COVID-19 AND ITS IMPACT ON THE FUNCTIONING OF THE INSURANCE INDUSTRY
COVID-19 pandemic has shattered the entire economies of the world and has influenced almost all business sectors including insurance. The year 2020 which was waited for so long by many business entities and countries to be marked illustrious and imminent and was supposedly to be celebrated as the historical year just by the significance of its compounding double-digit number will now be written as the year of distress, suffering, fear, uncertainty, recession and rather depression if this pandemic prolongs for some more time. It will go down in history as one of the years of our lives where we seemed to witness our worlds being turned upside down.
Although at this juncture it has visibly augmented the importance of the insurance industry’s position especially exhibiting the role as a mitigator of economic damage to industry’s at large paying a heavy price to the reinsurers who are going to absorb in the end. The escalating privation caused by this pandemic on individuals, businesses, and economies has further stressed the importance of a sound, stable and developed insurance market, and the role it plays during such calamity. This pandemic has severely impacted many industries such as Aviation, Automobile, Banking, Hospitality, Insurance, Retail, Travel, Transportation, Energy, Manufacturing etc. Although the impact on the Insurance sector is less severe than other sectors but it will still be significant and highly disruptive, ranging from employee and business continuity issues, client service considerations to operating profit.
We should mind it that insurance cannot be the only way out for tackling the impediments faced by these businesses that are afflicted by the COVID-19 crisis though it can play an important role in sustaining their pace of survival. The insurance sector needs policy leadership that translates into a clear mandate for the regulator, as well as effective coordination across government and industry.
Insurance Authority as the regulator has an enormous task and responsibility to make sure that this industry should have adequate liquidity and appropriate measure to survive while combating this major global economic crisis which is on the way to fiscal depression. This can happen primarily by providing immediate financial relief in the form of a fiscal stimulus with the help of government funding dedicated to our insurance industry which will aid to economic recovery and secondly mobilizing private capital to finance domestic development once the pandemic is over as it will perform a vital role in intensifying capital market. Policymakers and regulators will have a key role to play in driving innovation in their respective jurisdiction, which would enable insurers to reach their customers and strengthen the resilience to hold on during these turbulent times.
During these crises, businesses are also averse to face risks such as employee work-related injuries, business interruption, disruption to supplies, lack of access to credit; these risks affect how businesses invest, plan, prepare, and respond to such setbacks. SMEs contribute significantly to employment and innovation, the reality is that many of them either collapse or remain sluggish, which adversely impacts the sector’s ability to fulfill its employment and growth potential. Underwriting and reviewing any business requires business data such as information on their revenue, assessment of risks whereas due to obvious constraints and limitation is often difficult to interpret, given the informal nature of SMEs and their complex insurance requirements which make it more challenging for insurers to customize products for these businesses.
There were two major international events on global level canceled this year which includes Dubai EXPO 2020 & Tokyo Olympics which might have some effect on the reinsurers under event cancellation policies that may cover them even for epidemics or pandemics.
Although the COVID-19 outbreak is causing widespread concern and increasing economic hardship for consumers, businesses, and communities at the same time it will also create a huge opportunity for the industry as with every problem there’s a solution and an opportunity to learn, create something that’s meaningful and might give us more options to build our business robust.
As insurers struggle to suspend policy cancellations while offering rebates on personal lines, extending business interruption coverage on commercial lines, expecting cost-sharing with the government on health and employee benefits, etc. but we have observed that very little attention has been paid to the insurance broker’s retort to the crisis.
Almost 50 percent of the top international insurance brokers are privately owned and are backed by private equity partners and some of them are listed entities. While these investors are trying to evaluate the effect of the crisis on their portfolios due to this pandemic, stock prices of the largest, publicly-traded brokers have dropped significantly due to their anticipation & projection of potential strain on business volume, commissions, and operations.
However, innovative digital platforms, such as my organization Bayzat present viable alternatives for insurers to serve SMEs and individuals, as they already act as aggregators, and have established trust, communication, and payments channels with their customers and insurers. As providers have difficulty in maintaining workforce productivity, the trend toward robotic process automation (RPA) and service automation will accelerate, driving greater efficiencies, faster response, and improved service performance.
We know that large corporate and some SMEs normally have business continuity plans, but they may not fully address the fast-moving and unknown variables of an outbreak like this which was not experienced before on this large scale. Usually, contingency plans promote operational effectiveness following events like natural disasters, cyber incidents, financial crisis, among other crises. They do not normally consider the widespread contagious ailments, quarantines, work from home, extended school closures, added travel restrictions, irregular banking hours that may occur in the case of such an emergency. This COVID-19 crisis has raised several unique challenges which are being faced today.
As a practitioner of insurance and as a broker or advisor or consultant to policyholders it is an opportunity to demonstrate our value at a time when they are distressed and looking for a piece of professional advice to survive in these turbulent times. We may face reputational or litigation risks if our firm is seen as ignoring policyholder concerns or dismissing employee concerns or safety. The crisis, in my opinion, is expected to further accelerate the shift to digital and direct distribution channels as social distancing will remain in place for some time until this pandemic is completely exterminated. We need to review our technical & digital capabilities and consider partnering with InsurTech partners to source leads and process applications such as Bayzat Benefits.
We will have to focus on customer support; this is the time to prove the value of the relationship with policyholders outside policy terms & conditions; as our emphasis will be more on having a consultative approach to address broader personnel issues which are critical to support client needs. Insurance is an advice-based business built on knowledge and information from various sources. In order to, maintain social distancing, we have stopped visiting clients, accepting their visits to us as well as insurer visits, but we still must manage their needs while providing services remotely. We are now connecting with our team and clients in different ways using communication technology like Zoom, Skype, or Microsoft Teams that we did not worry about previously which is a new experience for all of us. It is a matter of redefining customer’s & vendor relationship which is a new paradigm shift from the conventional working, once customers get used to service providers and vendors delivering more of their services remotely, they will not require as much to be delivered onsite, saving in travel expenses and potentially improving productivity as well.
We must quickly change our expected strategy and work approach to keep serving our potential customers which is a massive challenge but necessary for survival. The other important issues are to retain our good knowledge-based team members as much as possible because it will be hard to find the good trained staff on whom we have invested over a period of time to make them our human assets. We already have a skills shortage in our insurance industry. Security and privacy are other vital issues to be dealt with during this time while working remotely to avoid data breach and should have noticeably clear protocols and guidelines to safeguard from increased risk of cyber attacks. Being able to offer the flexibility of working from home is the main attraction to the employee which means letting go of close supervision and creating a new trust between employer and employee. If we cannot have faith in our own people, then maybe we do not have the right person working for our organization as we cannot micromanage all these matured professionals whom we trust as our loyal soldiers.
We know these are extremely challenging times for individuals, families, businesses, and indeed whole societies and economies. The insurance industry as other sectors also need to get on the digital transformation of their businesses, to become more agile, responsive, and connected organizations. Perhaps one remnant of the coronavirus calamity could be that it propels more insurers to adapt and embrace the new normal to survive. This pandemic has also given opportunities for the telemedicine sector to expand the concept of remote healthcare services through technology platforms. The insurance industry has a key role to play in supporting customers and societies through the ongoing crisis as well as post-crisis to actively contribute to the recovery.
To conclude my opinion – I must admit to get the most of our people during this crisis we must take care of our people, secure health, build the mindset to handle fear, deploy with accountability, reflect changes of new business model, control the controllable, avoid overestimating, calibrate our internal resources and adjust operation to new business model to secure business continuity. Possibly the ultimate impact, however, will be with most organizations finally including pandemics in their scenarios for business continuity planning. The current pandemic crisis is unprecedented in its impact on all organizations and service providers worldwide. However, we can begin to see a path ahead, in stages, to recover to a new-normal of business conditions. The lessons learned now, and updated business continuity plans, will change organizations and their relationships with service providers for many years to come.
Stay at home if you feel unwell. If you have a fever, cough and difficulty breathing, seek medical attention and call in advance. Follow the directions of your local health authority. Source: World Health Organization
Disclaimer: The views expressed by me in this article are personal & professional and not those of my employer, clients, or any other organization. The opinions expressed do not constitute any legal advice, or risk management advice. The views discussed are for educational purposes only. While at the time of writing this article, the impact examined could go farther to our assessment which we have to wait & watch the final effects once the pandemic is contained in full.