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Afraid to Step Out of Your Comfort Zone? Then You Can’t Lead in the Age of COVID.

comfort zone

Afraid to Step Out of Your Comfort Zone? Then You Can’t Lead in the Age of COVID.

COVID-19 has disrupted the business world, and the “normal” of a few months ago may never return. In this new landscape, how business leaders process and react to new challenges will be crucial.

Using critical thinking skills to make sound business decisions in a complicated, constantly changing world has never been more important, says Dr. Jim White, founder and president of JL White International and bestselling author of Opportunity Investing: How to Revitalize Urban and Rural Communities with Opportunity Funds (www.opportunityinvesting.com).

“Critical thinking in the COVID-19 era will separate effective leaders from the pack,” Dr. White says.

“Before, many of us relied on linear thinking – that is, solving problems in a step-by-step fashion. When life proceeds in an orderly way, we can draw conclusions based on probabilities: this is what happened before; therefore, it will happen again. Or, we use contingency statements: if THIS is true, THAT is true.

“But COVID-19 changed those premises. Now, there are too many unknowns to rely on lazy thinking. The volatile economy is one example: we don’t know how or when the markets will recover. What will the business community look like post-COVID? Will people continue to work remotely, and which companies will thrive and which will crumble? Will entire industries – like cruising – buckle under the strain? How will communities deal with their struggling populations, vacant real estate, and shuttered businesses?

“Now is the time for non-linear (lateral) thinking, characterized by expansion in multiple directions rather than in a straight line. The concept has multiple starting points from which we can apply logic to a problem.”

Dr. White offers the following advice to developing non-linear critical thinking:

Step out of your comfort zone. “Critical thinking requires that we see and interpret information from a different perspective,” Dr. White says. “In our old comfort zones we weren’t necessarily required to make difficult decisions. But navigating COVID requires taking steps to adapt to new circumstances. For companies, it means being nimble, finding opportunities and ways to innovate. It may mean drastically reducing a brick-and-mortar footprint in favor of a digital presence. It may mean dumping obsolete inventory at a discount. Or it may mean lay-offs.”

Dr. White thinks many people have closed minds and don’t adapt well to change. “In military training, one is taught to pivot, to escape and adapt, since there is no such thing as a perfect set of circumstances,” he says. “The species that is capable of adapting well is the species that survives.”

Don’t jump to conclusions. “When jumping out of your comfort zone,” Dr. White says, “be careful not to jump to conclusions as well. Instead, ask questions, and organize and evaluate information. For instance, business owners should be asking, is now the right time to be re-opening? Who says the pandemic is over? Who is cautioning against reopening? What will reopening look like? Coming to a valid conclusion requires studying the available data: what is happening in other parts of the world, the country, or the industry?

“One criterion we rely on is, what do experts say? What are the credentials of these experts? Carefully evaluating data has never been more crucial than during this pandemic.”

Separate truth from belief. “People often have trouble separating what is valid from what is true because of ingrained beliefs, which we all have. This ‘belief bias’ interferes with our ability to think logically,” Dr. White says. “Critical thinking means making decisions based only on data. For business leaders that means putting aside what worked in the past and being completely open to new practices and protocols.”

“In the age of COVID-19, we must embrace challenges and make solid decisions based on critical-thinking principles.”

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Jim White, PhD, author of Opportunity Investing: How To Revitalize Urban and Rural Communities with Opportunity Funds (www.opportunityinvesting.com), is founder and president of JL White International. He also is chairman and CEO of Post Harvest Technologies, Inc. and Growers Ice Company, Inc., and founder and CEO of PHT Opportunity Fund LP. Throughout his career, he has bought, expanded, and sold 23 companies, operating in 44 countries. He holds a B.S. in Civil Engineering, an MBA, and a PhD in Psychology and Organizational Behavior.

bear

The Bear is Back: A Global Pandemic

The U.S. stock market fell into a bear market on March 12, 2020, ending the bull market that began in 2009. The bull market had begun on March 9, 2009, and peaked on February 19, 2020. The S&P 500 rose 400% between 2009 and 2020, the Dow Jones Industrials rose 351% between 2009 and 2020 and the NASDAQ Composite rose 674% between 2009 and 2020. However, since February 19, 2020, we have seen dramatic declines in all three.

Figure 1. S&P 500, 2009 to 2020

The GFD US-100 Index provides coverage beginning in 1792. By our calculation, there have been twenty-four bull and bear markets since 1792 with four occurring in the 1800s, seventeen in the 1900s, and three in the 2000s. The worst bear market was in 1929-1932, led by an 89% decline in the Dow Jones Industrials. Two prior bear markets in this century both had declines of 50% in 2000-2002 and 2007-2009. By comparison, previous bear markets, such as those occurring in 1987 and 1990, only lasted a few months before a bounce-back.

What is interesting about this current bear is how quickly and how sharply it hit markets throughout the world in response to the spread of the Coronavirus. This was a quick, simultaneous financial pandemic in every nation of the world. In many countries, the 2020 bear market is simply a continuation of the bear market that began in 2018.

The extent of the bear market in 22 countries and for global indices is provided in Table 1 which uses data from the GFDatabase. The table shows the date of the market top, the value the index hit on that date, the change from the previous market low, the current value of the market, and how much each market has fallen since the top in 2018 or 2020. The only major market in the world which has not fallen into a bear market this year is the Chinese market, the country where the coronavirus originated. However, the Chinese market had already been in a state of decline since 2015.

Figure 2. Shanghai Stock Exchange “A” Shares Index, 2010 to 2020

So far, global markets have fallen by around 30-40%. The question is, how much more are the markets likely to fall?  Will this be a short-lived bear market as occurred in 1987 and 1990 or a more extended bear market as occurred in 2000-2002 and 2007-2009?

Figure 3. United States 10-year Bond Yield, 2010 to 2020

It should be noted that fixed-income markets have already hit their bottom in the United States. This occurred on March 9 when the 10-year bond fell below 0.5% as we had previously predicted in the blog “230 Years of Data Show Rates Will Soon Hit 0.50%.” Yields have slightly risen since then. Moreover, the Shanghai Index bottomed out on February 3, 2020, when the stock market reopened after the Chinese New Year and has not participated in the worldwide sell-off. Both of these indicate that this bear market will not continue for an extended period of time. We will update Table 1 on a regular basis so our readers can follow the changes in this COVID bear market.

Table 1.  COVID Bear Market Statistics for 22 Countries and 4 Regions

 

Country

Index

Market Top

Value

Change

Market  Low

Value

Change

Asia
Australia All-Ordinaries 2/20/2020 7255.2 133.16 3/23/2020 4564.1 -37.09
China Shanghai A Shares 6/12/2015 5410.86 165.15 12/27/2018 2600.05 -51.95
Hong Kong Hang Seng 1/26/2018 33154.12 80.98 3/23/2020 21696.13 -32.76
India BSE Sensex 1/14/2020 41952.63 82.79 3/23/2020 25981.24 -38.07
Japan TOPIX 1/23/2018 1911.31 59.77 3/16/2020 1236.34 -35.31
Singapore FTSE ST All-Share 1/24/2018 877.87 40.38 3/23/2020 540.6 -38.42
South Korea Korea SE Price Index 1/29/2018 2598.19 57.21 3/19/2020 1457.64 -43.90
Taiwan Taiwan Weighted 1/14/2020 12179.81 56.41 3/19/2020 8681.34 -28.72
Europe and Africa
Belgium All-Share 4/13/2015 13859.94 104.31 3/18/2020 7202.21 -48.04
France CAC All-Tradable 2/12/2020 4732.14 56.27 3/18/2020 2888.89 -38.95
Germany CDAX Composite 1/23/2018 625.19 50.07 3/18/2020 363.83 -41.80
Italy FTSE Italia All-Share 2/19/2020 27675.06 39.43 3/12/2020 16286.37 -41.15
Netherlands All-Share Index 2/12/2020 904.31 54.15 3/18/2020 574.88 -36.43
Norway OBX Price 9/25/2018 523.06 70.44 3/16/2020 329.67 -36.92
South Africa FTSE All-Share 1/25/2018 61684.8 246.26 3/19/2020 37963 -38.46
Spain Madrid General 4/13/2015 1203.82 99.78 3/16/2020 608.26 -49.47
Sweden OMX All-Share Price 2/19/2020 732.67 68.35 3/23/2020 478.95 -34.63
Switzerland SPI Price Index 2/19/2020 731.04 140.71 3/16/2020 548.52 -24.97
United Kingdom FTSE-100 5/22/2018 7534.4 99.27 3/23/2020 4993.89 -33.72
Americas
Brazil Bovespa 1/23/2020 119528 217.51 3/23/2020 63451.55 -46.91
Canada TSE-300 2/20/2020 17944.1 51.52 3/23/2020 11228.49 -37.43
Mexico Mexico IPC 7/25/2017 51713.38 206.16 3/23/2020 32936.6 -36.31
United States DJIA 2/12/2020 29551.42 351.37 3/23/2020 18576.04 -37.14
United States S&P 500 2/19/2020 3386.15 400.52 3/23/2020 2236.7 -33.95
United States NASDAQ 2/19/2020 9817.18 58.52 3/23/2020 6860.67 -30.12
Global
Emerging Markets MSCI Emerging Free 1/29/2018 1278.53 85.69 3/23/2020 758.204 -40.7
Europe MSCI Europe 1/25/2018 1926.57 47.52 3/23/2020 1152.698 -40.16
World MSCI World 2/12/2020 2434.95 35.63 3/23/2020 1602.105 -34.2
World MSCI EAFE 1/25/2018 2186.65 46.52 3/23/2020 1354.3 -38.07

 

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Dr. Bryan Taylor is President and Chief Economist for Global Financial Data. He received his Ph.D. from Claremont Graduate University in Economics writing about the economics of the arts. He has taught both economics and finance at numerous universities in southern California and in Switzerland. He began putting together the Global Financial Database in 1990, collecting and transcribing financial and economic data from historical archives around the world. Dr. Taylor has published numerous articles and blogs based upon the Global Financial Database, the US Stocks and the GFD Indices. Dr. Taylor’s research has uncovered previously unknown aspects of financial history. He has written two books on financial history.

trade credit insurance

Trade Credit Insurance & COVID-19

Exporters and sellers in every industry are feeling the effects of COVID-19, and they will look to their trade credit insurance to cover amounts that their buyers no longer can pay.  It has been only ten weeks since the first US resident was reported to be infected with novel coronavirus COVID-19, and the virus has wreaked havoc on businesses in nearly every sector since then.

Trade credit insurance (sometimes called accounts receivable insurance) protects sellers against a buyer’s non-payment of debt, up to a certain percentage – typically 80 to 90 percent of the bill.  Most trade credit insurance policies include a “waiting period” after a bill is due before a policyholder can make a claim, and 180 days is typical. It is expected that the first wave of COVID-19 trade credit claims will arrive by early summer and continue throughout the year. The anticipated surge in trade credit claims will likely be met with forceful efforts by insurance companies to get out of paying claims.

PUTTING TRADE CREDIT CLAIMS IN CONTEXT

Economists predict that the country’s GDP will shrink by 34% in the second quarter of 2020. One of the largest trade credit insurance companies estimates that in a typical market, 1 in 10 invoices go unpaid. Even less than a year ago, an industry association counting the world’s largest trade credit insurance companies among its members (ICISA) reported an 8% increase in amounts covered by insurance, coupled with a 1.5% increase in claims paid.  In other words, more accounts were being insured, leading to more claims for insurance companies to pay.  This increase in paid claims, ICISA noted, occurred “despite favorable economic conditions.”

Economic conditions have certainly taken an unfavorable turn since then.

With a worldwide pandemic that has brought the global economy to a nearly grinding halt, sellers in every industry will be unable to pay bills as they come due. Trade credit policyholders will be making more claims – and they will be making those claims to insurance companies whose investment accounts are suddenly worth much less than they were three months ago.

Insurance companies selling property and liability insurance have already staked out their positions on why policies supposedly will not cover COVID-19 losses. There is good reason to believe their trade credit counterparts will respond similarly.

BE PREPARED FOR INSURANCE COMPANY CHALLENGES TO YOUR CLAIM

Trade credit policies generally promise to indemnify a buyer for a specified percentage of unpaid amounts that become due and payable during the policy period. Trade credit insurance is intended to protect a seller from non-payment caused by many things, including a buyer’s default, insolvency, or inability to pay because of catastrophe or acts of God.  Policyholders will have strong arguments that buyers who default on payments because of COVID-19 impacts are amounts that the trade credit policy promises to pay.

But policyholders should be wary of insurance company efforts to break those promises. The following are some expected challenges based on concepts addressed in many trade credit insurance policies.

Non-disclosure

Trade credit insurers often raise the defense of “non-disclosure” to avoid paying claims.  The argument goes that if the insurance company had known about some fact or another, it would not have sold you the policy it did.  In some jurisdictions, insurance companies can void policies altogether if they successfully prove that a representation or omission in the application process was “material,” meaning it caused the insurance company to take a position it would not have taken otherwise.

In the COVID-19 context, policyholders should expect challenges to what they knew about the creditworthiness of the buyer at the time of contracting.  Insurance companies may blame a buyer’s failure to pay on facts about the buyer that are unrelated to coronavirus, arguing that the policyholder failed to disclose things about the buyer that would have changed the insurance picture.  Some insurance companies analyze and investigate a buyer’s creditworthiness before underwriting the risk.  In those cases, an insurance company will have a harder time using non-disclosure to avoid its obligations.

But in response to any non-disclosure challenges, policyholders will want to look to the insurance company’s prior conduct in similar circumstances. Had they insured contracts involving the same seller before? Has the newly “material” information been asked of the seller before? While it is fact-intensive and likely time-consuming to establish, an insurance company’s previous conduct or silence can go a long way toward discrediting a non-disclosure argument.

Prior Knowledge

Depending on the specific policy period and payment dates, trade credit insurance companies may attempt to raise a “prior knowledge” defense to get out of paying a trade credit claim.  Insurance covers risks that are unforeseen at the time the contract is made. Insurance companies will likely seize on the evolving nature of the coronavirus pandemic to argue that sellers had “prior knowledge of facts or conditions” that would alert them to a buyer’s nonpayment.

Any response to the argument that a seller was aware that COVID-19 would impact the buyer’s ability to pay will need to take into account the dates of key pandemic events, both global and local. The dates of COVID-19 actions in the buyer’s home state or country will also likely be at play. As with a response to a “non-disclosure” defense, combatting a “prior knowledge” defense is highly fact-specific.

Policyholders may find that the “reasonable expectations” doctrine of insurance interpretation aids them in this scenario. In many jurisdictions, insurance policies must be interpreted to give effect to the reasonable expectations of the average policyholder. It is fair to say that most policyholders reasonably expect their insurance policies to respond to the losses following the sudden and unprecedented spread of COVID-19, whose impact was not appreciated at the time the policy was entered.

Challenges to the Underlying Sales Contract

While the defenses of non-disclosure and prior knowledge rely largely on what was said, done, or known during the application and underwriting process, policyholders should also anticipate challenges to the insured sales contract.

Trade credit insurance policies contain several provisions that limit insurance company obligations if the underlying sales contract is not compliant with the insurance policy.  Successful challenges to the validity of the contract – such as that it was never properly executed or that the transaction at issue was not covered by the insured contract – may jeopardize coverage. Some policies specifically exclude coverage if there is any “express or implied agreement . . . to excuse nonpayment.”

To avoid or rebut a challenge about the sales contract itself, trade credit policyholders should take special care to follow and apply the payment terms and credit control provisions in the contract. While there is no policy exclusion for being a conscientious seller, be prudent in your communications with buyers about your payment expectations.

Like so much about the legal impact of COVID-19, coverage for trade credit insurance claims stemming from COVID-19 losses will be fact-specific and potentially hard-fought. Trade credit policyholders should give prompt notice of their claim, document their losses, and prepare to respond to any insurance company challenges with the assistance of their broker or trusted insurance expert.

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Vivian Costandy Michael is an attorney in the New York office of Anderson Kil P.C. and a member of the firm’s Insurance Recovery Group. Through jury trials, summary judgment, mediation, and settlements, Vivian has helped to recover millions of dollars in insurance assets under liability and property insurance policies sold to corporate policyholders