Global Insight: Insurance and COVID-19

 Insurance and COVID-19

By Abhijit Mukhopadhyay, Global Insurance Advisory Leader

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With the financial markets in turmoil, it’s tempting to become internally focused. But how insurers respond to customers and societies in need of an anchor in this moment that matters will dictate public perception for many years to come. What are the attributes that allow insurers to deliver on their purpose?

From the mounting strains on health systems to once bustling cities now left eerily deserted, COVID-19 is the most serious global health crisis for a generation. And with contagion, uncertainty and lockdown come economic dislocation and market turmoil.

The fast-moving nature of the COVID-19 emergency means that most businesses are in uncharted territory. As a recent article by our colleagues Melanie Butler and Kristin Rivera highlights, the immediate crisis management challenges for all businesses include dealing with the impact on workforce and business continuity management.

For insurers specifically, the fallout from the COVID-19 outbreak includes a surge in health, travel and business interruption claims, pressure on sales from reduced business activity, and less use of face-to-face channels. The gathering economic slowdown emanating from the pandemic is also driving interest rates even lower and increasing credit risk exposures from businesses facing possible default. This raises the possibility of regulators asking for extraordinary solvency tests to ensure insurers can withstand the immediate and knock-on impacts. Put together, this daunting list of issues represents a stern test of resilience for an industry already weighed down by enduringly low interest rates and slow growth in mature markets.

Part of the solution

Yet, COVID-19 could also be a turning point for the insurance industry by enabling insurers to demonstrate their higher purpose and value to society. It’s therefore heartening to see how well the industry has responded.

In China, for example, a leading insurer has set up an emergency fund to help tackle the outbreak. Further steps include a fast track claims process and waiving deductibles. In Singapore, a leading insurer has doubled the benefits for frontline healthcare workers who are hospitalised due to COVID-19, in recognition of their selfless contribution to patients. In the US, examples of the steps being taken include an insurer’s announcement that its customers will have access to medically advised coronavirus testing and that it intends to waive co-pays and other forms of cost sharing. Insurers are also bringing their technological expertise to bear, including the development by one of a smart image-reading system to help speed up diagnosis of suspected cases of COVID-19.

These and other examples show how the insurance industry can be a powerful force for good – doing the right thing solely because it’s the right thing to do. However, as we’ve seen in previous crises such as the Japanese tsunami in 2011, this kind of positive and decisive response from insurers can permanently reshape perceptions, cement customer loyalty and renew trust within society as a whole.

What’s also clear is that emergencies like COVID-19 are something we all have to get used to in a world marked by growing uncertainty, instability and interconnectedness. Some systemic threats like climate change and cyber attack we know about. Others we don’t.

Set up to succeed

It’s therefore worth considering the attributes of insurers best positioned to weather the COVID-19 storm and deliver value to customers and society. . We believe there are six distinguishing characteristics, with a clear sense of purpose and operational agility, capability and resilience at their heart:

1/ Purpose-driven culture

The true purpose of an insurer in times of crisis and stress is to provide peace of mind. It’s therefore important to devise strategies for handling this crisis from a customer and wider stakeholder perspective. From waivers of deductibles to pre-approval of claims or setting up funds for frontline employers, insurers are demonstrating their empathy.

2/ Active within a health ecosystem

While life insurance sales are down, insurers with a broader engagement in the healthcare ecosystem in areas such as online health platforms are attracting new customers. Prominent examples include Ping An and Prudential plc with their online health consultation services in Asia. Notwithstanding the current crisis, life insurers with a well-executed health ecosystem strategy will win the long game. 

3/ Digital distribution capability

While face-to-face interaction has been limited by social distancing, insurers who’ve built digitally assisted distribution and sales capabilities are still able to engage with customers and service their needs. This crisis may prove to be a catalyst for product simplification and accelerating the development of direct digital channels.

4/ Self-service enabled claims and customer service

As the number of enquiries and claims increase, insurers need a cost-effective yet customer-friendly way to handle these requests. Directing customers to self-service channels and the automated processing of straightforward claims are proving effective.

5/ Operational agility

Whether working remotely, managing workforce demand dynamically or bringing new products to markets quickly, a crisis like this is a good test of organisational agility. Insurers that have invested in the development of a connected digital enterprise will most readily be able to adapt, flex and execute.

6/ Informed and proactive capital management

A sharp economic downturn could have serious implications for solvency ratios. Insurers’ ability to handle the impact will depend, to a large extent, on advance systematic scenario planning and capital management capabilities.

Under the spotlight

A distressed society is looking to its governments and businesses for help and guidance in this crisis. How the insurance industry responds in this kind of moment that matters may dictate public perceptions for the next decade.

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