Cyber Attacks, a Pandemic, Fiscal and Governance Instability: The 2020 Risks We Can’t Ever Forget

By: Les Williams | December 14, 2020

Les Williams, CRM, is Cofounder and Chief Revenue Officer of Risk Cooperative. He holds a B.S. in mechanical engineering from the University of Virginia and an MBA from Harvard Business School. Prior to joining Risk Cooperative, Les served in various institutional sales positions at SoHookd, JLL, and IBM.

The old saying “what a difference a year makes” is clearly an understatement as 2020 comes to a close.

Wildfires engulfing large portions of California and Australia, the coronavirus pandemic, the unprecedented drop of U.S. oil below $0 a barrel, the global protests for racial equality ignited by George Floyd’s killing, and the debates surrounding the U.S. presidential election results were some of the indelible highlights of this tumultuous year.

In the waning months of 2019, the World Economic Forum (WEF) identified the top 10 global risks headed into 2020 as fiscal crises, cyber attacks, unemployment/underemployment, energy price shock, failure of national governance, profound social instability, data fraud, interstate conflict, failure of critical infrastructure and an asset bubble.

Not surprisingly — and unfortunately — many of these predictions came to fruition as a direct result of the global pandemic.

1) Fiscal crises

Pre-pandemic, developing economies were already struggling, and this situation was exacerbated by COVID-19.

The United Nations Conference on Trade and Development (UNCTAD) reported that global poverty has been steadily rising throughout 2020, the first time poverty has risen since 1998, and is expected to continue on this trajectory into 2021.

The same study found a wide disparity between fiscal stimulus spending per capita, with developed nations committing $1,365 per capita compared to $76 in developing nations and a mere $18 in the most impoverished nations.

The International Monetary Fund (IMF) predicts the pandemic will result in the worst recession since the Great Depression. The IMF estimates a cumulative loss of $12 trillion for the global economy in 2020 and 2021 combined.

2) Cyber Attacks

The coronavirus pandemic caused a spike in cyber attacks globally, mainly due to the vast numbers of employees working remote and away from the hardened security of their corporate offices.

Cyber security firm BluVoyant observed a 2100% increase in malicious domains related to COVID-19 in the U.S., and a 900% increase in domains that sent emails and phishing campaigns in the weeks after the first lockdowns across the country.

VMware Carbon Black found the following troublesome statistics:

February 29, 2020 — 66% spike in attacks over baseline levels on the day multiple U.S. states declared public health emergencies
March 1 — 66% spike in attacks over baseline levels on the day the first COVID-19 death was announced in the United States
March 8, 2020 — a 28% spike in attacks over baseline levels on the day Italy declared a public lockdown
March 11, 2020 — 22% spike in attacks over baseline levels as the World Health Organization (WHO) declared COVID-19 a pandemic

3) Unemployment or Underemployment

The International Labour Association (ILO) reported that during the first quarter of 2020, approximately 155 million full-time jobs were lost globally, many of which were a direct result of the pandemic.

That number increased to approximately 400 million total jobs in the second quarter, and the ILO estimates that 345 million jobs were lost in the 3rd quarter.

In the final quarter of this tumultuous year, the association estimates that 245 million jobs are expected to be lost. The pandemic disproportionately affected workers on the lower end of the pay scale, further increasing the income inequality and social instability on a global level.

Certain industries are thriving during the pandemic, namely telemedicine, grocery stores, online collaboration tools (Zoom, Microsoft Teams, etc.), and ecommerce services like Amazon.

However, entities like hospitality, travel, restaurants, entertainment, brick-and-mortar retail, small businesses with low cash reserves, and small colleges will see further layoffs.

4) Energy Price Shock

The global pandemic led to a historical drop in the price of oil, on April 20 U.S. oil fell below $0 a barrel for the first time in history. As travel ground to a halt, oil storage facilities reached capacity leaving no room for storing this commodity.

While the price of oil has recovered in the 3rd and 4th quarters, the energy price shock rippled around the globe as numerous countries went into lockdown and travel slowed significantly in the early days of the pandemic.

Gartner interviewed 317 finance leaders, including more than 200 CFOs, from companies having annual revenues between $500 million and $50 billion with as many as 100,000 employees. Approximately 75% of these leaders said they plan to move at least 5% of their workforce who had previously reported to an office to a full-time remote schedule.

This trend, along with the increased popularity of virtual video teleconferencing, may further reduce the need for oil as the global workforce continues to adopt remote working policies. The massive oil supply chain remains at risk, with both upstream and downstream providers feeling the impact of oil’s decline this year.

Looking Forward

Hope does spring eternal with the announcement of several viable vaccines created to combat the virus. Moderna, Pfizer and AstraZeneca are three pharmaceutical firms expected to lead the charge in vaccine distribution, with hopes of expediting a global economic recovery.

Companies must use lessons learned during 2020 to adapt as more lockdowns are predicted to occur in the new year due to rising COVID-19 cases.

While the immediate future of the global economy remains uncertain given the unpredictable nature of this pervasive disease, what is certain is the readiness of risk managers, businesses, and governments around the world working together to defeat a common enemy. &

How a Carrier Partner Can Help Navigate a Challenging Management and Professional Liability Market

A combination of a choppy economy with increased claims frequency and severity could lead to rate increases in the Management & Professional Liability market.

By: Risk & Insurance | April 3, 2024

Rates in the management & professional liability (M&PL) markets were on the rise from 2020 to early 2023 and are now falling rapidly.

M&PL divisions manage a number of different insurance products including management liability (D&O), professional liability (E&O), employment practices liability (EPL), fiduciary liability policies, cyber, etc. In 2023 and into 2024, a big influence on the marketplace has been the extremely aggressive and softening public company D&O market.

Though these rates have been softening for management liability, that may change over the next few years as companies continue to adjust their business models motivated by economic uncertainty. Layoffs were up nearly 200% last year, Forbes reported, even as other recession indicators, like the inflation rate, improved. A recession could lead to an increased claim activity and force carriers to raise rates.

“Whenever there is a meaningful downturn in the economy, we tend to see claim frequency pop up,” said George Schalick, Jr., senior vice president of the Management and Professional Liability Division at Philadelphia Insurance Companies (PHLY).

With continued fiscal uncertainty, businesses potentially already burdened with pandemic-related claims should seek a carrier with a long history in M&PL products. They will provide much-needed risk management guidance and be better positioned to support their insureds during market fluctuations.

Why Insureds Might See an Uptick in M&PL Claims

George Schalick, Jr., Senior Vice President of the Management and Professional Liability Division, Philadelphia Insurance Companies

The current soft market might come as a bit of a surprise as it does not track with previous underwriting cycles and economic conditions. Afterall, many privately held and non-profit organizations struggled during the early days of the pandemic with shutdowns and rapidly declining revenues. But the Government assistance programs, like the Paycheck Protection Program loans, helped keep many afloat during the tough times.

“During COVID many organizations stopped doing business until they were able to sort out all of the health and safety challenges,” Schalick said. “They were forced to lock down, but then all the government assistance programs allowed them to keep people employed. The increased volume of claims we anticipated we would see coming from the lockdowns and restrictions that were imposed upon businesses in the U.S. didn’t manifest at first.”

“Just because there wasn’t an onslaught of reported claims at the beginning of the pandemic, doesn’t mean the circumstances that would give rise to a claim being reported didn’t occur. Courts and the judicial system were closed or slowed and now that they are back open, we’re starting to see the circumstances that occurred during the COVID lockdowns becoming claims today,” Schalick said. “Litigation is progressing.”

Added to the delayed pandemic litigation is a concern over newer claims that might be filed as the country inches toward an economic downturn. Though a recession was avoided in 2023, experts think a soft dip could occur in 2024, with 76% of economists saying there’s a 50% or less chance of an economic downturn this year — that almost always results in more management liability claims.

“During the Great Recession in 2008, we saw an almost immediate spike in claims because of the economic conditions and the pressure it placed on organizations. They were making personnel changes with significant belt tightening almost immediately.” Schalick said.

What’s in Store for M&PL Policy Rates in 2024?

Despite an uptick in claims and increased economic uncertainty, management liability rates haven’t increased, resulting in market-wide pricing levels that may not meet the increased pressure of rising settlements and jury verdicts.

“Rates are going the other direction and settlement values are not falling,” Schalick said.

The mismatch between rates, claim frequency and severity is, in part, because carriers experiencing the dramatic soft market in the public D&O market are seeking premium gain in the private and non-profit market.

“In the public company market, the rates have been decreasing significantly. The rates were increasing in the private, not-for-profit market, and rightfully so, but there’s a desire to supplement overall mid-size D&O for carriers who also write private not-for-profit, and they see that as an opportunity to aggregate premium,” Schalick said. “So the always competitive landscape in the private, not-for-profit market has dramatically increased in the last 18 to 24 months.”

Still, companies of all sizes and types should be concerned about management liability rates in the future. Legal system abuse is resulting in increases in both the amount of litigation and the size of verdicts plaintiffs are receiving.

Certain areas of the country are particularly vulnerable to this type of legal system abuse. As a result, insureds in these localities are likely to be vulnerable to rate increases.

“The environment is so positive for the plaintiff that forces premium increases so carriers are able to stay in that market long term,” Schalick said.

Why a Tenured Carrier Partner Can Help Insureds Navigate An Uncertain Market

It’s clear that insureds are facing an uncertain M&PL market over the next few years. Fortunately, carriers with a long history in the M&PL space will be there to offer stability.

Philadelphia Insurance Companies has been supporting this market for 35 years. PHLY is committed to offering long-term rate stability, even as economic and claims trends start to push premiums upwards. They have an appetite for all sorts of companies, large and small, for-profit and nonprofit alike.

“We’ve been at this game for a long time and are one of the most tenured underwriters in this space,” Schalick said. “We like to stay very consistent.”

PHLY has worked with both for-profit and non-profit on management liability policies. With dedicated M&PL teams throughout the company’s 13 regions, PHLY provides the support agents and brokers are looking for on behalf of their clients. The teams know their regions well and can respond to local trends. They’re also dedicated to making the renewal process as easy as possible for their partners and policyholders.

“We have real confidence in our results, so we focus a lot on making the renewal experience as painless as possible for all agents and insureds,” Schalick said.

The company is also investing in tools to help insureds avoid losses. Earlier this year, they launched a new online risk management platform, PHLYGateway, which offers resources for insureds on how to create an employee handbook and trainings on issues such as recognizing workplace sexual harassment and discrimination.

If insureds have questions, they can consult a Best Practices Help Line, provided via the platform. That way, they can get on the spot risk management guidance to help them prevent claims.

To learn more, visit: https://www.phly.com/mplDivision/managementLiability/default.aspx.

This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Philadelphia Insurance Companies. The editorial staff of Risk & Insurance had no role in its preparation.