Patrick Schmid is the Vice President of The Institute's RiskStream Collaborative a risk management insurance blockchain consortium. In this podcast Patrick discusses with us the impact of COVID19 and the economic downturn’s effect on P&C insurance and whether or not this represents an opportunity for technology.

What is blockchain?

Blockchain is a distributed ledger that maintains a constantly growing list of chronologically added records in the form of blocks. Blocks contain data such as transactions or smart contracts. They’re verified and confirmed through a decentralised consensus process. This process is why blockchain is often seen as providing the decentralisation of trust without the need for an intermediary or a centralised party.

In this period of economic downturn, due to COVID19, Patrick believes that blockchain can provide the much-needed operational efficiency at a time when privacy and security are of high concern.

 

Medium article: COVID-19 and the economic downturn’s effect on P&C insurance: An opportunity for technology?

A board member of The Institute challenged Patrick and his team to think about the impact COVID19 would have on insurance and how to think about RiskStream’s strategy for the remainder of the year. This prompted, along with Patrick’s concern about the economy to write the article: “COVID-19 and the economic downturn’s effect on P&C insurance: An opportunity for technology?”

The article analyses the economic impact of the outbreak of COVID19 and the lockdown is having on the US economy and the fallout it will have on the P&C insurance industry. It looks at how it will strain underwriting profits and the impact a decline in interest rates and financial markets will have on net investment yields.

 

40% estimated fall in US GDP

In the first quarter of 2020 GPD was estimated to have declined by 4.8% with JP Morgan predicting an estimated 40% fall in GDP in Q2. According to the US Department of Labour US unemployment rate rose to 14.7%, an increase of 20m in April, representing the highest unemployment rate increase since the Great Depression. Some economists are predicting that the unemployment rate could increase to 30% before this pandemic peaks. This has led to an unprecedented rise in unemployment claims with an additional 3m claims on the 14th of May bringing the total to 36m.

Source: US Bureau of Labor Statistics

A perfect storm?

Whilst the P&C industry as a whole has taken these events in its strides it isn’t insulated from the economic fallout.

The impact on business activity is expected to be felt in commercial lines and the effects from declines in residential activity and consumer activity in general, are expected to show up in personal lines.

The effects are expected to impact the P&C combined ratio through changes to premiums, losses and expenses.

A combined ratio above 100 indicates the industry is paying out more money in claims then it is making from policies. Due to effects on policies and losses the industry should expect an increase in the combined ratio. Adding to industry stress,