COVID-19 and Retail Supply Chains: What Panic Buying Is Teaching Us

COVID-19 business interruptions are hitting the retail sector particularly hard; here's how supply chains are coping with panic-buyers.

Are you running low on toilet paper? So is everyone.

Since the first coronavirus case was confirmed in the United States, “panic-buying” has hit grocery stores, convenience stores and pharmacies. Retailers are fighting to keep the shelves stocked and the doors open, all while keeping their employees safe.

Most grocery stores have shortened their operating hours to allow for sanitization.

Others have limited purchase quantities to avoid empty shelves and others have expanded the number of employees per shift. Stores have also enacted senior citizen shopping hours early in the morning to limit potential exposures for those at higher risk.

But what is it that these panic-buyers are so worried about? An extra bag of frozen vegetables won’t keep you from getting sick, and yet major stockouts are everywhere from the bread aisle to the butcher case.

The Consumer as Rational Decision Maker

One supply chain expert said assuming consumers aren’t crazy can help retailers understand the phenomenon of panic buying.

“One of the strategies that retailers can use [to combat panic buying] is to adapt to the reason that customers are buying more,” said Ananth Iyer, professor of supply chain management and senior associate dean, Krannert School of Management, Purdue University.

“Think of the consumer as the rational decision maker.”

As a rational decision maker, consumers panic buy for one of four reasons:

They think prices will go up.
They’re consuming more.
They’re afraid they won’t be able to get to the store.
They’re afraid the store will run out.

According to Iyer, the reasons behind the recent surge to grocery stores is a little bit of all of the above.

“Many stores have committed to not raising prices during times of crisis, so that initial worry has more or less gone away. As long as stores remain open, people realize they can still access things. Regarding stockouts, many stores are limiting the amount of purchases per item.”

Preparation Versus Improvisation

Ananth Iyer, professor of supply chain management and senior associate dean, Krannert School of Management, Purdue University

So what does this hasty trend mean for supply chains and how will it affect the future of retail?

Everyone has to eat, and grocery stores are typically where you find the cheapest and widest variety of food options. The industry’s intense competition and small margins work favorably for consumers in times of crisis.

“There are two ways to operate: being cost efficient and being responsive,” explained Iyer. “Historically, grocery store supply chains try to be very efficient.”

Unfortunately, the current environment retailers are forced to operate in is very responsive, which is a more expensive method of operation and can put the pinch on retailers.

On top of increased demand, stores are operating within shorter hours and most likely with more employees. With more cleaning responsibilities, the productivity of employees also goes down.

“You may need to do things to protect your employees,” Iyer said. “A lot of this means that whatever capacity of people you have, they can’t operate as efficiently, you have fewer operating hours and potentially higher input costs.”

Creativity Can Keep Costs Down

The balancing act for managing supply chains is being able to react to trend changes, fulfill increased demand, and then go back to being cost efficient without too many losses.

Humans are creatures of habit, and if they keep finding bare shelves at the store they usually shop at, they are going to find another go-to.

“From a customer perspective, the system is set up to satisfy them. From a store perspective, it’s about preventing stockouts and one option is to have a little more flexibility regarding how a particular category demand is going to be benefited,” said Iyer.

While no grocery store can exactly predict what consumers are going to buy more of one week and less of the next, there are strategies to keep the shelves full but not overflowing.

“If stores permitted a slightly broader selection of sources, then the odds of stockout decreases. The second option is to leverage the ability of the supply chain. That could be buying in bulk from the distributor; that’s a way to speed up delivery.”

A third option would be a larger emphasis on different delivery methods and online ordering. When inventory is ordered against what people purchase and prepay for online, it allows more time and insight for the retailer to schedule when things are coming in.

“The solution is getting people to realize that they still get what they want, they may not get it immediately. That strategy buys stores quite a bit of flexibility and time,” Iyer explained.

Robots Can’t Get Sick

The current climate in which supply chains are being managed is likely going to have a profound impact on the future of the retail industry, even after life goes back to normal.

Businesses are already thinking about what they can do to offset losses and avoid interruptions should something like this ever happen again. Some of these solutions include a greater focus on online ordering, the faster adoption of automation and leveraging third-party delivery services.

“Whoever is in the transportation industry, I would have them thinking about last-mile partnerships with third parties, which takes the pressure off the retailer,”said Iyer.

While we already see robots cleaning the floors in supermarket aisles, robots stocking the shelves have yet to be seen. Had they been there, these robots would likely have minimized the number of employees exposed to the risk of contracting COVID-19.

“[Coronavirus] might hasten the adoption of automated solutions in retail because those solutions are robust,” said Iyer.

While the adoption would result in unemployment for some grocery store workers, Iyer put it logically: “Robots don’t get viruses.” &

Emily Spennato is a former staff writer with Risk & Insurance.

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.