Can’t know the pandemic fund players without a scorecard

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It’s getting more and more difficult to keep track of economic responses to COVID-19 without a scorecard; new or updated grant, loans, fund discussions and press releases fill the news each day.  And why shouldn’t that be the way?  It’s a multi-trillion (fill in currency of choice here) issue for economies with current and future ramifications.  This column has discussed COVID-19’s effects in depth since February; let’s consider a response score card as this week’s effort. And for those who are patient to the end- some bonus business interruption content!

Patrick Kelahan is a CX, engineering & insurance consultant, working with Insurers, Attorneys & Owners in his day job. He also serves the insurance and Fintech world as the ‘Insurance Elephant’.

Before we fill in the current scorecard let’s agree that governments’ central monetary authorities have been throwing a lot of liquidity into the markets, and treasuries have been distributing direct funds and issuing loans to buoy up businesses during lock down periods.  That’s all well and good but it’s reactionary, inefficient, and ignores in most part the resources of private capital markets.  Ironically in some fashion government efforts have been ‘sending riches to the rich’ through distributions that end up in those same cap markets.

Setting government actions aside we again find not much from the indemnity world of insurance, although John Neal of Lloyd’s and Evan Greenberg of Chubb might disagree since their published assessments estimate that COVID-19 insurance exposure is $100 billion.  Place that estimate in perspective of the pre-COVID insurance market that approximates $5 trillion annual revenues and its magnitude becomes less impressive.

Let’s not belabor what is known and focus on how the industry and governments are working to anticipate responses to future like events. Any chosen option needs to be affordable for businesses, provide prompt and/or efficient payment, not be politically expendable over time, have stable, uniform funding, and not be complex to administer. That’s all.

There are several prominent fund/backing proposals and while the exemplars are not exactly all apples or all oranges, we can contrast them by:

    • Sponsor
    • Constituency
    • Fund size
    • Distribution model
    • Backing /funding
    • Admin

First chart

*Proposed

**Proposed by coalition of the National Association Mutual Insurance Companies, Insurance Information Institute, American Property Casualty Insurance Association

That scorecard shows the who’s, how’s and how much, but what of potential fund efficacy?

second chart

Review of these general data prompts some caveat observations:

  • Often the correct answer is not the right answer, as is suggested for option C. Having pre-purchased recovery insurance at a level supported per each customer’s business activity is smart, but will the program be caught by moral hazard issues, and what of those businesses that do not participate?  Another (yet smaller) PPP experience?
  • Option G is untried collaboration in private insurance and capital markets, but will government backing be available for early years of the program?
  • A, C, and D require significant government funding or admin. Considering that administrations change and budget issues crop up, will the finds have political interest that outlasts short memories?
  • F existed before COVID-19 was known, with no takers. What will change that reality now?
  • Will B have the buy in of the balance of the EU, or will the members need to revert to individual plans?
  • How scalable are E and F, or will other carriers need to come on board?
  • Are any of the plans looking to leverage private capital markets?

There are scores but we don’t know the score- yet.  What is certain after the discussion is as was at the beginning- it’s a multi trillion (fill in the currency here) concern that needs one or more solutions.  Status quo keeps all with zeroes on the board.

(Full disclosure- the author is a co-founder of the Ten C’s Project, but is agnostic on which type of fund is supported as long as insured companies benefit.)

Now for your bonus-

I came across a fascinating infographic representing COVID-19 insurance around the globe  published by P2P Protect Europe :

infography-covid-insurance_orig

I reached out to the firm for any further comments they may have to accompany the infographic and my expectations were exceeded by the comments made by P2P President/Managing Partner, Tang Loaec.

Mr. Loaec provided a different view of business interruption (I’ll use the full quotation):

“As regard property insurance and the embedded business interruption insurance, there is a catch 22 between the desire to exclude the massive concentrated financial impact – which can threaten insurance stability – and on the high frustration of the insured which remains exposed while they thought their business interruption insurance was ensuring their business continuity.

What  P2P Protect Europe recommends to its insurance clients is to approach it from an assistance logic. For example, if you want to include a mechanism protecting a university against the impossibility to use its premises when pandemics strikes, you may extend the coverage not by opening you to monetary claims (the sky is the limit sometime), but by integrating a pedagogical continuity service with a dedicated online classroom provider such as for example LiveClass.fr to deliver protection against the business interruption risk without opening up to massive liabilities. Similar approaches can be envisaged for many other types of business activities. Through innovative assistance services, we can improve the resilience of our society to pandemics, reduce the negative impact on the insured business, while not bankrupting insurance either.”

Well that gives the issue a whole new viewpoint.

You’re welcome.

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Breaking Banks, Silos, or Networks: which is harder?

Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer – No.3 influencer in the finance sector by Refinitiv Global Social Media 2019.

In innovation, we frequently talk about `Breaking Silos`, one of my favorite cross-disciplinary topics. This past weekend (unusually warm and sunny creating the temptation to be outside) I was ironing as there is no cleaning lady anymore and listening to Episode 19 of `Breaking Banks Europe`. This one was hosted by Matteo Rizzi and Spiros Margaris and with an Ecosystem Zoom into Luxembourg. And who better to discuss this with, than Nasir Zubairi, the CEO of The LHoFT– the Luxembourg House of Financial Technology.

I recalled meeting briefly Nasir for the first time at SIBOS in Geneva in September 2016, before he had given birth and baptized LHoFT. [ SIBOS size conventions may take really long to happen again if they ever happen in that globalized format.] Today we are looking at 4 years of an important ecosystem stakeholder, The LHoFT, whose role in Luxembourg has been vital. Luxembourg is like perfumes that come in small bottles and has distinct top global roles in the fund industry, in green finance, and microfinance (to name a few). As a result, Regtech is a big focus for the LHoFT, especially around anything related to funds. We can actually think of Luxembourg as a predominantly B2B fintech hub with an interest in fund administration technologies, payments (always a core component of finance), and lately blockchain for capital markets. Nasir mentioned a few names of Blockchain4Finance companies in Luxembourg during the podcast, like Tokeny, StokR, FundsDLT which are focused on Tokenization. Such companies are leading the way for the evolution of Capital markets which includes the fund industry.

FundsDLT is a homegrown initiative that I have covered before (Sep 2019) in `Two live Blockchain use cases in Mutual Funds administration and four pilots` along with Calastone and other cases. Just last month FundsDLT announced the closing of a Series A investment to develop a Decentralized platform for fund distribution. Clearstream, Credit Suisse Asset Management, and Natixis Investment Managers were the investors that joined the seed investor the Luxembourg Stock Exchange.

Nasir also highlighted The LHoFT CATAPULT 3rd cohort which is focused on African Fintechs for financial inclusion.

Catapult: Inclusion Africa 2020

► A-Trader – Tanzania

► A-Trader – Tanzania

► CinetPay – Côte d’Ivoire

► Dundiza – Tanzania

► Esusu – Nigeria

► Eversend – France

► Exuus – Rwanda

► OZÉ – US & Ghana

► PaddyCover – Nigeria

► People’s Pension Trust – Ghana

► Pezesha – Kenya

► SmartTeller – Nigeria

► SympliFi – United Kingdom

► uKheshe – South Africa & UK.

Zooming out of Luxembourg as a Fintech ecosystem

Nasir`s tweet from last week about the persistent use of Fax machines in financial services, highlights that it is difficult to Break the network effects that are ingrained in financial services. Calastone confirms the challenges from the use of fax machines in fund distribution, during this global abruptly forces shift to remote working.

The Global Fax market is growing. Part of it is on the Cloud but a significant part of it stubbornly uses standalone fax machines. Business workflows are networks that cannot be easily Broken. If your supplier, or customer, or service provider uses-requires a Fax, you will too. Breaking those networks is very hard. If we don’t manage to get rid of fax machines during this crisis, when will we?

A 2017 IDC report on the Fax market showed that 36% of fax volume (monthly pages) was sent or received using standalone fax machines, which is more than the fax volume sent or received using all other fax technologies.

Screen Shot 2020-04-06 at 11.24.31

The same report showed how the West (naturally) has Fax networks that stronger and more difficult to break. In North America, for example, 88% of respondents expect fax usage to grow or remain steady.

Screen Shot 2020-04-06 at 11.26.47

Finance is not as bad as manufacturing in terms projected usage of Fax. However, a 20% increases was projected.

Screen Shot 2020-04-06 at 11.28.37

The top reasons of usage and expected growth of usage are that

  • Fax is an integral part of workflow – Networks
  • Fax is evolving and integrateable with email – Digitalization
  • Fax is secure, compliant and with a verifiable receipt – Compliance, Traceability

Culture eats software. While innovations in Regtech and Blockchain for Capital markets are advancing, those pushing these innovations are challenged by a financial world that uses Faxes for trade confirmations of all sorts of assets, fo receiving mortgage and all kinds of loan applications, processing claim forms in insurance etc.

Breaking business flow networks that operate in a certain way, is difficult.

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2 Tug-A-Wars and 3 trends in Digital wealth

Abaka  conversational AI for financial advice I took the rolling escalators to the Gallery at King`s Place where the annual Robo investing 2day conference takes place, thinking about The cash piles that wealthy people are stacking away in the UK market – FFI = Funds Flow Index by Calastone The frustration of the asset management […]

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