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What could a post-COVID-19 world look like? Part I

Corporate Risk Tools and Technology|Cyber Risk Management|Investments
COVID 19 Coronavirus|Climate Risk and Resilience

By Frederick Gentile and Lucy Stanbrough | April 15, 2020

This article looks at the long term impact of COVID-19 from a people, investments and cyber perspective.

As we look at a post COVID-19 world through various lenses (such as from a people and cyber angle), it is important to recognize that our collective resilience will be tested. However, the prudent organizations will look at the pandemic from a proactive stance and imagine how they can create benefit and value for themselves and their clients.

People

For the first time, possibly since 1957, many people will be forced to comply with seemingly draconian rules to limit the virus spread. Working from home, greater reliance on technology and coping with the new ways of working will require people to adapt their behavior and learn to live and work in different ways. Social distancing may need to continue for some time until broader immunity is reached given that, as the Dean of Harvard Chan School of Public Health writes, “the immediate inconveniences of such restrictions are dwarfed by the positive outcomes already seen in countries such as Singapore and China”.1

Social distancing may need to continue for some time until broader immunity is reached.

Employers may find themselves not only having to accelerate investment in new technology but also to increase their focus on employee wellbeing. Recent research on Chinese companies2 carried out by Willis Towers Watson suggested that one positive impact of the outbreak and subsequent lockdown is that employers are taking various additional measures to safeguard their employees. Government and employers are creating room for employees’ health management and insurance/protection. Procedures to support a health and wellbeing strategy, methods for emergency contingency plans, business continuity plans and employee policies and insurance arrangements will also need to be developed.

However, home working arrangements may have an invisible cost i.e. creativity, challenge and innovation may begin to wane as social interaction is reduced. Sharing ideas over a telephone call or virtual meeting isn’t quite the same as sparking ideas off each other in a face-to-face group setting, and it will take time to find new routines. There is also the challenge of making visible the new ideas and to affect the changes, as decision makers are challenged by a queue of people with more immediate access to their time.

Another longer-term consideration is a change in the labor pool as a result of layoffs during the crisis. This in turn offers employers the opportunity to recruit fresh talent as well as, where possible, re-employ staff whose roles may have disappeared due to immediate impacts such as lockdowns resulting in reduced consumer demand. This may prove the case most notably in the leisure, travel and hospitality sectors.

Despite this there is an opportunity for employers to think about "future work" arrangements of the 4th industrial revolution (or “the future of work”) as it relates to their organization and accelerate new blueprints for jobs that can use artificial intelligence (AI) and robotics, outsourcing and short-term employment models. Other examples of the future of work could include:

  • Acceleration toward an agile/flexible staffing model
  • Employers becoming more adaptive to virtual teams
  • Moves toward e-learning/digital marketing
  • Remote working/online communication
  • Pools of skills made available on demand and benefitting from the intra-sector learning

It is important to remember that these lessons will be beneficial in the future to create new inclusive workplaces that are accessible to all. For example, disabled staff have had to deal with remote working issues such as technology, lack of access, and the slow adoption of agile working models. A post-COVID-19 world could embrace these challenges and open new opportunities and talent pools that have been waiting to be tapped.

Investment and return

Both Goldman Sachs3 and JP Morgan4 predict a recession in the US and Europe resulting from the effects of COVID-19. Warren Buffet, on the other hand, said the recent panic that’s hit markets isn’t as bad as the 2008 financial crisis5. While economic giants may differ in their views the recent frenzied activity in the markets point to a decline of some proportion moving forward.

Stock markets may rally once COVID-19 is under control but there are most definitely some factors which will linger and possibly haunt us for years to come. Some companies will not weather the business consequences of this event.

Recent examples include Flybe6 and Laura Ashley7; but theatres, restaurants, hotels, pubs and many more could be in the firing line. The leisure sector in general and aviation in particular, are experiencing catastrophic impacts following steep falls in traffic, occupancy and patronage.

The suspension of high-profit international routes such as Asia–Pacific and many European routes is likely to result in airlines, airports and the numerous supply chains and stakeholders missing out on the summer peak travel season. It could also result in bankruptcies, for example for FlyBe; the UK regional carrier, or unsustainable financial pressures such as that being experienced by British Airways. The fallout from this could be consolidations in a sector which was already prone to such actions and where COVID-19 acted as the catalyst.

A greater threat may however be hiding behind the long-term fallout from the pandemic.

From another perspective the Bank of England released a statement advising: “Temporary, but significant, disruptions to supply chains and weaker activity could challenge cash flows and increase demand for short-term credit from households and for working capital from companies. Such issues are likely to be most acute for smaller businesses. This economic shock will affect both demand and supply in the economy.”9 This scenario may though be mitigated by holding interest lower for longer, ramped up quantitative easing measures or similar.

COVID-19 is not one-sided in the sense that only supply will suffer. Demand will suffer too.

COVID-19 is not one sided in the sense that only supply will suffer. Consumer demand is also likely to be hit because consumers reduce spending as a result of financial uncertainty and isolation, and businesses pull back on investment. The combined effect of a demand and supply shock on the economy limits the conventional measures, such as interest rate reductions or tax concessions, that government can take to address the circumstances.

The situation post-COVID-19 may be further exacerbated by a potential risk averse stance that governments and organizations may take in respect of removing any bans or restrictions for fear of sparking a new infection outbreak. Thus, sporting events, concerts and potentially borders may experience longer term restrictions further impacting on recovery and laying out a new set of slow burning norms.

In summary, if the COVID-19 infection trajectory continues into the year the likelihood of recession post-COVID-19 is high or as Larry Elliott, the Guardian’s economics editor, concludes “The chances are that the imminent recession will be U-shaped: a steep decline followed by a period of bumping along the bottom. There will be recovery, but it will take time and only after much damage has been caused.”10 Before COVID-19, many countries around the world were still recovering from years of austerity, and may not have the bank balances needed to weather the storm.

Cyber

Most would agree that COVID-19 presents a serious risk in many different ways, but to some it also presents a great opportunity.

As worldwide measures are being put in place to mitigate the spread of COVID-19, the working effectiveness of many companies is being tested in unprecedented ways. At the heart of many responses is a huge ‘work-from-home’ campaign that has put the corporate technology operational framework at the center of the strategic response to the crisis. The simple step of allowing employees to dial-in to their company's networks en-masse has led to unprecedented levels of traffic across networks.

The unprecedented shift to remote practices may pave the way for companies to review their working practices and continue with a greater level of remote working. This in turn creates a more complex – and potentially more vulnerable – IT environment, which is fertile ground for phishing attacks and critically ransomware threats. Cybercrime is one element where we are already seeing examples of bogus tax refund offers or donation requests11. At a business level there have also been examples of fake virus tracking map or medical advice links which, once opened, deliver well-known malware.

The pandemic is reconfirming the need for data security and the adoption of AI

Companies may need to review their outsourcing policy in respect of IT support and services. Some third parties may have failed as a business or simply not been able to step up to the new challenge. Either way, dependency on third party services may be financially attractive but potentially operationally fatal. The resilience of companies will depend on how quickly they can redeploy and reskill talent, and how effectively they can blend technology with a plurality of work options (full-time employees, part-time employees, contractors, gig talent, staffing agencies, consultants and so on). The pace of change and the evolution and emergence of new technology offerings is a point of pride for many. The pandemic is reconfirming the need for data security and the adoption of Artificial Intelligence (AI) for many organizations.

Over the coming months, technological solutions for keeping services running, business working and people healthy will be key to our collective response. Technology’s ability to provide innovative solutions quickly and efficiently is at the heart of many operational plans across the business landscape. However, those companies with a strategic view on the role of technology may well find themselves with a bigger advantage in the challenging times ahead as we navigate new ways of working. Greater dependency in digital communication at scale also requires a rethink in business continuity plans and ways of building capacity and providing secondary and tertiary facilities in the event of compromise or failure.

For more on the long-term implications of COVID-19 read on to the next article in the series

Each applicable policy of insurance must be reviewed to determine the extent, if any, of coverage for COVID-19. Coverage may vary depending on the jurisdiction and circumstances. For global client programs it is critical to consider all local operations and how policies may or may not include COVID-19 coverage.

The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal and/or other professional advisors. Some of the information in this publication may be compiled by third party sources we consider to be reliable, however we do not guarantee and are not responsible for the accuracy of such information. We assume no duty in contract, tort, or otherwise in connection with this publication and expressly disclaim, to the fullest extent permitted by law, any liability in connection with this publication. Willis Towers Watson offers insurance-related services through its appropriately licensed entities in each jurisdiction in which it operates.

The information given in this publication is believed to be accurate at the date of publication shown at the top of this document. This information may have subsequently changed or have been superseded, and should not be relied upon to be accurate or suitable after this date.

Footnote

1 https://www.weforum.org/agenda/2020/03/coronavirus-covid19-global-academics-insights-pandemic/

2 https://www.willistowerswatson.com/en-HK/Insights/2020/03/3-ways-COVID-19-is-affecting-chinas-business-sector?utm_source=twitter&utm_medium=social&utm_term=&utm_content=wtwcorporate_d0954728-1056-4f6f-8787-a3406faaf215_&utm_campaign=Other-HCB_

3 https://fortune.com/2020/03/20/coronavirus-economic-predictions-goldman-sachs-recession-gdp-2q-2020/

4 https://markets.businessinsider.com/news/stocks/coronavirus-fuel-recession-forecast-us-europe-economic-july-market-jpmorgan-2020-3-1028994637

5 https://business.financialpost.com/investing/warren-buffett-says-coronavirus-oil-one-two-punch-still-not-as-bad-as-2008

6 https://news.sky.com/story/flybe-boss-tells-staff-airline-going-into-administration-11949899

7 https://www.cityam.com/laura-ashleys-administrators-make-268-staff-redundant-and-furlough-1700/

8 https://www.gov.uk/government/news/chancellor-announces-additional-support-to-protect-businesses

9 https://www.bankofengland.co.uk/news/2020/march/boe-measures-to-respond-to-the-economic-shock-from-covid-19

10 https://www.theguardian.com/business/2020/mar/15/prepare-for-the-coronavirus-global-recession

11 https://serocu.police.uk/covid-19-pandemic-fraud-cybercrime/

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Research Manager: Emerging Risks

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