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History is a bad teacher. And possibly cruel. No matter how much humanity goes around in circles, repeating all the mistakes made in cycles. Disasters, wars and economic markets - it can hardly be said that we or our ancestors have drawn significant conclusions from all the problems faced by humanity. We are always surprised to find ourselves in the midst of another crisis.
2020 was no exception. When the world was covered by a pandemic, and even when the scale of the pandemic began to emerge clearly, we were still not ready for it. We only preparing to realize and assimilate all the consequences of this crisis. But, we can draw some conclusions already now. An assessment of the financial condition of the most powerful and stable economy in the world - the economy of the United States of America - will help to demonstrate the scale of the catastrophe most clearly.
And next, we will talk about the details of the problems faced by the nation, the ways to overcome them, and why we are all covered by the wings of the Black Swan today.
The insurance industry is a kind of litmus test for the health of the financial system. Perhaps the main component of this industry, car insurance, for a number of reasons that we will consider below, has become the main victim of the pandemic.
A crisis. This definition has become the main one today when we talk about the automotive industry and, in general, about the high-tech industry in the United States. As we pointed out earlier, the number of unemployed is growing; people are losing medical policies. It is quite logical that having such problems, few people will think about buying a new car.
In our opinion, to fully understand what is happening with the car insurance market, we must take into account the data of the automotive industry. This will be the best illustration of the market collapse that we are all experiencing right now.
Major sellers have already reported more than a 30% drop in sales in the second quarter. And this is the most significant drop since the Great Recession and the total bankruptcy of 2008-2009. Factory closures and mass layoffs are the results of the Black Swan pandemic.
If you are not impressed with this data, we will continue. General Motors, the largest US automaker, posted a 34% drop in sales. More than 700 people are laid off at the Tennessee plant alone. Fiat Chrysler (FCAU) reported a 39%, Toyota (TM) also reported a 35% Q2 and 22% decline in July.
Purchases of American rental car companies in other years accounted for at least 10% of the total number of cars. Today, Hertz's largest company filed for bankruptcy, and more successful competitors have started a total sale of existing fleets.
Experts' forecasts for the year are still pessimistic. In the best case, the fall of the market in annual terms will be 22%. In the worst case - it will reach 30%. Car companies are looking for ways to minimize costs and losses. Many are trying to get into the position of their clients, saving at least a reputation rating. For example, Ford is willing to allow the return of a new car to a customer who has lost his job.
The automotive industry is one of the industries hit hardest by the pandemic. Financial analysts credit rating agency Moody's downgraded more than $ 130 billion of automakers' debt, warning that this is not the worst forecast. This problem is not limited to the United States. The global world has faced identical challenges. The worldwide fall in auto sales is at the level of 20%. And, at best, it will take the industry several years to reach the 2019 level.
The natural conclusion from this is the statement “fewer cars - fewer risks.” And that sounds like a verdict for insurance companies. During the pandemic and, especially, the lockout, the streets were empty, and citizens reduced the use of personal cars and public transport to almost a minimum.
According to expert analysts, the number of trips and kilometers decreased by an incredible 40%. The remaining trips have become much shorter, and the number of short car trips has increased. As we mentioned, the use of public transport has dropped to negligible numbers.
Fewer people drive together, but the number of cars on the streets has also decreased. And this is logical. Restaurants and cafes are closed or work in a special regime. Enterprises are trying to switch to remote work - there is nowhere to go.
This raised a second question for consumers: why pay for insurance if there is nowhere to go?
The harsh laws of the market force players to respond quickly to rapidly changing conditions. And insurance companies began to respond by saving their businesses.
Various discount and refund programs have become the main way to retain customers. For example, Liberty Mutual offered a 15 percent reimbursement to personal auto insurance customers in two months. State Farm has provided customers with discounts totaling $ 2 billion for customers with auto insurance policies for March 20 through May 31. Clients of the largest market player holding more than 12% of the market, Progressive Insurance, received a 20% loan for their April and May insurance premiums. Other insurance companies such as Allstate, Geico, Nationwide have offered compensation to their clients due to the coronavirus's impact. Similar approaches have manifested themselves in the actions of other companies around the world.
Share of auto insurers in %
It is difficult to say to what extent such actions will save the situation, especially in the long term, but they have corrected the situation a little as a prompt reaction. Insurance companies can be understood; their logic is elementary. It is better to lose money today and once than rebuild approaches in the future, breaking the established system that suits all sellers.
Indeed, with every day of the pandemic, the issue of the adequacy of pricing and its fairness is becoming more and more urgent. And the voices are louder and louder, repeating the need to expand and increase the number of policies based on vehicle use frequency.
This model takes into account two main factors. The first, Pay As You Drive (PAYD), is a metric indicating how often a customer drives a car. And the second is Pay How You Drive (PHYD), a factor that demonstrates the customer's behavior on the road while driving. Of course, the analysis of these indicators can add work to insurance companies. But on the other hand, the expanded implementation of such policies can be a new step and save the business.
According to the police, the number of kilometers has decreased, and the number of claims has approached 50%. Now traffic is gradually returning to normal. And, today, road congestion is 85% of the indicators before the COVID-19 pandemic.
Another interesting statistic is that the decrease in traffic did not cause a proportional decrease in road accidents. Moreover, there has been an increase in speeding violations.
A vivid illustration of this will be the situation in New York. According to Digital Insurance, traffic was down 78-92% from January, but ten days after the governor's decree to stay at home, the number of speeding violations increased by 57%. Simultaneously, in Minnesota, where traffic fell by 50%, the number of fatalities in road accidents increased by the same 50%. The problem of speeding is also common in California, where the number of road accidents has also increased.
In billions For 6 months
For 6 months
In general, the obvious fact is that the car insurance market, for the last 50 years, has not been at all correlated with the economy. And this is recognized by the insurance companies themselves. If there is any benefit to COVID-19, then we must learn lessons when the pandemic is over.
If you think the property insurance industry is the least prone to collapse due to the COVID-19 recession, then we have bad news for you. This industry also suffered.
The main problem is that the consequences of a pandemic are almost impossible to predict. Humanity has not yet encountered a similar phenomenon in its modern history. The event most similar to today's Black Swan is the 1918 Spanish flu pandemic, which infected more than 30% of the world's population. The death toll was over 50 million, of which nearly 700,000 were US citizens.
Of course, things are different today. Humanity has made a huge leap forward; civilization is continuously developing science and medicine. And, there is every reason to believe that this Black Swan will soon remain only in our memory.
In these circumstances, it is imperative not to jump to conclusions. After all, we tend to be guided by emotions and are in no hurry to analyze the situation deeply. The home insurance system can serve as a vivid illustration of this erroneous logic.
The long lockdown and the maximum reorientation of many employers to telecommuting have largely given us a false sense of our households' security. And, immediately, we began to have doubts about the need for an insurance policy.
According to open statistics, the number of intrusions and burglaries has significantly decreased during the pandemic. Problems with plumbing services also ceased to be a problem without causing significant damage. Insurance policy payments also fell.
Today it is essential not to confuse cause and effect. We must clearly understand that all of the above is a consequence of citizens staying at home and decreasing social contacts. You spend more time at home, do not visit your friends, and quickly eliminate everyday problems. Thieves will also be reluctant to invade your home, knowing that you are more likely to be there.
Simultaneously, the national stress from the pandemic that triggered the economic recession has already led to a 9.6% increase in fraudulent claims. This dynamic can lead to an increase in the cost of insurance policies. Research confirms that in times of financial stress, an increase in fraudulent schemes is inevitable. But, in conjunction with a decrease in purchased policies, insurance services' prices may increase and be fixed even after the end of the pandemic.
Also, companies and local authorities are well aware of the gravity of the situation in which all US citizens find themselves. Therefore, measures are constantly being taken to show loyalty to customers and ease financial pressure on them. This primarily applies to pay bills such as mortgages and insurance.
The National Association of Insurance Commissioners has approached all states to implement continuity plans for consumers. Of course, each state forms its own policy to overcome the crisis. In particular, programs to help citizens are being introduced. For example, California provides a 60-day grace period for premium payments. During this line, no one can be penalized.
Insurance companies are ready for dialogue and see their main task in retaining customers. The first tip that you need to learn is now the best time to dialogue with your provider. Chat with your agent; they are ready to understand your problems and help you.
The insurance business has always suffered from accusations and myths. Surely, everyone has their own story about insurers and problems with them. Regardless of your attitude to the institution of insurance, one cannot but admit that policy and an understandable program to support citizens in an unpleasant situation is a necessity that has no alternatives.
The basis of any insurance company's work, the foundation of their functioning is analysis, forecasting, and risk assessment. And, quite a logical question, how are they dealing with the COVID-19 crisis. And how the Black Swan touched the sphere, which should be most ready for such phenomena.
As we discussed earlier, rising unemployment is a huge problem. And this problem has several dimensions. One of the most important components, which hit very hard on all those who lost their jobs, is health insurance.
By losing their jobs, most citizens also lose their employer-sponsored health insurance, ESI. Most of these workers, especially those from states that have expanded their Medicaid eligibility under the Affordable Care Act (ACA), will be eligible for Medicaid.
Those less fortunate will be forced to buy individual insurance policies on the open market. If they are lucky and their level of income will allow them to fall into the appropriate category, then they will be partially compensated for insurance premiums in the form of a subsidy. Others will become uninsured, which under current conditions is a very negative status.
Until March 2020, 160 million Americans under the age of 65 had ESI. According to experts' forecasts, if unemployment rises above 20 percent, the policy paid by the employer will lose from 25 to 43 million people.
Of this impressive number, 47% will receive Medicaid coverage. 25% will purchase the policy on the open market or use an alternative private plan. Ah, 25 percent will lose any health insurance. States that have not expanded Medicaid through the ACA will have much higher uninsured rates.
Needless to say, such a significant blow to the health insurance structure would be fatal. Moreover, it will have far-reaching consequences for all financial institutions and processes throughout the country. Of course, the most obvious option is a massive injection of money into the Medicaid program. Naturally, with obligatory and substantial business support. But there are several problems here that can also be dangerous in the long run. In addition to the obvious problems with the lack of funds, experts fear deep interference from the regulator. And this can be fatal for the market.
It is also worth considering the fate of the companies that form the life and annuity insurance market. As of 2019, ten organizations held 53 percent of the market. The largest of these, MetLife Inc. It occupied 13.0% of all sales. Share of Prudential Financial Inc. and Equitable Holdings accounted for 7.7% and 6.1%, respectively. The importance of the other seven companies is less, but only in percentage terms.
The main problem is in the specifics of the health insurance market. Like other members of the presented rating, the companies that we have mentioned operate within a specific industry. They do not have any significant share in other areas of the insurance business. Medicine and its services are the prerogatives of a group of specific firms, which often concentrate on this main direction.
Given the medical industry's social and financial importance and the structure of its service, then any negative impact on it can have unpredictable and even dire consequences. In a pandemic, the task of maintaining and preserving the system becomes a priority and fundamental. And this does not depend on our attitude to the system, to Obama's reforms, to the people who make money from our diseases - we have to keep this situation under control.
Everything is straightforward. Today we live under the wing of perhaps the most unexpected and terrible Black Swan in humankind's modern history. We're talking about SARS-CoV-2, aka COVID-19, aka Coronavirus.
The worst and deadliest pandemic since the beginning of the 20th century. Since the Spanish flu epidemic and hundreds of thousands of deaths, combined with the horrors of trench fighting on the fields of the Great War. With the development of science and technology and the social paradigm, no one could have imagined what we would face today.
A huge number of analysts are inclined to believe that COVID-19 has become exactly the classic example of the Black Swan, which skeptics lacked to verify this theory. For almost a year, we can observe the dynamics of the event's development, which no one could predict.
Of course, many critics point out that the occurrence of the disease has massive and critical consequences. Several years ago, the great philanthropist and philanthropist Bill Gates said that we should be afraid of nuclear bombs, but a global epidemic. Given his experience and involvement in the global vaccination challenge, it would be worth listening to him. These words were taken out of context, and conspiracy theorists branded Mr. Gates as a villain seeking to destroy humanity.
Thus, adequate and fact-based forecasts did not generate humanity's willingness to listen and try to apply preventive measures, especially because such rhetoric sounded not only from Microsoft's founder but also from leading virologists and doctors.
Instead, we got a massive hysteria with 5G towers burning and tons of videos on Instagram and TicTok about chipping, the "golden billion" and other masons.
But the truth is that the COVID-19 pandemic happened unexpectedly, and only a few experts could predict it, which equates their warnings with the numbers of statistical error. Under these conditions, we are faced with a classical picture of the event, with all its factors corresponding to the Black Swan characteristics.
Like any event that fits this definition, it created chaos and panic. Perhaps you will be confused by such a definition. Perhaps it will seem to you that we are dramatizing the situation. If we abstract from emotions, then we will see the state's unpreparedness for a prompt response to an unexpected and dangerous event.
And there are many explanations, both objective and subjective. The truth is that the government is more prepared for a nuclear strike by North Korea or Russia than for medical problems. Moreover, an additional blow from the crisis provoked the president's attitude towards this problem. Donald Trump's attitude towards COVID-19 ranged from ridicule and disbelief in the disease's existence to inappropriate behavior when he was diagnosed.
Nevertheless, the system's monolithic nature and a well-thought-out scheme of checks and balances made it possible to keep the nation over the precipice. Despite the enormous damage caused, we continue to function and look forward to the future.
Everyone knows that the virus began its attack from China at the end of last year. At first, many of us did not seriously consider this problem, perceiving it rather as a local issue in a communist country. Especially given the certain reputation they've earned lately. And, especially, taking into account the specific culinary views and the general closeness of this peculiar country.
Being one of the centers of modern civilization, the USA could not stay away from global events for a long time. American healthcare organizations' swift response was manifested in an official request to send a group of scientists to Wuhan, a center, a nascent epidemic. China, trying to close any information about the disease and denying everything, refused.
The logical result was that on January 20, 2020, the first patient who returned from China with a diagnosis of COVID-19 was identified in the United States. With this, it is worth counting the beginning of an unequal struggle against a terrible disease, which is being waged by fearless doctors and the nation.
Today, people continue to get infected and die. The efforts of hundreds of thousands of minds have not yet led to creating a working vaccine. The numbers are huge and terrifying. And if at the beginning of the year, every hundred sick people instilled fear and awe in us, today we are used to counting tens of thousands every day.
At the beginning of October, 36 and a half million infection cases were recorded in the world, which accounted for 1.06 million deaths. All indicators indicate that the world is entering the next phase of the pandemic. The different ways in which different countries tried to neutralize the consequences of the epidemic, for the most part, did not justify themselves. Neither the Swedish scenario, the British one, nor even the police's dispersal by the police with sticks, as in India - none of this justified itself. The only way to minimize losses is comprehensive government support, consolidation of finances and support around doctors and the healthcare sector, and compliance with preventive measures.
In the United States, more than 7 and a half million are infected. 213 thousand people have died from COVID-19. Consider these numbers from a different angle. Approximately 20% of all cases in the world are in the United States.
Reread the previous paragraph - we are talking about a country of 328 million people. It is about a country with a powerful and reliable political vertical and financial system, perhaps the most developed medicine and science. We are talking about a country that is synonymous with dreams and prosperity. And it is in this country that the pandemic reaps a fifth of its bloody harvest.
Moreover, according to reputable news agencies, the White House compiles statistics' criteria are rather vague. Data manipulation and strange statistics tools do not give an objective picture. And she is unlikely to be more pleasant.
Besides, the constant delays in reporting cases of infection leave room for manual leveling of statistics. It is unclear whether states should report positive results when it becomes known, or whether such information goes to statistics at the time of public announcement. This is not what scares. It is alarming that the White House has stubbornly ignored requests for clarifying these nuances, even from reputable companies such as CNN.
The notion of "reliability" of tests, which the government constantly operates on, can also alert the attentive citizen. This concept is also not detailed by anyone.
But, the widest door through which any manipulation can pass is the concept of "syndromic cases similar to COVID-19." It is quite natural that such a wording, at best, allows you to conceal more than one hundred cases of infection legally.
As you can see, we have a frightening picture, which manifests itself even from official, confirmed, and reliable statistics. If we admit the facts of potential manipulation and manually regulate data by the government, then the situation may seem truly dire. And is it worth mentioning that this sad background, this Black Swan, which hit the United States harder than any other country, has become a real disaster for the economy and the financial system?
Confidence is more often generated by ignorance than knowledge.Charles Darwin.
No one can refute the simple statement that humanity today is at the peak of its development. It is enough to look back to see how swift and irrepressible the leap of our civilization into eternity was. Science and technology, humanism and democracy, medicine, and art - all these stones have built and continue to form a wall that protects us from the most terrible fear of humanity. All of our exploits and breakthroughs are all aimed only at soothing our fear of uncertainty.
All these hundreds of films and books describing various scenarios of Armageddon: from a global flood and climate change to an alien attack and a meteorite fall. All these religious trends and charismatic cults that promise the imminent end of the world. All this is just a sublimation of the most important human civilization's main fears - the fear of uncertainty.
And, like little children who turn on the light in their room, we try to forget that there is darkness behind the door. And we do our best to keep this warm light of confidence around us, achieving considerable success. Taking into account all the details and calculating every step. And nothing can go wrong until the silhouette of a black swan appears in the night sky.
Although poetic, the black swan is not a beautiful bird in this context. We are talking about a symbolic image that embodies the theory of Nassim Nicholas Taleb, an American statistician, risk manager, and Lebanese-born writer. This theory became a kind of magna opus for a talented analyst.
Years of studying the impact of random events and unpredictable interactions that affect the global economy, stock trading, and their correlation with global financial mechanisms have led Taleb to come to an exciting conclusion.
According to this conclusion, based on which the theory was created, the “Black Swan” event is relevant if it corresponds to three indicators.
The first indicator is the unexpectedness of what happened. Moreover, the factor of surprise should be unpredictable not for society, but experts. That is, the requirement for the unexpectedness of the incident is increased. And they cut off the cognitive dissonances inherent in the layman when analyzing information.
The second factor, which is key to falling under the Black Swan definition, is the significant consequences of the event. This is one of the theory's weak points since it excludes a quick classification of what happened. Critics of Taleb's theory often point to this aspect, accusing the analyst's adepts of a cognitive distortion, known as the "Texas shooter's fallacy."
What is this error? Good question. Imagine a shooter who walks out to a barn somewhere on a farm in East Texas, pulls out his Colt, and fires an entire clip into the barn wall. He goes to the wall and draws a target where the bullet holes are most concentrated.
This is the main tool of critics, after all, if a stranger sees the target, he concludes that the person who shot is a real professional. Although, the final picture is just the result of manipulation and adaptation of the desired to reality.
The third component of the theory is also often criticized. According to her, after an event's occurrence, in retrospect, this event should have a rationalistic explanation. In the future, this event should be considered as expected, even if it was unpredictable.
According to the author's logic, key discoveries, and significant political and historical events, science, and cultural achievements fall under the Black Swan classification. World wars and economic crises, space exploration, assassinations of political leaders - the key turns in civilization's life have signs of critical stages of humanity.
Moreover, Taleb is convinced that civilization is not capable of adequately assessing its success and knowledge. Confidence in knowledge does not correspond to an objective assessment, which gives rise to people's inability to build a relevant forecast of the future.
This is a clear sign of the phenomenon of "overconfidence." This is another cognitive distortion, very dangerous in its consequences. All in all, it's a flattering self-image. A person's confidence in himself and his actions are much higher than the objective reality. This is a hazardous phenomenon and is, in fact, a positive illusion. This illusion leads to a biased assessment of one's strength and self-exaltation over others, which leads to the impossibility of building the right strategy when planning responses to challenges.
Quite frankly, this metacognitive bias is highly correlated with the Dunning-Kruger effect. Of course, this parallel is not entirely accurate because this effect is manifested in the fact that people with a low level of qualifications cannot realize the real level of their professionalism, as a result of which they are inclined to draw absolutely wrong conclusions.
The result is an unreasonably high opinion of people with a low level of training about their professionalism. On the other hand, the perception of reality is also disturbed by real specialists. Against the general background, they begin to underestimate their abilities and believe that the tasks they perform with ease are just as simple for others.
Having dealt with the scientific basis of the Taleb theory's concept, let's touch on the etymology of the name of this theory. The term "Black Swan" has been known since Roman times and denoted a bird as rare as a black swan. It is worth noting that the very existence of a bird of this color was considered incredible and mythical.
This opinion was refuted by a Dutch expedition in the 16th century, which discovered a population of blackbirds in Western Australia. This discovery did not level the metaphor, but only added its significance. Now meeting with such a bird does not seem unrealistic, but it is doubtful and unpredictable.
It is in this meaning that this comparison should be understood. And it is in this vein that Taleb introduced this term into modern sociology and analytics. It is essential not to endow your perception with an exclusively negative connotation. Black swans can carry good news on their wings, but they are often harbingers of unpleasant events and crises.
From the point of view of the author of the theory, we must avoid several fundamental misconceptions that can give us false confidence in our own ability to analyze events. And the main one of these misconceptions is the narrative fallacy.
It lies in the desire to trust the information that we receive from unreliable sources. They can serve as our environment, the information field, or the results of the analytics of other people who are perceived by us as authorities. If you want to build relevant and adequate logical chains, you only need to deliver statistics to analytics.
Another mistake can be the abuse of game theory when applied to real life. This theory, a subsection of applied mathematics, implies a process of interaction between two parties that implement different strategies to achieve their own interests. The use of different strategies and tactics leads to either positive or negative results and depends on many factors, including other participants' behavior in the process.
Game theory is applied in various branches of our life: international relations, economics, sociology, psychology, political science, and biology. This is a fascinating and promising topic. Still, it cannot be used to conclude the Black Swan phenomenon, for the simple reason that it is impossible to accumulate enough input data to create a game theory model concerning Taleb algorithms. An attempt to apply the concept of John Nash is wrong initially, and the introduction of the initial data is self-deception, leading to a negative result.
And the last critical mistake in using the Black Swan concept is the retrospective approach. Its essence is confidence in successful forecasts of upcoming events, which are based on an analysis of the events. This is an amateurish mistake that is inherent in inexperienced and superficial, and non-professional analysts.
What do we have as a result? A difficultly predictable event that came unexpectedly and falls under the definition of a Black Swan. An inexplicable, catastrophic situation with the statistics of sick and dead from infection. And as a result - a crushing blow to the economy.
Was it possible to avoid such painful consequences? Hardly. But, they could definitely be minimized, and, sure, it was possible to avoid hitting the first positions in all anti-ratings related to COVID-19. There are many questions both to the White House and to Donald Trump personally. The merit of the state's normal functioning lies in the structure of state administration formed by history and the impressive financial reserve of the United States.
But the blow to the economy is simply crushing. The crisis we are currently experiencing is the most painful since the Great Depression.
The fall in GDP was 32.9% year on year. And this is the most rapid decline since 1947 when this indicator began to be monitored. The fall was especially deep in April, at the lockdown peak, when restaurants, factories, and bars began to close en masse.
The government is undoubtedly making efforts to stabilize the situation. Due to objective and subjective aspects, as of July, the number of unemployed citizens amounted to 30.2 million.
It is difficult to accuse the state of inaction, but a global catastrophe requires decisive action and deliberate plans for the future. More than five years of growth, it ended with a rapid collapse. There is a clear and necessary demand in society for a second stimulus package. Moreover, this package should be much more daring and decisive.
According to respected experts, including Jason Reed, a finance professor at the University of Notre Dame’s Mendoza College of Business, problems with the pandemic and the economy are leading to a rapid fiscal cliff.
Thanks to the chaotic and often far from the logical actions of President Trump. His statements about the postponement of elections, hesitation, and controversial statements about COVID-19 and his love for Twitter, confuse and do not help overcome the crisis. Trump's diagnosed illness and treatment behavior sparked even more complaints.
Against the background of all this, the fall in the gross domestic product has become an inevitable outcome. Its fall was more than three times the previous record collapse of 10%, recorded in the second quarter of 1958. Overall, the first quarter of 2020 brought about a 5% contraction in the economy. And the February recession became an inevitable process.
If you try to find some positive moments in this whole situation, then you can be glad that the drop in GDP turned out to be less than predicted by economists polled by Reuters. Their predictions ranged from 34% to 35%.
All this becomes unimportant if we recall that the reduction in production across the country was 10.6%, and this is only in the first half of 2020. Of course, after May and a smooth attempt to go beyond the strict quarantine and slowing the spread of infection, the rate of production decline began to be covered.
Against this backdrop, Trump and his administration have begun to make loud statements about "economic recovery." This fits organically into the president's general narrative, who turned a blind eye to negative financial indicators, stubbornly repeating to citizens that everything is fine, and a leap forward will happen from day today.
The inconsistency and inadequacy of such statements, calling black white, could not provoke a response from political opponents. Biden blamed the incumbent administration for “failure,” and demanded, “a massive public health response to save lives and get our economy back up to speed.”
The second wave of the pandemic clearly and without alternative demonstrated the infantilism of the authorities. In the most affected regions, in the country's densely populated southern and western locations, production stops began again. This was another demonstration of the crisis and dashed the last hopes for a miracle and a recovery in production growth.
In these conditions, the recognition of the Federal Reserve Chair Jerome Powell, an obvious problem - became a clear demonstration of the obvious situation. Wall Street stocks fell, the dollar dipped against a basket of currencies. U.S., treasury prices rose. To deny it, you have to be insane or President Trump.
Many companies have exhausted their loans despite a massive $ 3 trillion in aid. The amount is astronomical, but not enough to lift the economy's plane from a steep peak. The bailout package passed helped companies pay wages and provided millions of unemployed citizens with a $ 600 weekly financial aid.
But, even such measures only kept the financial system from falling rapidly into the abyss. The Labor Department reports that one hundred initial claims for carefree benefits increased from 12,000 to 1.434 million, a seasonally adjusted.
PNC Financial in Pittsburgh indicated that "the pace of improvement in the labor market has slowed." According to the respected company, payments to the unemployed have added an estimated $ 75 billion a month to family income, amid falling income from work. In the long term, this will create a natural brake on consumer spending. And this will become a hidden factor for another blow to the economy. And we are already suffering from these consequences. Consumer spending, which accounts for more than two-thirds of the US economy, fell 34.6%.
Against this background, the Republicans' statement that such generous unemployment benefits deprive citizens of the motivation to find a job looks like pharisaism and outright mockery.
To finalize this very apocalyptic picture, let us recall that business investment collapsed by more than a quarter, namely by 27%. This resulted from a 38% reduction in equipment costs, which are forecasted and concluded over a long period. Simultaneously, this situation is identical for large corporations and especially strongly affected companies with a complex and technological cycle: automotive and aircraft construction.
The pandemic and the geopolitical situation have led to a sharp drop in demand and oil prices, including shale oil. Best of all, the market failure scale is demonstrated by a 35% decrease in infrastructure costs.
The same applies to cash investment in housing construction, where the decrease in investment fell by 39%. This led to an increase in government spending. However, it should be admitted that the costs of state and local government bodies have decreased.
71% named financial implications, liquidity, and capital resources - our future's main issue after the pandemic. A possible global recession worries 64% of respondents, and 41% of respondents are concerned about the labor force's impact and reduced productivity. The decline in consumer confidence worries 40% of CEOs. Other worries are less of a concern for market leaders and include supply chain disruptions, funding difficulties, lack of information to make good decisions, government influence on taxes and the market, cybersecurity, fraud, and privacy risks.
Among those interviewed were a significant number of directors of insurance companies. Considering the role of this sector of the economy, such people's opinion is becoming very important today. Insurance companies are a critical element in times of financial stress. Their ability to manage risk and mitigate losses in difficult times is invaluable. And at the same time, they are highly vulnerable to market volatility.
According to insurance executives and third-party analysts, the industry's main problems today can be summarized in three points.
The first point is communication in a broad sense. The company's response, speed, and efficiency of this response to stressful events is key. But, do not forget the internal communication. These moments need to be balanced and planned.
Communication is closely related to reputational risks, the second factor. In the face of market fluctuations and economic stress, the provider's reputation and reliability are becoming the equivalent of gold stocks.
And, cybersecurity is a key part of crisis management, especially in these days. By solving many problems, the digital sphere opens up new horizons for us. But, at the same time, it opens up additional vulnerabilities. Insufficient cybersecurity can not only lead to data loss and sabotage of work. The result can be non-financial losses that can jeopardize the very existence of the company.
These are common factors that will complicate the operation of the insurance industry. It is important to remember that they are divided into many small issues that need to be addressed.
For example, even though physical chains are not as important for providers as for other industries. The natural dependence on a wide range of third parties makes it necessary to revise the chain of intermediaries and, possibly, to rebuild the hierarchical vertical.
The remoteness of many processes will necessitate increased control. Increasing the role of IT tools will not provide an opportunity to diversify sales tools, which will cause discomfort when organizing work. It is also worth remembering the increase in telephone and digital traffic, which will entail the need to optimize communication systems.
Besides, due to the pandemic, the number of specific requests will inevitably increase. For example, life insurance, disability, and long-term care insurance. This will require a prompt legal response and close engagement with state governments.
The main thing that will happen is the unwillingness of companies to face financial problems. All forecasts and calculations did not include the Black Swan hovering above the economy today. It is necessary not only to adjust forecasts but also to prepare for a sharp revision of expenditure items. In particular, you need to understand that the regulator's emergency decisions will also hit all branches of business. The most important thing here is the willingness to cooperate and anticipate possible ways out of the difficulties that arise.
We all found ourselves in this situation. The Black Swan overtook us all. And only in our hands are the tools that will allow us to bring back the usual life.
Of course, nothing will be the same. But, we must learn from everything that is happening now. After all, everything that we overcome throughout 2020 will certainly make us stronger.
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