Beyond its effect on people, the continuing COVID-19 pandemic has had severe effects on the U.S. and global economies. Maintaining liquidity can act as a bridge until economic activity improves, and a number of insurance and risk management strategies can enable that process. A new briefing from Guy Carpenter-affiliate Marsh considers the potential COVID-19-related liquidity challenges companies may face during and after the pandemic as well as some potential solutions.
Cash Flow Challenges
Since the pandemic began, businesses have had to contend with volatile financial markets and uncertainty about their current and future revenues and cash flow. With worries about a potential recession growing, many businesses have taken steps to preserve cash — including laying off or furloughing employees and shutting down production — while exploring potential lines of credit and other ways to maintain liquidity. The White House, Congress, and the Federal Reserve have also introduced a major stimulus package, lowered interest rates, and taken other measures to ease companies’ pain and ensure capital is readily available.
But adverse effects and uncertainty for businesses will likely persist for some time — with the worst possibly still to come — which underscores how important it is for businesses to preserve cash. In addition to any actions they may have taken so far, businesses will likely need to explore other solutions, such as claims and collateral cost reduction strategies, credit insurance products, premium financing, and the use of captive insurers — all of which can help them stay liquid.