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Some steps for Pakistan’s insurance industry to counter impact of pandemic

With the world battling the novel coronavirus pandemic, the impact has been felt on every sector and everyday life. Perhaps one of the biggest effects of this pandemic has been on the financial services industry and the insurance industry. In many cases, insurers have already started taking the necessary action for protecting their businesses, which have left many consumers in the lurch in this challenging time. On the other hand, the overall reputation of insurers is taking a further battering as consumers and businesses come to terms with the fact that most insurance policies do not cover pandemics. With a recession threatening the global economy and an increasing number of insolvencies, the insurance industry and their investments are coming under pressure like never before.

As the COVID-19 pandemic continues to unsettle lives and businesses, governments and healthcare institutions globally are responding with all available resources. Meanwhile, people also look to insurance organizations for support. After all, the industry must be an enabling and uplifting force for customers in vulnerable financial situations. The COVID-19 crisis may unveil many inefficiencies and gaps with respect to technology, systems, products, and processes in the insurance industry. Consequently, customer trust and confidence may hit an all-time low. As and when the disaster eases, insurers have a real opportunity to reimagine products to address coverage gaps and accelerate digital transformation to equip them with the platform, technology, and skills to effectively face future crises. They must also strive for more transparency in disclosures and communication to reinstate trust in the idea of a true and hassle-free financial protection at a time of need.

The life insurance segment was the market’s most lucrative in 2018, with total gross written premiums of $1.9 billion, equivalent to 72.9% of the market’s overall value. The growth of the Pakistani economy means that the income of the population rises in line with its financial inclusion, with demand for insurance products growing at strong rates amid extremely low penetration. Both the life and non-life insurance markets in Pakistan present significant growth opportunities due to their relatively small size and immaturity. However, challenges including a lack of consumer knowledge, low income households and conventional mindsets continue to have an impact. As the economic environment improves, rising income levels and a growing middle class will help to drive demand across both sectors. Insurers are also looking to digital solutions in order to engage with customers further.

 

The insurance industry is generally well prepared for major loss events, including pandemics, but the financial impacts will take time to play-out. Insurers are responding to the widening COVID-19 outbreak on multiple fronts—as claims payers, employers, and investment managers. Each has its own distinct challenges, not just for the insurance industry, but for the global economy and society at large.

Below are some of the potential long term impact and remedial measures that insurance companies could undertake to counter the financial impact of pandemic.

Potential long-term impact on insurance companies

The financial impact of coronavirus upon reinsurers will be specific to the circumstances of each enterprise — the classes and mix of business they underwrite, their pricing and reserving, policy wordings, and reinsurance coverages:

  • Falling equity markets and interest rates could put pressure on reinsurers’ balance sheets. Life product profitability and investment management fees related to savings products.
  • There will be sometime-lag for insurance claims to be notified to insurers, assessed, and paid. Insurers have commenced the process of evaluating their claims reserves in light of the current circumstances and it is expected that this will be on-going as fact patterns emerge.
  • Reinsurers with well diversified risk portfolios will be the most insulated from losses arising from coronavirus. Conversely, those with a high concentration of classes of business most exposed to coronavirus could be adversely impacted.
Practical next steps for insurance companies
  • Identify the classes of business which are most exposed to the impact of coronavirus and rigorously model claims exposure and profitably impact. This is likely to include: business and supply chain interruption; surety and credit insurance; contingency (event cancellation) insurance; travel related insurance; workers’ compensation and employers’ liability; life insurance; private health and retirement/savings.
  • Evaluate potential areas of brand risk exposure due to customer expectation vs. policy terms.
The writer is a Karachi based freelance columnist and is a banker by profession. He could be reached on Twitter @ReluctantAhsan

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