Continuing our webcast series on COVID-19’s implications on various industries, on 21 May we looked at navigating the pandemic cycle in the Manufacturing and Automotive industries in Asia.
Joining me on the panel were:
Phil Hobson, Commercial & Consumer Segment Leader, Asia
Phil Ondaatje, Industrial Manufacturing Industry Leader, Asia
Joan Collar, Mercer Marsh Benefits Leader, Asia
Darrick Cheung, Client Engagement and Development Leader, Client Advisory Services, Asia
Adam Russell, Placement Leader, Asia
There has been a reduction of capacity deployed over the last 6–12 months. Insurers are more selective of risk coverages, placing more pressure on clients to differentiate the quality of their risks. To be in the best position for your next renewal, engage timely with brokers and insurers with a focused but flexible renewal approach.
Manufacturing Shutdown Implications
Prolonged factory closures in manufacturing lines and component suppliers will continue to have major impacts in China, Japan, South Korea, the USA, and India, especially for the availability of stock and parts once markets open up again.
Supply Chain Challenges
The Automotive industry is heavily reliant on just-in-time production models. The Hubei province (Wuhan being the capital) is a key component production location. Many partially completed vehicles will be stored, chalking associated holding costs for original equipment manufacturers (OEMs).
Low Consumer Confidence
Lockdowns make it impossible to visit dealers and have dampened consumer enthusiasm. Early indications of a prolonged drop in sales:
The widespread sales declines will have far-reaching impacts for the rest of the year even with positive government stimuli.
Impact of Consumer Behavior
Based on anecdotal indications, some consumers are questioning their continued investment in cars. We may thus see an accelerated shift to mobility services, such as on-demand, subscription, rental, and less direct ownership.
OEMs and dealers are negotiating line of credit extensions to fund business delays in sales. Liquidity will also play a part in finance foreclosures and stock returns with the resultant depreciation.
Facing the Challenges
From a risk management and insurance perspective, businesses have several tools available to manage costs and improve cash flow. The approaches below were shared by Adam and Darrick.
Speak with your Marsh broker if you believe you have a potential Business Interruption (BI) claim. We can help assess if the policy criteria are met and, subsequently, support the claims preparation to improve expediency.
With likely changes to revenue figures, a thorough review of your business interruption values may potentially qualify you for a return premium or reduction to future premiums. Any material changes in information provided, manufacturing processes, or business activities, for example, alternative revenue streams from the production of PPE equipment, will have to be updated to the insurers. We recommend discussing this with your broker to determine viability.
Alternatively, we can identify your most economically efficient means to finance your risk through Risk Finance Optimization (RFO), which ultimately gives you information on which risk management programs provide the best financial returns. This process is thorough, so it is best to start this several months ahead of your renewal date.
Alternative Risk Transfer options, such as Parametric Insurance, can be a long-term alternative strategy. The use of a captive may provide access to reinsurance markets and potentially more efficient capital.
Joan talked about how businesses in North Asia, and in particular, China, are returning to work, with plants across China have restarted production.
Insurers have started offering innovative benefits such as telehealth facilities and the home delivery of medicine. While non-pandemic claims will be lower this year, we are expecting a spike next year, but in the long run, these advances should help drive down utilization and costs.
An area of concern is Workers Compensation insurance and solutions, as these policies tend to focus on workplace injuries with the traditional “workplace” being production plants and offices. Given the current trend of reduced hours and working from home, it is best to review your Workers Compensation insurance and solutions with your broker.
Health ministries worldwide have been speaking out on the cost of mental health due to COVID-19, and companies are re-looking at mental health resiliency or Employee Assistance programs.
There are three important aspects of this phase:
Mercer Marsh Benefits has been successful in developing continuation benefits for health and Covid-19 treatment and support benefits, in addition to working with companies to plan their return-to-work strategy. Do contact us if you require such support.
Darrick, Phil Ondaatje, and Adam, shared more on the areas Manufacturing and Automotive companies should consider when managing their risk profile changes:
Business Continuity Plan Reviews and Updates
In the short and medium-term, the focus should be on:
Pandemic Risk Vulnerability Assessment and Forecasting Models
In the longer term, these assessments and models enable organizations to evaluate different risk mitigation strategies, manage tail uncertainty under different scenarios (e.g. second wave outbreaks), prioritize strategic projects, and allocate limited resources.
The first 100 days of COVID-19 saw a 26–55% increase in cyber scams. With the increased risk of cyber-attacks, companies should financially quantify such new exposure changes and develop appropriate risk management strategies, which can include insurance.
We expect D&O insurers to increase underwriting scrutiny, so engage with your broker or insurers as early and as openly as possible.
Adam also added insurers expect to see increased number of claims on Employment Practices Liability (EPL) as rapidly evolving HR policies may not have been cross-checked and employees allege discrimination or harassment.
Darrick, Phil Ondaatje, and Phil Hobson, continued to outline how Marsh can provide immediate support through three primary activities:
Our consumer solutions team also develops insurance solutions that can be offered on a B2B2C basis across many industries, for example:
Lastly, Marsh has developed a dedicated risk transfer solution with insurers to consider non-damage Business Interruption cover for Infectious Disease. The policy is triggered either by the World Health Organization (WHO)’s notification of a disease, followed by deaths in country, or by the WHO’s issuance of a Public Health Emergency of International Concern (a PHEIC). If you are interested in learning about this product, or find out more about how Marsh can help, please speak to your Marsh representative.
Click here for the full replay of this webcast.