A view from Coforge Insurance Advisory Experts Ekanath Hattangadi & Vikram Singh
The COVID-19 pandemic has severely impacted many industries such as Travel & Transportation, Energy, Manufacturing, Retail and Hospitality. Although the impact on the Insurance sector is less severe, we believe that it will still be significant and highly disruptive; ranging from employee and business continuity issues, client service considerations to operating profit.
The immediate concern for insurers is the protection of employees, its distribution partners health and safety along with business continuity
The Insurance carriers have lost roughly 48% of their market value since the crisis commenced; with life & health insurance carriers particularly hit hard with average drops of 58%. The cost of COVID-19 testing and treatment is likely to squeeze U.S. health insurers' profits, which could lead to higher premiums in 2021. To cover these costs, enabling insurers to remain solvent in a period of increased claims firms will have to consider increased premiums in the range of 4 - 40% in 2021.
We at Coforge believe that insurance carriers will be adversely impacted on the revenue side and the expense side resulting in lower earnings during 2020-21 re:
- Premium and Fees Income: Life & Annuity business will see a short term hit on premium income, but this will recover in the long term. However, in Property & Casualty we see more seismic impact, with short term reductions in new business premiums that we believe will continue over a long period of time (i.e. future premiums reduced due to reduced economic activity).
- Investment Income: Investment income will be significantly impacted over the coming months due to the volatility in the financial markets along with expectation that interest rates will remain at record lows for the foreseeable future.
- Claims: Life & disability insurance claims are expected to increase. Health agencies are estimating the number of deaths attributed to COVID-19 could be 200,000 - 1.2 Million people in the US alone.
The impact of COVID-19 has already been significant. However, the impact on business’s and what the requisite mitigation required by firms will be based on how long the pandemic lasts and what happens once normality returns.
We suggest that insurance organizations need to be pro-active, that they should look to model the impact of COVID-19 and then determine the best strategy to mitigate. However, today, priority must be given to business continuity; firms need to determine their critical business functions, prioritise these to ensure that the level of service is maintained or even increased. Other business functions should be reduced or stopped to enable focus on the priority activities.
Firms should take into consideration levers such as customer experience, capital impact, revenue impact, liability exposure, regulations and government directives to help determine which business services need to be prioritized, while they overcome the current crisis.
The figure is Coforge view on which business services should be prioritised. Red indicates HIGH priority; Amber indicates MEDIUM priority and Blue indicates LOW priority services.
A priority concern for insurance carriers is to serve their customers and fulfill their promise while ensuring safety and well-being of their employees. Most insurers are in the process of activating or have already activated their business continuity plans. These should include the enablement of remote working, review of operational readiness of service providers and workforce planning to ensure staff availability.
Effective remote working practices must ensure availability of configured laptops, the correct collaboration tools, sufficient connectivity, increased helpdesk support and established working practices. Firms must also consider factors such as security, regulations and capacity when implementing remote working (e.g. collaboration tool selection must have encryption, logging and recording capabilities)
As well as ensuring continuity of critical services, Insurance firms need to pay attention to their customers, especially in times such as now, customers are concerned, and a key role of insurance firms will be to reassure and support them. Customers are anxious over aspects such as policy coverage, firms need to make sure that they can provide answers to queries in a clear, concise and efficient manner.
Firms should be pro-active in distributing FAQ’s and other collateral to their customers, they should look closely at their distribution channels and use situation as an opportunity to re-enforce capabilities via broker networks and direct channels using mail, mobile, social media
This would be an ideal opportunity to consider and plan for increased use of virtual assistants that leverage NLO/NLG and Intelligent Automation to increase availability and agility in responding to customer inquiries (e.g. around policy coverage, renewals, premiums, claims).
Coforge has observed in other industries, that leading firms are pro-actively building customer loyalty through gestures such as fee and charge waivers, relaxation, suspension or cancellation of payments (e.g. payment holidays). Insurers should also consider similar proposals for their customers, these could include relaxing the rules for lapse/reinstatements, waiver of surrender charges etc.
Now may also be the time for increased focus on optimization and efficiency programs, the key objectives being to reduce cost, increase capacity as well as improved quality leading to enhanced customer experience.
As we have stated, the COVID-19 pandemic is affecting all aspects of life, it is a dynamic and evolving situation where the future is unpredictable. Firms will need to consider and prepare for:
- Increased claims ratio impacting profitability, budgets, cash flows, capital requirements etc
- Lower returns from traditional investments will continue due to market volatility and low to 0% interest rates.
Firms should also look at new business opportunities such as products providing pandemic coverage, cashflow coverage, force majeure exposure coverage.
Also, firms need to recognize that current situation may not be a one-off event and should determine if remote working may be part of the new operational norm. As such firms should relook at their long-term strategy that supports remote working; this should include security and connectivity, also increased use of cloud and SaaS based platforms instead of the current legacy on-premise solutions.
Last point, firms should review the impact remote working has on the effectiveness of their business to deliver services, to determine whether the adoption of new working practices and collaboration tools can enable this operating model to be the new norm. If the answer is yes, then firms should embrace as it provides opportunity to weather future disruptive events, helps to improve the quality of life of their employees and reduce fixed costs such as offices and related infrastructure.