S1. Ep1: Parametric Insurance and Preparing for the next Pandemic.

With Patrick Kelahan, Building and InsurTech Consultant at H2M.

Summary.

Parametric Insurance and Preparing for the next Pandemic. In this episode, William Laitinen is joined by Patrick Kelahan of H2M Architects and Engineers, to talk about what part insurance has to play in during business interruptions such as pandemics, has insurance taken a strong enough role in the current climate and what we can do for the future. 

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William Laitinen

Patrick Kelahan

Transcript.

Patrick Kelahan   

In the COVID-19 event occurrence, no one was ready for it. And now we’re all grabbing at individual pieces of what needs to be resolved. And it’s a new iteration of the insurance elephant. It’s a huge beast. It’s all the pieces that have to come together. And that was somewhat the advent of the 10 C’s project. What do we need to do as an industry, economy, government ah, persons and insurance to anticipate what might be for the next one. 

 

William Laitinen   

This episode of search with purpose wouldn’t be possible without my day job at Exige International. Exige is an executive search firm providing talent within the Western European market for a whole range of financial services organizations. We, as a group of executives at Exige, believe that recruitment can be done differently. It can be done in a way which serves the needs of both our clients and our candidates, and also the world in which we live. we’ve committed to not only finding the very best talent available in the world, but also to giving 10% of our search revenue to forest protection charities to ensure that the future generations have these treasures intact, and can enjoy them, just as we have. So if you’d like to find out more about our work here at Exige, then please do check out website, ExigeInternational.com, that’s E X I G E International.com. Or of course, you can find me on LinkedIn, and I’d be very happy to have a conversation. 

 

William Laitinen   

So welcome to search with purpose with myself, William Laitinen. Today, I have the pleasure of interviewing a guest, Patrick Kelahan. Patrick is an insurance and customer advocate, who has come to the insurance innovation world later in his career, having spent two decades with Allstate Insurance and several years in the US government disaster program. What I love about Patrick is is thinking in unique thinking around a whole range of insurance topics. And particularly through his work as the with the handle insurance elephant. He has brought forward many very interesting ideas and concepts to the thinking relating to problems that we’re having out in the world of insurance right now. So, it’s my great pleasure to welcome to your podcast today from his home in upstate New York. Patrick Kelahan. Patrick, how are you? 

 

Patrick Kelahan   

I’m well, will, and you? 

 

William Laitinen   

I’m very well thank you very much. 

 

Patrick Kelahan   

In your 18 degree weather. 

 

William Laitinen   

Absolutely. I’m sweating here in England. This is this is this is great weather for an Englishman for sure. I’m very happy to get in this sunshine um. I hear it’s a little bit more frosty where you are. 

 

Patrick Kelahan   

One degree today, in er April, upstate New York. 

 

William Laitinen   

Wow. There we go, guys. So um well I hope we’re keeping warm um. So today’s conversation um, Patrick, I’m i’m really excited to have this because I think it’s going to be touching on a really big and important topic for everybody. It’s about insurance in a post COVID-19 world, the the way as a community as an industry that we can come together to solve the problems relating to COVID-19. And I really like the thinking that you’ve been doing and the group of people that you’ve been putting together to help address this post COVID-19 world. So in today’s conversation, I want to explore those topics, your work as insurance elephant, the 10 C’s model um, and anything and everything in between. So, Patrick, over to you, sir. Please tell us a bit about your work and um how you come at these problems. 

 

Patrick Kelahan   

Yeah, the certainly my day job is with ‘H2M architects + engineers’, a pretty good sized firm almost two 500 persons ahh dealing with the the interesting world of engineering, but we also deal with insurance carriers and that was my bridge from insurance into the engineering world ahh. And as part of that um, I began to get involved with insurance insure tech innovation ahh, networking. And I realized that ahh the wonder of insurance innovation ahh, tech, process, methodology, each each player seemed to have its own his his or her own piece of the the industry as a whole and to make a long story short, I saw it as the similar to the fable of the six blind men and the elephant. Whether you’re grabbing the tail, or the leg or the ear, you’d have a different perspective, but I knew in its whole insurance and innovation is the beast the whole elephant. And that’s how the insurance Elephant came about, it was just accidental, then it became a theme. And then it became an identifier, a personal brand, whatever you want to call it. But what why I think it’s meaningful for our topic today is ahh the COVID-19 ahh event occurrence, no one was ready for and now we’re all grabbing at individual pieces of what needs to be resolved. And it’s a new iteration of the insurance elephant. It’s a huge beast. It’s all the pieces that have to come together. And that was somewhat the advent of the 10. seas project. What do we need to do as an industry economy, government ahh person’s insurance, to anticipate what might be for the next one? And there was the the kernel of an idea for the 10 C’s project. 

 

William Laitinen   

Okay, fantastic. Thank you so much. That’s so so let’s explore that. I mean, so you’ve got a premise, right? That there’s um systematic risk within a with, within with which has been identified and brought to light with this pandemic, there’s a huge global catastrophe unfolding before us. And it seemingly a world which is ill prepared to deal with the financial consequences um that relate to a pandemic. And insurance is part of that solution, it has to be part of the solution, but clearly hasn’t shown maybe all the leadership it can in being part of that solution. So yeah, tell me about your thoughts around that, and how the sort of the the premise of your idea came around, and the concept that you you’re working on at the moment, and the people working on it with. 

 

Patrick Kelahan   

Well what really highlighted, the problem is, ahh you know, as the as the outbreak spread across the globe, initially, it was not only a health concern, which was the terrible, terrible part of it, but you had supply chain disruption in China, a huge supply chain engine for the globe. And that became began to trickle through. But then as the health effects started to go around the globe, and it was realized that in order to inhibit the spread of the virus, people had to be distance, they had to stop doing, what they’re doing the interactions and put all the breadcrumb trail together, and it became a shutdown environment for most economies. And as soon as you begin to shut things down, well, of course, your commerce ends ahh and that production and all the economic effects, and it became a multi trillion dollar problem. So um you know, insured persons, and I was focusing primarily on small and medium enterprises, the SMEs said, All right, we, we have to close our business is very fragile. We live week to week, we have cash flow disruption, and they reached out to their carriers, and the carriers knew that a pandemic would not be covered. It’s just too big. It’s too It’s like flood risk on steroids way, way too large. And it wasn’t even an underwriting it was just a stop in insurance knew it wouldn’t be involved. It was exclusions it was how coverage runs. And there’s even very little reinsurance present in the market, which speaks very loudly back through the insurance chain, that it’s not an expected risk to even slice and dice the risk sharing with. So ahh that huge coverage gap of business interruption and it’s every every economy has significant effects, as we all know. So what do we do when the government says, well, the insurer should pay for it? Well, that would bankrupt the industry, not just the carriers, it would bankrupt the industry. But is there a response mechanism, that that would be able to deal with the breadth of the the economic loss will sure thier is governments can print as much money as they want. But it takes so long for that effect, to reach the market. And you can’t do that from the top down. You have to get those funds out from the bottom up. It takes so long and it takes political will and all that. And there’s the the real 10 C’s project was how do we get all these parties to collaborate in anticipation of the next pandemic? Because there will be one. unquestionably how, how can we anticipate it and it can’t be just money. It’s got to be alright. How can we analyze the factors that make this happen starting from in December? If we look backwards, the the little triggers that might have been detected in the supply chain or people not working and people getting sick? And then the cascading effects and we humans are smart, but we’re not as smart as aggregating all the data and then anticipating what effects there might be through artificial intelligence or machine learning. And then governments can respond. But they’re they’re ill. They’re ill suited to do it quickly. And they’re ill suited to do it in any way other than a political way. 

 

William Laitinen   

You do have a 10 C’s, methodology that you guys have created um. And I’ll say who these guys are, in a moment, you’ll you’ll sort of talk to us about the group that you’re working with. And could you just introduce the 10 C’s methodology to us, please?  

 

Patrick Kelahan   

Sure. The 10 C’s are, are somewhat the the insurance elephant for a systemic risk in a a framework that could be used to plan for the next one, engaging all these parties. Look number one, C is the concept. There’s a concept to this, which is the whole broad thing in and of itself. Cover is the next see what what would be covered? Steve Evans from Artemis told me early on, it’s all well and good to get capital markets involved. But you have to know what you’re getting covered in order for any of the other pieces to fall together. So he’s a smart guy. The catastrophe what’s what’s going to trigger that cover in a in a parametric sense, capacity, is there enough capital capacity to be able to hand this or or combination with government capacity, canopy adapted to a captives insurance system, there are captives working now that deal with much, obviously, much smaller pieces, capital markets, get them engaged in helping finance and hedge the financing of this reinsurance, ILS, catastrophe bonds, etc. ahh Collaboration is a big, a big C, all the partners have to be working towards a common goal on being able to respond to the next pandemic. Continuity of effort ahh. If you have government involved, there are changes in administrations there’s changes in priorities, there’s got to be a way to have continuity of focus, funding, and administration of this all the other party’s collection, how does it get paid out? If there’s the trigger. Is it going to be with the tied in with a distributed ledger or blockchain some other method that’s just soon as it happens, the money gets to the street, and then contribution, who’s helping to pay for it, thats another big one. So there are the 10 C’s, the the general framework. 

 

William Laitinen   

Brilliant, thank you very much. I’d like to sort of get back to some of the early premise Actually, this is where we, maybe we might have started part of our early discussions a what a couple weeks back. We’ve identified at that moment that the industry is very much set up on this sort of indemnity insurance model. And it really is proving inadequate to deal with the type of systemic risk that we’re facing with COVID-19. It’s just too hard, seemingly for insurance to go through the process of actually measuring the damage that’s been caused to companies, in in a timely fashion, that will actually get the funds to them that’s going to absolutely materially help their business before they go out of business. And so we have talked about these parametric triggers being part of um that solution. So let’s talk about that. I mean, the idea of a parametric being a solution for this, and, you know, we kind of briefly touched on in through those 10 C’s some of the the types of things that would be instruments that you could be using to create that. So let’s explore this a little bit more, and maybe just sort of, for those of you who aren’t, you know, aware of the sort of indemnity model vs parametrics um. Tell us about your thoughts with that, Patrick. 

 

Patrick Kelahan   

Sure. And the traditional insurance model is indemnity based see, a claim occurs ahh. The terms of a policy are met, the insured proves the loss, and then the insurer pays the loss. But it it’s in a business interruption sense ahh proving business interruption loss. It’s it’s not like a tree hitting your roof. It’s it’s a an accumulated loss over time, you could project it, but how do you prove it? What is it is it cashflow loss is a loss of net profits? Is it loss of gross profits? Is it an accumulation of unpaid bills? Having to adjudicate all of those claims and there might be 10s of millions of them. Would would be so overwhelming to the insurance industry. If everybody had business interruption insurance in the indemnity model to prove all of that. I can’t even imagine the administrative ahh  craziness. But if it’s a parametric model where the agreement in the in the insurance contract says, oh, if if x occurs, and it’s at this extent, there will be an amount that’s immediately paid. For example, for panda for COVID-19, if a trigger was, if there are 500,000 persons globally, who have been confirmed as having the virus by an authoritative ahh ahh organization, then an amount will get paid to those who have the contract. It could also be broken down into various trenches. Say for example, if 20% of the supply chain for industry x or for transportation is disrupted, and it can be proven, then the person’s holding a policy for that part of it would be paid. Some of there are there are right now, parametric pandemic models, the the World Economic fund has it, but it was the trigger is number of deaths. If you hit a certain number of deaths, and then there’s a next index, and that that’s a this is Pat speaking personally, that’s a crazy trigger to hinge something on people dying as opposed to the effects. So parametric pays based on a trigger no question. indemnity, you have to prove your case.  

 

William Laitinen   

It does feel like.  

 

Patrick Kelahan   

And 

 

William Laitinen   

Yeah I’m sorry to. It’s just it just feel like when you when we talk about these parametric triggers and with the the number of deaths trigger for example, that was that was utilized. That that is a bit of a blunt interment instrument. I mean, it does feel like maybe these triggers were created in a world that wasn’t really as advanced as we a re now we’re thinking about parametric insurance in the way that so many InsureTech’s are um. And there just seems to be so much innovation now about the way that we can link um certain outcomes, certain instances measurements to the activation of an insurance policy. I mean, I can think of some, you know, some very interesting InsureTech’s who are doing this, you know, for example, dealing with flood um. flood risk is theres a company in the UK called um flood flash where 

 

Patrick Kelahan   

great folks, really innovative. 

 

William Laitinen   

Exactly, and they and they’ve thought about this incident, well, yes, normally the normal model be indemnity, right, you got to get a loss adjuster around to your house, you know, measuring it, look at the cost of your floor, your carpets, your kitchen, your doors a all of that stuff. I mean, there’s huge cost huge time huge disruption. Or, as they’ve done, install that piece of that Smart Sensor outside of the house. As soon as the water reaches a certain level this triggers um the the payout and it could be the money can be with you ahh, within only a couple of days um. And that’s the type of solutions I can think of in this parametric is sort of post COVID-19 world where parametric solution is going to come into the into the play. I mean, I personally could see things where maybe they’re using, you know, aerial satellite photography to work out for in a certain city to know whether or not a cafe should have its parametric pandemic trigger pool triggered, which may just not be only that it could also be the, the World Health Organization has to also announce a pandemic. So it could be multi layered, but within but with triggers that are simple and simple to understand, to have a direct correlation to what the customer would see as being um relevant and reasonable. So what are your thoughts on these on these triggers and the triggers that can be used? 

 

Patrick Kelahan   

Well, a a possible for again, I step back and look at initially the supply chain disruption. And with the advent of satellite communication on vehicles and such, and we work in a just in time supply environment across the globe. There There’s a predictive or a ahh ahh predictable model of how things get from factory A to a shipping point and then such aggregating those data. And if a trigger hits where the overall flow of material becomes outside of, say, three or four sigma standard deviation, it might trigger an economic parametric, because there’s going to be a delay in Walmart, putting the goods to the shelf, and it’s going to affect sales. Now, this is just one tiny little piece but it’s a piece that has to be looked at ahh. You know Maersk has great innovative ways of tracking their shipping ahh across the ocean, putting all these pieces together, putting AI to work to detecting in retrospect of what started in December, in Hubei province and  ends up in New York City with 10,000 people who are sick and every all the businesses close. There are pieces that fall into place there and when you understand what the piece how the pieces fall, you can begin to determine what were the key factors that would trigger either economic or health or societal disruption. It’s a huge project that’s underway. But unless it starts, you can’t identify the triggers, you have to go back to all the little pieces. It’s easy to say ahh, in the US or UK ahh. Yeah, all these businesses closed, their revenues fell by 50%. And that’s the trigger. That’s the easy economic trigger, or the trigger is, the government says, you have to close your business. And if that’s the simple trigger, great, it’s easy, it’s authoritative. It’s measurable. But do you take the big piece? Or do you try to understand all the little pieces that go together to create that big piece? There’s, and and when you can do that, now you can start to anticipate what should we do or have in place to mitigate those effects and try to ahh make the trigger not happen? There’s the crazy thought. 

 

William Laitinen   

I can see when we start talking about parametric insurance, once you kinda demystify it, you can see this, this yawning gap for innovation that um will be filled, either by the incumbents or by by InsureTech’s or startups.  

 

Patrick Kelahan   

It’s got to be all of them.  

 

William Laitinen   

Yes.  

 

Patrick Kelahan   

It’s gotta be all of them, really. 

 

William Laitinen   

Yeah, I think that comes to a nice area the point, your point on collaboration, I agree with you. And I think this is, this is a great moment in the insurance industry for collaboration is a great moment for humanity, frankly, for good for collaboration, but also in solving the COVID world. Now there’s a couple of tracks we can follow here together, which I would like to go with us. One is about maybe kind of retrospectively looking at what the insurance industry’s reaction to COVID has been good, bad, ugly, we can we can discuss that. Then also to look at sort of forward thinking and what are the solutions we’re going to need to put together because I know we’ve had a few interesting conversations about the capacity that’s going to be needed in the industry to create that. And since we spoke only a couple weeks ago about this initially, it seems like more and more people are coming online with this now looking at ways that funds could be created, either at the sort of the supranational level. So um let let’s take that one of two waysSo let’s talk about the so we’ve talked about the parametric trigger. So let’s follow the idea of the capacity that’s going to be needed first. So what are your thoughts around the sort of the capacity the industry needs to create? 

 

Patrick Kelahan   

Well, the capacity, we’d like to say it’s it’s $2 trillion, because that’s what we’re estimating the losses. But if if, and this is a piece that you and I hadn’t necessarily discussed, but I pondered if if the ahh countries had available ahh resources for protecting the population, personal protective equipment, ventilators capacity in hospitals, the ability to react promptly, not having to wait for these things would lessen the extent the breadth and depth of the problem. So what the capacity is, is going to be affected by how are we planning the next one? If you understand what I’m saying,  

 

William Laitinen   

absolutely, yes yes. 

 

Patrick Kelahan   

That that’s a key piece that I thought, well, we really need to not have two months between when we knew it was going to be a problem and when we reacted to it, but the insurance world kind of knew this was coming, because they’re they’re smart folks, and their risk predictors and the the big ahh risk modelers see things going, and they have a touch on factors that are happening. So it’s certain that in December, the big carriers were saying, Hmm, this is coming. How’s it going to affect you know, they put the think tanks to work. How’s this going to affect what we’re doing? Well, it’s not physical damage, per se. So the the direct damage cover doesn’t look like it’s going to be involved and we’ve excluded that from ahh coverage. There’s not a physical damage to worry about, but what’s the biggest effect of it’s going to be disruption to business. Oh, let’s look at our business interruption coverage. Oh, yeah, we’ve already set that up. That if there’s no physical damage, it’s not a covered loss. We’ve excluded it from cover. We’re going to be okay. Because we’re not we don’t have an exposure. And I’m not saying insurance companies or bad folks or anything. They’re looking out for their business. But you know, that was happening in December, January, February. What steps though did the insurance world take to help the business insurance understand what was coming. You you can’t necessarily hide from it, although that was kind of the thing. But is there a fear if you speak up, that there will be litigation that, you know, things will happen. So, what’s the exposure? um people kind of knew what the exposure was, but we weren’t ready to react to it, because pandemic is such a huge systemic risk that nobody really put a number on it. We’re kind of looking backwards.  

 

William Laitinen   

So you you did you have kind of posited within the 10 C’s document, though, that you believe there’ll be something like a 500 billion fund needed? Right? That was one 

 

Patrick Kelahan   

Right, Yeah, if if we, and if I focus on the, on the US right now, and we look at the Small, Medium Enterprises, and you can do the math for any country, if there’s 15 million businesses that could be insured for business interruption. And each of them are, say 25 million, whatever number you want to use. And each of them is insured for 25,000 In a parametric basis, it’s going to be somewhere between 500 billion and 750 billion, could be as high as a trillion. So how do you anticipate setting that up? The best way, you know, it’s going to be guesswork Will, as you know, but if if we start now, and we say everybody contributes towards it that has a insurance policy, the government participates, and they say somebody contributes 5 trillion or 5 billion a month, for 12 months, over eight years, you’re going to accumulate $500 billion. That’s the power of compound interest. So if you’re planning out in eight years, maybe our pandemic that needs 500 billion, okay, but what if it happens next year? Where’s the backstop for not having 500 billion? Well, that’s got to be a government or reinsurance ILS capital markets with backstopping by a government, it would be a sliding or evolving fund basis for this. But right now, we know that the US had 350 billion in its paycheck protection plan that was exhausted in two weeks, two weeks with a lot of capacity left. But are those dollars really zero basis dollars, or if you put 500 billion into the streets, and the velocity of money says Oh, for every dollar you put out there, it’s gonna be spent 1.4 times now you’ve got 700 billion worth of effect out there. It’s it really is a crazy thing to think about, get the money out in the street promptly, and it’s going to move so you set the set the number out there, call it 500 billion, call it 600 billion, call it whatever you want. But get it done. The suggestion that the pandemic ahh risk Insurance Fund would be set up like the terrorism risk Insurance Fund, that that’s traditional thinking, putting it all on the government having the burden of how do you distribute it? How do you administer it? It’s it’s a great idea. But it just it’s fraught with administrative difficulties. Because it’s political. 

 

William Laitinen   

I think we I think we could we kind of touching on a couple of very interesting topics here around the power of this, the power that the job that in the insurance could be doing. insurance industry could be doing because we talked about the velocity of money out on the street. And you know, I think many, if you’re a business owner, say listening to this, who is kind of new to insurance, you may be hearing about parametric and capacity and fund. You think all you’re thinking is right, I’ve got a policy I’m paying money into. I’ve got a got bills got rent, I’ve got a family to look after, when am I getting my money? Right. And I want to be able to understand the policy that I buy, in a very straightforward way when this type of incident hits, I will be covered. And that velocity of money that you talked about, I think it’s such an interesting topic. And up until this point, we’ve been relying on the banks to deal with the problem. banks to go out and write loans um to do the assessment, do the the the customer assessment, look at business counts, look at sort of cash flow projections, then do a sort of a risk assessment and then make the payout. I mean, it’s proving to be a nightmare. I can tell you of many business owners that I know small business owners, who are like pulling their hair out with the system, and then they’re showing us in the low single digit percentile that they’re actually being granted loans. Whereas insurance on the other hand is very much set up to make payments to clients if they have the policy and wording in the right way. So I think this velocity of payment is a very interesting topic that you raise, and the way that parametric insurance can be the solution to that um. So I I’ve got a, I’ve got to say that and that then links me back into this idea about where the insurance industry is right now. And why maybe this is kind of a very difficult conversation for us to have. And one that I’m finding difficult to have anybody in in the industry is why, as the insurance industry seemingly been gone so quiet, why aren’t they showing leadership right now? Because if they don’t show leadership in helping businesses in showing for the sorts of solutions, they’re gonna be considered the bankers of the global financial crisis back in 2008 2009. And be tarnished in that same way. So what are your thoughts on that? Why do you think insurance industry is being so quiet, and it’s showing this sort of as hiding from addressing customer needs, as we put it in sort of dealing with this? 

 

Patrick Kelahan   

Yeah uh, it’s human nature. If you identify a problem, but you don’t have a solution for it, then you’re identified with the problem, aren’t you? So the carriers, after, after a while started to get an idea that they needed to do positive things. And I’ll kind of work backwards to your question. For example, if Chubb said we’re going to contribute $10 million, and they did, to a fund to help mitigate the effects of the pandemic, that’s great, or the PNC carriers that are rebaiting premiums, they’re getting the message that they need to start to take control of the the dialogue in the market. But early on, when they were saying nothing, but they knew the problem was coming. And the first indication that something was going to happen started to come from government, where legislators said, Hmm, these people are getting their claims denied, we feel the insurance company should be paying for this, as opposed to the insurance companies taking the lead saying, this is a horrible problem. We recognize it’s a problem. Here’s how the insurance world works. We know it’s too big for us to handle on a traditional basis. But here’s an alternative, we’re going to team up, we’re going to communicate, we’re going to create some type of fun to support something, we’re going to offer administrative services to the government for distribution purposes, we’re going to do something, but they did not control the dialogue. They and when you sit back, and you’ve got cash reserves in your bank account, that are five or 600 billion across and again, I’m talking US, it’s easy for a congressman to say, Look, you’ve got half a trillion dollars sitting in the bank, pay that out, it’s the right thing to do. But the insurance world didn’t say if we do that, it’s going to compromise every other line of cover that we have, and cause the industry to collapse. They missed the chance to control the message. 

 

William Laitinen   

Yeah, I couldn’t agree more on that, that that control of the narrative is is an aspect to consider and by no means am I saying that the insurance industry should have just paid out and taken the fall for COVID-19. Oh, would have been terrible, it would have been terrible. And absolutely any modern economy is built on the premise that, that if you have great insurance, then innovators and pioneers can go and take more risks. That’s how it started back in the coffee houses of Lloyds of London, right? This idea  

 

Patrick Kelahan   

Sure.  

 

William Laitinen   

Insurance was about enabling pioneers to go and take risks out in the world. So, you know, nobody’s arguing with the importance of insurance. I think it’s the idea of, of like you’ve said it’s like controlling, being part of the narrative solution. And I think it’s such an interesting, it’s an interesting position in insurance industry could could play is maybe early on to have said, you know, look, we’ve got these business interruption policies, pandemic cover is not listed in it as one of the conditions which will pay out, we can’t, but we’ve got this, let’s just throw a number out, we got 300 200 billions worth of coverage, to payout across all these different insurers. If the government steps in and offers to underwrite um those policies, we can distribute those funds in a matter of days. So those organizations, I mean, that would have been really exciting leadership and I think a really great way to potentially alleviate the suffering of their customers um. I wonder if that’s gonna happen in some way, shape or form. I mean, in the UK, I can tell you this country You know, the the COVID business interruption loan system is being distributed by banks. And the way it works here is that 80% of the risk is going to be covered by the government and the other 20% will be put onto the balance sheet the banks. Now what that means is happening in real life is the banks are still being very, very slow, because they still didn’t even want that 20 percents and other governments are talking about covering 100% of the risk to get those funds moving. Now, wouldn’t it have been interesting leadership, not only from insurance, but also from government to think about just doing that same thing, but saying to insurance will cover 100% of your risk paid out, let’s get the economy moving, let’s get the velocity of funds into the hands of business owners. That would have been a great solution for where we are now. But you know, what, let’s look ahead to the future now. And say, you know, parametric triggers has to play a part in it, right? has to play a part in 

 

Patrick Kelahan   

contrast, again, the UK loan program doesn’t sound this dissimilar to the US. But even even a Patriot Protection Program, said, you know, file for eight weeks worth of pay to keep your employees on, the government will, if you show that you’ve kept employees on will forgive you for that entire amount. That’s a great plan, except the Treasury Department and the Small Business Administration, were ill prepared to administer a program like that. So the banks were ready, but the program wasn’t. And then it was fits and starts, so that there was such a, an unexpected result from a pandemic, that there wasn’t a any kind of shell of a plan, the crazy thing in the world, there was a parametric pandemic plan available through Marchionne in Munich Re that they couldn’t sell to anybody. Yeah, there wasn’t a big capacity on, but it’s so outside of our thinking, to have such a thing occur. But what’s wrong with recognizing without casting stones that governments are ill prepared and inefficient in distributing things properly. Insurance companies are well prepared, as you say, to to process payments, their information, their money. So your your suggestion that the insurance companies be the the paying vehicle for money that is backstopped by the government is right on point, it’s, it’s one of those aren’t no no harm, no foul, we recognize we get the money out, boom, it’s done in a few weeks. And it’s just everybody. But we don’t have that now. That it’s just it’s a great idea for the next day. It’s part of the 10 C’s, you’re on board, you’re hired. 

 

William Laitinen   

I think this brings us to an interesting sort of next kind of next phase of our conversation really, which is about collaboration. And, you know, the reason I’m really excited to be working in the insurance industry, right where we are now is there’s this really exciting moment, you know, pre COVID-19, but I think post COVID-19 where there is innovation happening there is this whole raft of new insurer Tech’s coming into the industry, there’s the old legacy insurance firms with with capital and desire to innovate and change these insure Tech’s creating fomenting change. And that’s kind of mixing into this really kind of rich ecosystem. And I think somebody a culture in insurance have more open collaboration. I don’t want to sound too idealistic about it. But I do think that’s probably my own experience of the insurance industry. So I think you touched on this earlier. So, you know, collaboration, because nobody’s the one organization’s gonna have the solution for this. So like, how have you approached collaboration? And what your thoughts on collaboration in the industry and what have you seen? 

 

Patrick Kelahan   

Well, first off, there has to be a recognition that no matter what goes forward with insurance, parametric programs, whatever, it can’t take care of the entire problem. It can’t take care of the huge amounts for governments, states, provinces, regions, whatever you have to choose, what piece is the best fit to approach for everybody? So if you focus on for example, SMEs, it’s it’s a fairly predictable piece. If I’m not saying this is what you’re doing, but if you’re focusing on SMEs and you’re focusing on the outcomes going to be a parametric and it happened tomorrow, what would we need to have in place? Well, we need government backstopping for sure we need a distribution method. We need to know who’s getting it. We would need to have the insurance world who knows this well. To be a piece of it, obviously, the insurance would want comfort that there’s something in their insurance plan that would reimburse them, the carriers would need to know that, yes, we’re great at this, but we’re not going to get financially whacked. The Capital Markets would need to see, this is a great way for us to get into alternate risk financing, where we can make some money with the chance that at some point, if a pandemic happens, that perhaps, you know, the principle gets lost to some degree, but there’s a way to make money. And in a negative interest world, capital markets want to be part of it. And then once it’s, it’s out there that now you can begin to slice and dice the risk, so that it’s hedged properly, that nobody’s taking the full hit. And certainly, governments, if they understand right now they understand, we’re on the hook for trillions of dollars, we’re the only source of money in this new world that’s being planned. Whether it’s the 10 C’s project or something else, we’re the backstop for a bunch of other people getting involved. We’ve got the private industry involved, and there’s a profit motive to it. So that’s going to be a little more effective than what a government does. And the government’s there as the safety net, as opposed to right now, no matter what the government’s on the hook. We could continue doing that with a PRIA or any other plan. Same thing will happen in five years, the government’s gonna be on the hook all the government’s, there’s, there’s a better way. And that’s collaboration, getting smart people profit motives, expert at what they do, preparing for it, and continuing to update what that plan is all things that we don’t have right now. 

 

William Laitinen   

Hmm. Well, I think I hope the listeners would agree that I think we’ve done a pretty good job of identifying the problem, some of the where its coming from, but um, you know, you and I are here trying to solve problems as well. So, yes. How, how can anybody listening to this, help you solve this problem? What maybe you can explore this however you want on the problem, the solution that you have in mind, the solution that you’re working towards any industry actors who can help you solve that solution um? Let let’s talk about that. What can we what could we do together? 

 

Patrick Kelahan   

Well, there are collaborators that I’ve identified or have reached out, really smart people, Dr. Marcus Schmalbach of RYSKEX his his firm is expert at ahh parametric design, and and a project they’re working on is intangible asset valuations. And I don’t want to get into that that’s a whole nother 

 

William Laitinen   

We put a link to that in the show notes 

 

Patrick Kelahan   

Discussion. Yeah. Yeah. But his, his premise of his company is, there are alternate ways to finance things. And there are alternate ways to look at what the risk is. Also, there’s a framework that can work through they’re also really smart data companies, artificial intelligence experts like carrbridge international, intellect seek, paper crane, and ahh there are others. people that do this, and have the data lakes available, have the capacity to attack these enormous problems through AI. And of course, AI is not perfect, it might spit out some crazy stuff. But if it identifies one little piece, it’s going to be a wonderful thing ahh. There There are, I don’t know all the companies in the world, I would say if there’s any persons who are interested in participating, or have ideas, and they could be academicians, there’s a fine Professor out a Butler University in the US who’s dug into this. And and unfortunately, his name will escape me because I’m gray haired. And that’s the 

 

William Laitinen   

thats the beauty of podcasting. You can put we can put the memory in the notes later.  

 

Patrick Kelahan   

Exactly. , Zachary Zachary Finn is the gentleman’s name. 

 

William Laitinen   

there he is, absolutely  

 

Patrick Kelahan   

Alright, so, you know, he’s he’s talking about the PRIA. He and I, had some discussion. So if people are interested, I’m i’m available through social media um. LinkedIn, Patrick Kelahan, that’s simple enough search for me. In Twitter, it’s um insuranceEleph, E L P H 1. But if you search for my name, it’s in there. I’m constantly discussing these things that the 10 C’s framework is available on my ahh my profiles. So this is a problem that will be best solved through a diverse set of suggestions. All right, but right now, I’ll give you an example of what direction I see the industry going. Some, some great folks in the reinsurance world met this week in in London, and are talking about establishing a fund through pool re. For the next pandemic. Well, that’s all well and good. But that’s where we’ve always been. It it doesn’t, it doesn’t start from the beginning, anticipating removing some of the risk, anticipating risk being prepared. It’s only a indemnity or response model through the reinsurance world. Great folks, I really encourage them to do great things. But this needs to be shaken up. And it’s got to be looked at differently. If we don’t want a multi trillion dollar problem. The next time it happens. 

 

William Laitinen   

Absolutely. I I what I will be doing is putting this onto the search with purpose um channel that I have as well. So you can reach out through via um LinkedIn, and through YouTube and a number of other social media outlets. I’m sure you can find us if you can’t, and you need some serious help with computers um. But I mean, the the main thrust of your point there, Patrick, which I couldn’t agree with more is the idea that any actors out there in the insurance industry, who feel that they are part of the solution, or want to join in the conversation, please do. Because there’s absolutely no way we can solve this um in just one person, one organization. You know, it’s got to be a collaborative process. And I’m sure I know, like you mentioned some of this fantastic data firms in this space. There are others as well, who I think do some really excellent work around the types of data types of triggers that could be used to solve a whole range of different scenarios, pandemic coverage. 

 

Patrick Kelahan   

And will, I’m going to shamelessly put out there that um right now, this is a vocational effort on the parts of the people involved. If there are, if there are interested companies looking to fund this project for research, it’s not. It’s not like a $10 million thing. But this needs attention now for people who do this for a living. And you can’t supplant doing it for a living with doing it as a vocation.  

 

William Laitinen   

Yeah. Lets be more overt with that Patrick  

 

Patrick Kelahan   

Yeah 

 

William Laitinen   

You need you need somebody with some pockets, 

 

Patrick Kelahan   

I need some money with some pockets. 

 

William Laitinen   

You need somebody to step forward, and and help, you know, fund the the project work that you’re doing. And you are currently and lets explain it, you’re in a some group of people at the moment right Patrick, yourself and some others who are working around the problem in a, as you said, a sort of a, you’re doing it in your spare time type initiative right now um. And so those individuals, you guys are forming under a group, right? Can you tell us a bit about that? 

 

Patrick Kelahan   

Yes. Yeah, the group is the the 10 C’s project, it’ll probably be umbrella under RYSKEX. We’ve started a website, which should be out. But Marcus Schmalbach of RYSKEX um. Renu Ann Joseph of Luminant analytics. That’s another AI firm. Chris Franklin of carrbridge International. Lakshan De Silva, of intellect, SEEC, ahh my good friend, Tomas verduzco vaisselle ahh, In Germany, and I don’t want to forget anybody, you have been a great advocate for it. So Exige, and I don’t even know how to say that the firm  

 

William Laitinen   

I’ll i’ll step in and say EXIGE.  

 

Patrick Kelahan   

internationally, you you’ve been a great ahh ahh mouthpiece for this ahh. And whoever else H2M, of course, is supportive. But having the great ideas, it’s still an economic world, you know, we need to get a little bit of funding to make it go. 

 

William Laitinen   

Absolutely. And I think there’s no shame in asking for that. I think the minds that you’ve all just, you’ve just outlined some fantastic organizations in there um, in any way that I am being part of that is just to advocate for the concept that um, you know, as a species, as a, as a society, we absolutely have to come together in these times of um difficulty, frankly, and you know, as we see these, these fracturing of society through the um to the tragedy of pandemics, you know, the best of humanity is best of local communities is how they come together and they renew the bonds, which are otherwise going to be fraught and pooled, and strained. So if anything that can happen from all of this is that the insurance industry a whole group of all the people, you’ve just men can come together, collaborate, show leadership, or we’re already seeing that fantastic. So yeah, anybody who can help anybody wants to get involved just intellectually, but anybody who has the capital was interested in discussing it further, please do reach out. You can drop us an email myself um, William@Exigeinternational.com. Patrick giving you a few handles they’ll be some in the show notes as well um. And please help everywhere you can. Well um, I think that draws us to a to a stage of in the conversation which is a natural end. I’d like to thank you Patrick very much for your contribution today um. It’s been great talking to you again and hearing the work that you’re doing um. So thank you very much for all the effort you’re making. 

 

Patrick Kelahan   

You’re welcome. And and you’re making this a forum within which we can discuss this is, you know, beyond compare with others. So, thank you very much for for being this important part. And, and don’t be surprised if you’re not an important part going forward.  

 

William Laitinen   

Thank you very much. 

 

Patrick Kelahan   

Whether you like whether you like it or not. 

 

William Laitinen   

[Laughter] Absolutely. And with that, thank you very much for listeners as well um. I’ve been William Laitinen. And it’s been fantastic um. Joining thank you for joining us here on this episode of search with purpose. 

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