Robert Muir-Wood, Chief Risk Officer, RMS
Tim Edwards, Regional Director – Head of Catastrophe Analytics Globals, Willis Re
This article was originally published in Insurance Day
The economic impact of COVID-19 (coronavirus) is clearly going to be significant, with global growth in gross domestic product (GDP) for 2020 now expected to be only half that of the three percent originally anticipated, at best. Relative to the US$86.5 trillion global GDP for 2019, that equates to around US$1.3 trillion dollars of lost economic activity. This is twenty-five times the economic loss estimated from the SARS outbreak in 2002-3.
The losses from COVID-19 will emerge from many facets
of the economy.
This is the third blog in a series of four blogs examining three potential “protection gaps” and the importance of “protection gap analytics”. To read the first blog post in this series, click here.
In 1975, 83 percent of the value of the S&P 500 companies was invested in physical assets: factories, refineries, ships and offices. By 2015 that percentage had fallen to 16 percent, leaving 84 percent of the assets as intangible. Intangibles included intellectual property, data on clients, brand value and innovation potential. This massive shift has had huge significance for insurance.
The insurance product was designed to cover tangible risks: first ships and their cargoes, then houses, factories, cars and airplanes. Each item could be independently valued. A claims assessor could be sent out to inspect the damage and measure the costs of repair and replacement.
Now, much of business value is intangible. The “Intangibles Protection Gap” includes all those situations where insurance fails to cover losses suffered by non-physical business assets. How does one assess the value of intangibles — how does one measure loss? Some intellectual property (IP) has been stolen — how much is it worth? You are a cloud service provider hit by a deadly cyberattack which has released some confidential data. What is the value of your lost business, the damage to your reputation and of the penalties levied by the regulator and your customers.