Covid-19 & Planning – Part A

Please go to this prior link for The Case for Contingency Planning.  The original article on The Case for Contingency Planning has been split into the Covid-19 virus (Coronavirus) information, which is this article, and The Case for Contingency Planning.

This section is as of March 7, 2020, and much of this information has changed since this was written.  The article on the primary thesis, The Case for Contingency Planning, and the discussion of and links to information on the potential impacts on early stage venture financing is retained at the original link, here.

Covid-19 & Estimates

The Covid-19 virus (Coronavirus) has spread beyond China and has arrived in many countries around the world, the US included.  At this point, on March 7, 2020, it is unclear how far the Covid-19 will spread or the human toll and economic damage it will cause.

Economic disruption is occurring now and it is likely that more disruption will come before it is over.  The economic result may be a reduction in economic activity, with staff, business flow and supply chain challenges impacting many organizations to varying degrees.  Businesses and other organizations should be assessing their exposure, specific challenges, and action steps they can take.  The Covid-19 virus may be a survival threat for startup and early stage companies, including Insurtechs, trying to get traction or ramp up sales.  The ability to raise capital at a favorable valuations, or at any valuation, may be significantly impacted.

Why is This Discussion Important Now?

How each management team views and reacts to the Covid-19 virus exposure may dictate their organization’s prospects in the future.

Startups and early stage companies, and other organizations, should assess their business prospects in light of this new exposure, plan for change, and take action early in the process. It is particularly important for thinly capitalized organizations such as startups and early stage companies that may need to raise capital.

Because Insurtech strategies are varied, there is no one approach that will apply broadly.  Insurtechs will generally face challenges similar to other startup and early stage companies.

Below are a few quality presentations by credible companies that provide valuable perspective for startups, early stage companies and other organizations.

Where are We Now?

There has been lots of debate about the severity of the Covid-19 virus.  Some are claiming that it is less of a risk than the flu.  Others are concerned that the combination of a highly contagious virus combined with a material fatality rate will result in a Black Swan event and cause significant economic turmoil.

At this point Covid-19 has not been contained in China, and is beginning to show up around the world.  For some locations, like Italy, the virus outbreak occurred a number of weeks ago, the first significant outbreak outside of China, and the situation is difficult at best.  In the US, the outbreak is just starting to become widespread.

Information on Covid-19 is varied, not always accurate, and sometimes biased.  A good way to ask questions is outlined in this article (here), and a not so great way to look at the situation (“automobiles & the flu are worse”) is here.

A few key points to keep in mind:

  • The Covid-19 virus is not contained, and containment is hard to make work.
  • Virus is highly contagious.
  • Symptoms may not appear for a period of time, and during that time it appears that the virus can be transmitted.
  • The reported infection numbers are under-reported.
  • There is a tendency for some governmental entities to delay reporting, or only partially report, bad news.
  • The fatality rate is difficult to accurately calculate (see below).
  • Widespread testing has been difficult to achieve, and may not be practical with current technology.
  • Containment and social distancing appear to have some impact, maybe slowing the spread in some communities, but are difficult to effectively implement.

AIR Worldwide, a catastrophe risk modeling firm, stated that actual counts are likely to be much higher due to significant underreporting (see here).  Other key points:

  • Transmission of the disease outside of China is increasing substantially in countries including South Korea, Italy, Iran, and Japan, with increases expected in more countries.
  • The current estimate of people who have developed severe symptoms ranges between 8% and 20%.
  • There is high uncertainty around the fatality of the disease… The current estimation for the average CFR (case fatality rate) ranges between 0.5% and 4%.
  • Currently there is no specific treatment available for this disease other than supportive care.
  • The current increase in the number of cases in some countries outside of China shows that there has been silent transmission that started in clusters and expanded to communities before health officials were able to contain them completely.

What Happens Next?

Authorities, such as governmental entities, healthcare organizations, and large companies will be compelled to take action for employee safety, business continuity and other reasons.  For example, airlines are being significantly impacted from cancellations (see here), and are making changes (see here), paring operations (see here), or in one case shutting down (see here).

Some organizations and individuals have already taken steps which will have economic impact:

  • Trip & business conference cancellations (see here).
  • Reduced retail sales (see here).
  • School reductions, tele-education & closures (see here, here, & here).
  • Work from home (see here).

The Rest of the Article:

The article on the primary thesis, The Case for Contingency Planning, and the discussion of and links to information on the potential impacts on early stage venture financing, is here.

Innovate Insurance – Innovation & Entrepreneurship in Insurance

 

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