How is COVID-19 impacting the insurance industry

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The coronavirus outbreak has been creating increasing concern and economic difficulty for consumers, businesses and communities alike. Although it has impacted all business sectors - it especially puts a huge onus on insurers who are at this time bombarded with inquiries and claims across multiple different lines. Balancing the need for responding to this sudden hike in queries and managing a quickly shifting remote workforce is an area that insurers are working to address. 

By and large, insurers factor in such risks into their models and closely study its potential outcome on its business. Most insurers even have dedicated catastrophe response (CAT) teams to handle sudden events like natural disasters. But, how equipped it is to handle a pandemic like COVID-19, that is putting tremendous pressure on even the world’s richest and most powerful nations and their healthcare systems, needs to be seen. 

How will COVID 19 affect the insurance sector 

How the insurance sector responds to this crisis depends on their technology and operational preparedness on one side and their type of business and customers they underwrite on the other.  

It is expected that a number of inefficiencies in technology, systems and processes will stand exposed while insurers handle huge volumes of customer enquiries and claims. Most insurers, for example, have already issued warnings to customers about service disruption and long contact center wait times due to having fewer staff. 

Policy language too will be a critical factor determining what is excluded in a policy or what exposures may exist. While industry experts claim that a wide variety of policies would pay out, epidemics and pandemics are often deliberately excluded from cover.

So, in the coming months, it will be crucial for insurance companies to work closely with affected employees, clients, brokers and agents to ensure business continuity in a new environment and determine whether losses may be covered under policies they’re providing, and if not, what the best course of action should be. With the global economy under threat from COVID-19, it’s an opportunity for the insurance industry to step up and help cities, countries, and businesses recover. 

Areas that will take a hit 

Life insurance

A stock market crash is looming large before many life insurers. Life insurers have most of their policies converted to assets in the stock market and this is how they profit from long-term policies. Should the stock market crash, life insurance will take a fall and result in an asset-liability management risk for life insurers.  

 

Reinsurance

Reinsurance is insurance purchased by an insurer to insulate themselves from the risk of the event of a major claim. Insurers who have reinsurance policies can save themselves from serious damage provided those damages are be covered by reinsurers – who could possibly have a huge impact based on their customer portfolio. 

 

Claims processing

Insurers will see a steep rise in the number of claims filed. While they are already evaluating their claim reserves to get an idea of how much claims they can pay off, processing could take time owing to the current crisis, technology factors as well as lack of employees working.

 

P&C policy types impacted by COVID 19  

 

  • Business interruption policies

For large commercial policies, what constitutes a covered loss in ambiguous.  For many policies, losses will likely have to prove damage to property for claims to be approved, unless epidemic or pandemic coverage is included in the coverage. 

  • Travel insurance

Travel insurance companies braced themselves for an onslaught of claims after the spread of COVID-19 resulted in cancelled flights. But, since many travel insurance plans exclude coverage for losses caused directly or indirectly by epidemics, travelers who choose to cancel their trips due to COVID-19 activity may find themselves without a recourse to insurance.
 

  • Event cancellations

As businesses are exploring buying cancellation insurance for events around the world, most will not find cover for COVID-19. The ones that have will create a significant impact on how this insurance will shape up in the future.
 

  • Trade credit insurance

There may be a significant upturn in customers advising of their inability to pay debts, as and when they become due. More customers are also likely to request assistance, such as longer payment terms, repayment proposals, or return of stock they cannot sell.
 

  • Supply chain insurance

Disruption or delay in the receipt of products, components, or services from a named supplier or supply could disrupt the supply chain process and result in a loss, and claims for such losses could skyrocket.  

 

How technology efficiencies will be tested? 

Technology preparedness to meet the changing claims management processes would be put to the test. A number of inefficiencies would be exposed as the number of claims rise.  

Insurers will be evaluated on: 

  • How transparent they’re in communications with customers regarding disruption, assurance of claims payouts, coverage which will also serve as a way to build customer trust and improve retention after the crisis.  
  • Their efficiency in managing the rising volumes of customer requests and claims would be put to the test. 
  • Their ability to derive valuable intelligence from existing business policies and make new business products that efficiently covers the loopholes which will be exposed during this crisis can help them to capture market 
  • Whether the agility and technology capabilities of the workforce meets the rising demand.  
  • The ability to keep data secure while providing a significant access to core systems 

 

What’s after COVID 19 for insurers? 

It’s clear that this year could prove difficult for insurance with poor economy recovery rates predicted. And this could be a scenario that tempts insurers to suspend investment and cut costs in such a challenging time. But, this crisis also creates an incentive for insurers to do the reverse – continue to invest in how they operate, create a digitally enabled business and define how they underwrite to bring in more visibility to their policies.  

  • Build a platform and technology to face future crises. Moving more systems and applications to the cloud so that people can work remotely. 
  • Reinforce the trust of customers by providing being transparent coverage and communication. There is no point in taking policies if they don’t cover unforeseen circumstances, so they have to provide reasonable coverage to customers who deserve it. 
  • Revisit denial of coverage due to policy exclusions for business insurance/business interruption insurance policies to create more innovative business insurance products. 

These surely are difficult times for individuals, families, businesses and society as a whole. Here, the insurance can play a key role in helping all these segments recover and overcome this crisis.