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COVID-19 and the Insurance Marketplace
For insurers, the fallout from the COVID-19 outbreak will have repercussions and implications for years to come. The effects will be different for each insurance category but all will be affected.
Although the industry is generally well-capitalised, future liquidity issues could arise following the expected surge in health, travel, liability, event cancellation and business interruption claims combined with reduced premium income and pressure on sales due to reduced business activity. In the UK alone, the ABI’s recent estimation puts the cost at GBP 1.2 billion to the UK insurance sector1. Globally, the largest industry forecast stands at USD 200 billion2.
Life Insurers
For life insurers, pressure on solvency ratios and liquidity is expected to increase with the expectation that significantly increased claims will be paid at a difficult time for the sector due to extreme stock market volatility, declining interest rates, potentially long-term economic slowdown, lower levels of new investments and an increase in withdrawals from funds with many clients under financial stress.
Non-Life
Elsewhere in the non-life sector, the UK government announced the creation of a temporary trade credit reinsurance scheme to ensure that coverage would be maintained in light of COVID-19 for the estimated GBP 350 billion of economic activity underwritten in the UK each year enabling trade to continue and maintaining liquidity in supply chains. However, premiums are expected to rise by around 10% as insurers ready themselves for a spike in insolvencies.
Health Insurers
The impact on the health insurance industry is unlikely to follow such a uniform pattern given the different health systems around the world. Whilst US Congress has passed an act requiring insurers to waive cost-sharing for medical services related to COVID testing for those with private health cover, other governments (e.g. Australia, Ireland, UK) have been driving the treatment of infected patients by redirecting private hospital services to support the COVID-19 spike(s). Largely, though, the sector is likely to benefit from less elective surgery with an underlying reduction in demand driven by fear of COVID infection.
The potential exposure to insurers is largely uncertain due to the increasing clusters of infection and mortality in nursing homes coupled with the possibility that some policyholders may expect premium credits or rebates in circumstances where they are not being distinguished from a public patient.
Cyber
The pandemic is also having a powerful impact on the security of businesses and individuals. The switch from an office-based workforce to one that is predominantly home-based has for many companies introduced the increased threat of Cyber attacks through the use of unsecured personal technology devices and home Wi-Fi. Although the anticipated surge in claims has yet to arise, the risk is expected to remain high with average premium increases of around 5% for standalone cyber cover. In terms of managing the return to work, health and safety – along with cybersecurity – are considered to be the greatest increased business risks as a result of COVID-19 with regulations having been updated to address safe working conditions.
The Importance of Digital
Motor
Motor, however, is one of the few classes expected to perform well this year. In countries where a partial or nationwide lockdown was implemented, there were significant reductions in the volume of road traffic - as high as 60% on motorways in Italy, France, and Spain. Claims notifications have dropped considerably although new business quotes have fallen by up to 50% as consumers have little to no need for vehicle use during the lockdown. However, this is an anomaly rather than the start of a new trend, the full economic impact of COVID-19 in the motor insurance sector is not yet known.
For the insurance industries, it is critical to be prepared for events such as COVID-19. This pandemic has highlighted the need for robust data and advanced analytics to reduce the uncertainty during disease outbreaks such as this and support growth through preventative as well as protective approaches.
In addition, the virus has removed the ‘in-person’ communication channel, altered perceptions of risk and forced a change in customer behaviour. Customers want speed, simplicity, personalisation and fulfilment throughout the insurance value chain and there will be increased demand for certain types of insurance covers that serve more as lifestyle or experience enablers as opposed to a standard, commodity policy viewed as a grudge purchase.
Insurers need to be data-driven, insight-enabled and be able to rapidly deploy those insights into client value. There needs to be a significant shift in the way that insurance is sold and serviced in addition to the way in which (customer) data is used and analysed to reveal individual/group behaviours, patterns, trends, associations and, subsequently, correlated with risk.
Coupled with this is the need for the industry to invest in the digital tools and platforms required to deliver enhanced customer value and personalisation from policy administration through to claims handling.
There needs to be effective cross-functional collaboration (e.g. claims, underwriting, actuarial) and consistent decision making (e.g. from junior underwriting authority levels through to strategic portfolio management), neither of which can afford to be impeded by the transition to remote working. Where commercial customer interactions are largely via brokers or agents, there needs to be one digital ecosystem that wraps around the insurer and its distribution channel(s) so that the customer experience is seamless and consistent.
A digital first mindset is key to realise the asset value in transparent, reliable data – and the subsequent effective analysis of it – accessed via a single, flexible platform that coordinates and connects both internal and third party systems to provide one consistent view of a customer profile from marketing through to claims. As insurers are at different starting points, no one journey along the digitisation pathway will be the same. However, one common aspect is that insurers will almost certainly not be able to progress at the same speed as today’s technology leaders - Amazon, Apple, Microsoft, Salesforce.
Insurtechs – particularly those who are addressing current pain points – present an opportunity for insurers to keep pace and innovate at the same time. Developing trusted partnerships with these insurtechs will enable the industry to pursue new avenues for value creation, to stay agile and avoid disruption.
Author : Carol Au-Young