
Given the colossal financial toll the pandemic has had on global economies, it's no surprise we are facing prolonged economic uncertainty and hardship around the world. Governments are working hard to create economic stimulus programs, but recovery is expected to be a laboured upward climb (after a sharp decline which we're still currently experiencing).
In this post, we explore how these societal impacts of COVID-19 are providing the context in which a new insurance market norm will have to emerge.
So, what are the significant outcomes that will shape the future of our industry?
Significant recessionary pressures
Numerous organisations are disappearing as the impact of lockdown/long-term financial constraints leads to a sharp rise in bankruptcy and company closures. This loss of business is also causing a correlative spike in global unemployment figures.
And even those organisations remaining open will experience depression (many completely scaling back operations) for the foreseeable future; especially those in, or with clients in, sectors such as hospitality, entertainment and leisure, and travel.
Disrupted supply chains
Today's increasing complexity and scale of supply networks mean procuring companies will now be more exposed to potential disruption as the risk of insolvencies within the chain rises. This shift could see businesses rebalancing their supply networks in favour of more financially robust organisations.
Increased financial costs
Governments are feeling the financial pressure, with the cost of furlough schemes, benefits and other additional expenditure driving a rapid acceleration in their debt levels. However, individuals and business will ultimately feel the pain, with governments responding by introducing tax increases at both a personal and corporate level to combat the mounting debt.
To stimulate continued investment and spending by individuals and business, the UK Government has dropped interest rates to record low levels. However, it's worth noting that abnormally low-interest rates can also be a damper on the economy.
Due to such unparalleled economic upheaval, international stock markets have plummeted in virtually every sector. And many companies are revaluating their current merger and acquisition deals; investors can expect uncertainty, particularly when dealing with global organisations.
On that note, political tensions between global superpowers continue to rise and have led to trade sanctions and increased levels of protectionism. There is an increasing focus on self-sufficiency as international supply chains come under greater scrutiny.
What can we expect in the future?
Looking ahead, while there may be are some signs of stability being re-established, markets are likely to remain fragile for some time. With the advent of the vaccines, we are hoping that things will get better in the near future but we will probably be dealing with the effects of COVID-19 for some time yet.
With so many uncertainties at play, we must move forward carefully. In our next post, we'll look at the direct impact of such a fractured global economy on the insurance market - from addressing forecast losses to longer-term liability issues.
To read more about the impacts of the pandemic please download our report called Responding to a market in flux.