April 3, 2020 by David Gambrill
Canada’s P&C industry is used to planning for demand surges in times of disaster, but the demand for resources during the global COVID-19 pandemic is on a totally different scale.
“Generally, I think people associate business continuity plans with isolated events – floods, fire, also earthquake,” Insurance Brokers Association of Ontario (IBAO) CEO Colin Simpson told Canadian Underwriter recently, when asked about the impact of COVID-19 on a brokerage’s business continuity planning.
As Simpson pointed out, named perils in an insurance policy tend to be restricted to geographic locations. In these more localized disaster scenarios, insurance carriers, brokerages, or adjusting firms can often respond by calling in or relying on resources from other areas. For example, a larger brokerage can bring in people from other offices to pitch in or claims adjusting firms can call in adjusters from a different province to help adjust claims.
But a global pandemic is a totally different animal. “I think the biggest issue has been how wide the effect has been in such a short period of time,” said Simpson. “Fire may affect a lot of people at once, like in Alberta [where a devastating wildfire in Fort McMurray, Alta., caused $3.8 billion in insured damage in 2016], but not a whole country at the same time. The pandemic spread around the world incredibly fast, in a matter of a few months. That’s the difference. So, you have to be able to respond as an entire business and as an entire industry.”
One lesson from the current situation can be applied to managing supply chain risk, Chris Snider, interim head of risk services at Zurich Canada, told Canadian Underwriter for a forthcoming article in the May print edition.
“We have never seen anything move as fast and create as much global conversation and action – shutting down regions, countries, states, provinces,” Snider said. “With previous diseases such SARS, swine flu, bird flu, even Ebola – there was not a global reaction like this.
“So that is definitely a lesson learned: If this happens again, we can expect there to be a similar reaction; and so we can already start planning for that right now. For example, we can diversify the supply chain, so we are not threatened with 80% of the supply chain being in Asia or central Europe or something like that.”
Diversification in a global pandemic scenario needs to be done thoughtfully, Snider notes. Where you choose to shift your resources will have to be done selectively and strategically; to do this, you will need accurate and updated information. For example, shifting your supply chain from China to Italy, Spain or Germany (all COVID-19 hotspots in Europe) could actually increase your risk exposure, not reduce it.
And while you might see demand surge for building supplies after a hurricane in Florida, in the global COVID-19 pandemic, the demand surge is happening everywhere at once, as Simpson points out. Most recently, a controversy Friday over the supply of crucial medical resources manufactured by 3M threatened to disrupt Canadian-U.S. trade relations.
The food supply chain has been similarly affected. To avoid the spread of COVID-19, many stores have been asked to provide delivery services online, but the stores are struggling to keep up with the peak in demand, as Simpson notes.
The impact of global demand surge should be factored into P&C organization’s updated business continuity plan.
“I find that the knowledge gained out of [the pandemic], and how the different parts of our economy are responding, is going to be key to how we structure ourselves going forward, Simpson said. “I think there are things we will have to look at as a society, understanding that this isn’t just a one-off. How do we prepare ourselves better for this in the future? Whatever is affecting society as a whole is affecting brokerages.”