Best's Review


Risk Adviser
Outer Limits

Looking out peripherally to identify emerging risks and then taking action is sound risk management.
  • Lance Ewing
  • October 2020
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Steven Wright, the comedic philosopher, once said, “I was a peripheral visionary. I could see the future, but only way off to the side.” Or so the story goes. Most companies would like to be able to see into the future, even if it is just a glimpse. Imagine a corporation or a government who was able to determine when an emerging risk or exposure would arrive, along with its effect both humanitarian and financial. Lloyd's of London describes an emerging risk as one that has high uncertainty, limited knowledge of the risk, emerging or existing and changing, a limited ability to quantify and a high impact. The definition certainly had 2020 in mind when it was developed years ago by Lloyd's. Specifically, COVID-19 meets all of the elements in the emerging risk definition.

The reality is that there were a number of peripheral signs and direct warnings that this type of pandemic was approaching and was indeed an emerging risk. As the two-faced Roman god Janus had the advantage to look backward and then also be able to see the future, there were signals in the property/casualty insurance world that the current COVID situation may be forthcoming.

One of those outlying signs: After the 2002-2003 SARS outbreak insurance carriers recognized the impending financial and claims coverage issues. Claims were paid under those years' policies and in many cases were not actuarially contemplated, including a $16 million payout to Mandarin Oriental International.

A majority of carriers then began to explicitly exclude virus coverage in policies going forward. But many carriers did not tighten up their language, which left the door open for COVID litigation and interpretation. Another future indicator was Fortune magazine's May 2016 headline of “The World Just Got Its First-Ever Global Insurance Market for Pandemics.” This was in reference to the World Bank's now controversial Pandemic Emergency Financing Facility. The World Bank saw a looming risk in pandemic and created a product.

Lloyd's predicted in 2017 that a human pandemic would have an estimated financial impact of $591.81 billion GDP. These indications along with the continued insurance coverage for a pandemic may have been the underground rumblings of the current COVID-19 quake that has shaken the world.

This is not to say that the property/casualty carriers were asleep at the switch, as the majority had recognized the likelihood of a future pandemic. Early on insurance providers responded with pandemic or virus exclusions, nonrenewed pandemic coverage, limited the coverage in the policy and looked at state statutes for workers' compensation acceptance or deniability.

Carriers also began to develop pandemic products to answer the vacuum created when a risk of this magnitude appeared. It is what the industry has done for centuries, taken risks for the good of the insured and the public. The potential for pandemic was not top of mind for most property/casualty brokers or agents, especially given the already hardening market for their clients.

Others who only saw glimpses of this looming emerging risk and were slower to respond were governments (federal and state), public health experts and, moreover, businesses and corporations. Few risk managers or CFOs had pandemic at the top of their enterprise risk management risk register, their corporate risk heat maps or the list of emerging risks.

The future is always ahead of us, but once in a while looking out peripherally to see what risks and exposures are gaining on us, and then taking action, is just sound risk management.

Best’s Review columnist Lance Ewing is executive vice president of Global Risk Management for Cotton Holdings Inc. He also is the former president of the Risk and Insurance Management Society. He can be reached at

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