M.S. in Insurance Management lecturer Sandra Bograd stresses the importance of legal department foresight in the handlings of the COVID_19 pandemic in the fifth installment of the program’s Top of Mind series. In this series, Academic Director Teresa Chan calls in program lecturers to provide understanding for COVID-19 current and future effects on the insurance industry.
What are the short and/ or long-term effects of this pandemic on each of the key operational divisions within insurance companies, intermediaries and reinsurers?
The world of legal obligations and regulatory requirements of participants in the insurance industry have been thrown down the rabbit hole and legal departments may be starting to feel like Alice at the Mad Hatters tea party.
The meaning of policy language, third party contractual obligations and the myriad of regulatory requirements that govern the industry, are all in play as all levels of government and jurisdiction use extraordinary measures to blunt the macro and micro economic effects of this pandemic.
Legal departments must recognize that there will be a day of reckoning in which the actions taken in the midst of the 2020 pandemic will almost certainly need to be defended in litigation and regulatory review in a few years’ time.”
Effective legal risk management has never been more important and never more difficult. Industry threatening exposures like mandatory business interruption coverage and other liabilities based on government action are introducing unprecedented change to the management of legal risk. Typically, the law and regulations are meant to establish a fair playing field amongst industry participants where the rules are transparent and enforced by regulators. Legal code and case law precedent are well established, and legal advice based on these principles is likely to be correct.
Yet, due diligence designed to prevent financial fraud is truncated as unrealistic timetables for new financial transactions and lending are released in an effort to stem the growing economic impact. Operational management best practices are also being truncated in the name of speed to meet public expectations. Cross functional transparency, documentation and communication of legal analysis will be essential to be able to justify the extraordinary actions that may be required in today's environment.