The COVID-19 crisis continues to have a significant impact on individuals, society, businesses, and the wider economy across the globe. The insurance industry has no exception. As the global economy recovers and responds to the pandemic, insurers have also faced several challenges but also see the Impact of COVID-19 on the Global Insurance Industry in many new opportunities. Broadly speaking, the COVID-19 pandemic has swept westwards across the world starting from China, at the end of 2019, spreader all over the world at a lightning speed.
In Asia, where the virus struck first, insurers took rapid action to respond to the rapidly unfolding situation and are now one hopes, on the verge of moving into a period of assessment to gauge where the market heads from here and what the long-term impact may be. In Europe and North America, however, insurers are still very much in the eye of the storm – configuring their operations to cope and trying to establish what business as usual looks like in extraordinary times. The most obvious theme has been the suddenness of the impact of the virus and the substantial effect on how insurers (along with businesses of all kinds) run their operations. Insurance companies have had to shift almost their entire workforces to operating remotely while dealing with significantly increased activity in their claims functions. We will examine these operational issues in more detail in another article in this series.
Throughout the Pandemic, the Insurers have significantly increased their communication with customers providing an admirable degree of proactive customer-driven support. There have been examples in numerous countries of insurers offering rebates on motor insurance given decreased levels of driving. In Australia, as well as some other countries, private health insurers have been offering premium holidays and other benefits given that customers can’t draw on their products which cover them for elective surgery and ancillary services like dental care. In the UK, meanwhile, some insurers have offered free motor cover and enhanced home cover for National Health Service (NHS) workers, as well as extending business cover to provide coverage for employees working from home.
While these are all positive actions, they also point to a problem: some insurance products have begun to feel out of step with the reality confronting customers, and thus with their needs. Many individuals have faced the huge stress and anxiety of sudden, severe income disruption, with an urgent need to reduce their outgoings.
At the same time, other products are likely to feel more valuable to customers than ever. We can expect to see a spike in sales of disability and life insurance going forward, as well as maybe hospital indemnity, critical illness, and/or business disruption policies with broader cover. Equally, income protection and other savings and retirement products that offer income certainty such as annuities and ‘whole of life products are likely to become much more in demand. Home cover may also become more valued than before given the amount of time people have been spending there and may continue to do if working from home remains more widespread. The Interest in life and health products has increased since the COVID-19 outbreak. Likewise, the access to virtual healthcare services and priority access to healthcare providers was more important than cash payouts. So the consumers are more likely to place scrutiny on policies. ; Chinese consumers are most happy with their customer service.
As a result of this situation, there is a unique opportunity for insurers to rethink and innovate as they adjust and respond. Firstly, there may be a need for new products. There has already been some fascinating early-stage thinking in some insurers about products that would be payable in the case of pandemics or epidemics. The concept would be that there is a small lump sum payout to help a customer meet any kind of increased or new expenditure for certain defined events. Secondly, there could be an increase in the appetite for usage-based insurance (UBI) products – where the premiums payable are based on the extent to which a certain activity is performed. The simplest example is for motor insurance where, through telematics and data analysis, a customer would be charged according to the actual number of miles they drive rather than paying fixed premiums over time. The main barriers to taking up UBI have always been data privacy and security concerns. But given the experience of so many motorists during lockdowns, there may be something of a shift in which the car moves from being seen as a fixed asset in an individual’s life to more of a variable one, further supported by the rise in the popularity of shared or on-demand mobility services. This means that a UBI model could become very attractive at least to some.
Despite lasting anxieties about COVID-19 variants, most insurers expect to attach an accelerating economic recovery and additional digital technology investments to generate significant growth in 2022. It has been observed that multiple challenges for insurance leaders to tackle next year beyond ongoing efforts to adapt to the pandemic’s aftermath. They range from economic hurdles such as inflation; to sustainability concerns including climate risk, diversity, and financial inclusion; to rapidly evolving consumer product and purchase preferences. Future of work considerations has also multiplied as carriers seek to create flexible return-to-office strategies while simultaneously struggling to retain and recruit high-level talent during what might be the world’s most competitive job market, particularly for those with advanced technology and data skills. Insurers are increasingly dependent on emerging technologies and data sources to drive efficiency, enhance cybersecurity, and expand capabilities across the organization. However, most should also focus on improving the customer experience by streamlining processes with automation, as well as providing customized service where needed and preferred. As the impacts of the COVID-19 situation continue, individuals all over the world are dealing with their financial situation on personal level day-to-day, but they are also contemplating the implications going forward. However, it has been observed that the customer
On the other hand, the most significant changes will be in the way that insurance products are sold and serviced, and the usage of customer data. These changes will lead to much greater levels of personalization and so change the customer experience and value proposition. Insurers are recognizing that they need to bring more value to their customers, with more personalized offerings and communications on a more segmented basis. One of the notable features of the situation has been the great boom in online communication between people, including via video. It’s anticipated that some insurance products will likely start to be sold through a ‘digital first’ advice approach – where customers engage with an advisor via a video call in the first instance before the sale moves to other channels to complete. This could lead to much better value for money through reduced distribution costs for the insurer and increased access to personalized advice for the customer.
It has been observed that there is likely to be much higher demand than in the past for certain types of insurance. Insurers need to review their channel strategy approaches to serve this demand. This means greater investment in integrating their channels and creating digital pathways on an end-to-end basis. Customers are likely to become less tolerant of friction and hand-offs in the process to third parties. The digital opportunity for insurers extends beyond the customer and broker interactions at the point of sale. COVID-19 has further highlighted the need for insurers to streamline, improve and digitize operations and claims functions. Insurers are more than ever recognizing the linkage between customer experience and digital strategy, transformation approach, and operational improvement.
As far as the future impact on insurance companies is concerned, much depends on the nature of the intersection in each country between insurers, customers/distribution, and regulators/governments. There are complex interplays in each national market between what insurers have traditionally offered, what customers expect, and the stance of regulators and authorities take. Several trends and issues are already becoming crystallized by the challenging environment.
There is no doubt that Covid-19 will propel insurers to increase the digitization of their operations and interactions with clients. Agent networks need to be more digitally enabled. We may also see insurers scaling back on their physical office networks and moving more people to remote working. This could have significant impacts on the real estate industry as insurance might not be the only industry thinking in this way. At the same time, more focus will fall on the automation of processes for greater cost efficiencies and resilience. Another impact of the pandemic may be that insurers and regulators will take an in-depth look at their business continuity planning.
The insurance sector is providing huge support to customers and businesses throughout this challenging time.
Likewise, Cyber insurance was also seen to be too expensive when it first emerged, but the response was to bring in limitations to make it more affordable. Perhaps we will see a similar pattern. Insurers building pandemic cover or rider into new products, but with certain parameters, and priced appropriately. Ultimately, it will be up to clients whether or not to purchase it, in whatever form it is offered. Making sure to understand customers understand how to manage their business risks and assessing their risk appetites in the context of insurance coverage or otherwise will be critical for businesses in the future, large or small. This is one area of many that Covid-19 is bringing into focus. But mostly, this is for the future. Right now, in increasing numbers of countries, insurers are working around the clock to support their people, customers, distribution networks, and partners as they deal with the immediate issues at hand.
The author, Nazir Ahmed Shaikh, is a freelance columnist. He is an academician by profession and writes articles on diversified topics. Mr. Shaikh could be reached at email@example.com.