Economic V-Shaped Recovery
We all hope for a rapid return to normalcy once the government reopens the economy. We keep hearing that economic activity will recover quickly (e.g., a “V-Shaped” recovery) as consumers return to a pre-crisis way of life. Society will unhesitatingly return to eating in restaurants, going to sporting events, and even hugging strangers. This theory assumes that people and businesses will act as if there is little to no danger of a “second wave” COVID-19 infection hitting the U.S. in late 2020 – early 2021.
But what if the population is more cautious in its return from isolation? With heightened awareness of social distancing, people choosing to buy local, and various work-from-home scenarios emerging, there likely will not be a return to the way it was but rather a reframing of a “new normal.” As an insurance distributor, how would you plan to operate your business differently if a new normal arises? What if people are still too scared to engage in more than very limited personal interactions with strangers? Over the next few days, MarshBerry will explore ways in which insurance brokers could consider planning for operating in a distorted economy (i.e., the New Normal) where economic recovery is much slower than some pundits have predicted (i.e., a “U-Shaped” recovery). The reset is different from the pre-pandemic way of life.
Before we explore how to make 2020 a successful year within the ”new normal,” we will make a case for why a U-Shaped recovery is feasible, perhaps even likely. This case begins with the hypothesis that the economy will not open simultaneously. The economy will likely open in stages, depending upon the level of infections and available hospital resources and capacity. It seems logical to conclude that, absent a major outbreak, Omaha, NE, will reopen much sooner than New York, NY. This rolling reintroduction of consumer and business spending, even if there is no trepidation for consumers to reengage in close personal interaction, will delay an economic recovery.
Second, a V-Shaped recovery assumes that most closed businesses will reopen (and do so quickly). We would argue that a more likely scenario suggests that many of these businesses will not reopen due to the economic hardship they suffered while shuttering. For example, the South China Morning Post reported on April 6, 2020, that nearly 500,000 small businesses in China have gone bankrupt due to COVID-19. It is not impossible to assume that the U.S. could suffer a similar, though not as severe, result.
Third, the population may remain cautious about attending large public gatherings such as sporting events or rock concerts. Parts of the economy could reopen while still under a government proviso to wear masks, keep social distancing, and stay home if one feels ill. Such a reopening would have significant implications for the number of former employees who return to work. If restaurants only serve 40% capacity, do they only need 30% of their pre-crisis staff? What if sporting events are held for a TV audience without fans in the stadium? Employees do not need to take tickets, sell hot dogs, or clean restrooms. In fact, on Fox’s Sunday News Hour with Chris Wallace, Dallas Maverick’s owner Mark Cuban suggested that the NBA season will be played with only a skeleton TV crew and scoreboard operators. The stands are likely to be empty.
Finally, what if many professional organizations decide video conferencing is a great way to cut travel and entertainment costs? By the time the economy reopens, many professionals will be well-versed in virtual meetings. Firms could use the crisis to change how they use technology to hold introductory “meetings.” If face-to-face meetings are supplanted with video conferencing, how many professional businesses will rehire receptionists, especially with fewer onsite visitors? If an increase in virtual meetings permanently impacts business travel, why rehire an admin who spends significant time making or changing travel arrangements?
It does not take a giant leap of faith to acknowledge that a return to normalcy (defined as our pre-crisis way of doing business) may not re-emerge in the near term, or perhaps for a very long time, if ever. A ”new normal” could easily develop instead.
Under such a U-Shaped recovery, the implications for insurance demand could be significant. For instance, delays in buying the insurance coverage could result from a rolling opening of the economy. Worse still, total insurance exposures could be reduced across the economy if there are more permanent reductions in workforce, travel, and liability exposures. MarshBerry suggests it is time to toss out the old five-year playbook and re-write the 2020 business plan.
For the remainder of this week, we will concentrate on how our clients may consider revising their business strategy in an increasingly uncertain and turbulent environment.
If you have questions about Today’s ViewPoint or would like to learn more about what recovery for insurance agents and brokers might look like, please email or call Gerard Vecchio, President – Senior Vice President at 212.972.4886.
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