Skip to main content

How Property & Casualty Insurers Can Respond to the COVID-19 Pandemic

 Insurance is a business of trust - of making promises and keeping them when the time comes. The COVID-19 pandemic is the time for insurers to prove their value to customers, communities, and the economies that support their operations.

Tracing the propagation of the COVID-19 virus - from China and South East Asia, through Europe, North America, and rest of the world - all nations are in different stages of battle with the crisis.

 This gives insurers an opportunity to evaluate the crisis in each of these countries using different metrics. Using the learnings from those that have moved to the advanced stages, the insurers can identify situations, and prepare a response for others climbing to that stage.

As the crisis unravels insurers need to look at plans in the medium term - remaining part of the financial year, once the pandemic subsides - and in the longer term - over the next two years.

Impact on the Insurance Value Chain

All functions of the insurance value chain have been impacted by the COVID-19 pandemic. The only differences can perhaps be found in the scale and in timelines - immediate (during the pandemic), near term (as the pandemic subsides, but economic slowdown continues) and long term (as the economy rebounds). 

The primary needs include process changes in the claims function and replacing site visits with electronic inputs from customers. In the scenario that the pandemic continues unabated beyond spring, the Sales & Marketing, Underwriting and Actuarial functions will also need to address the impact of remote working, social distancing, and intra-city movement restrictions. 

The sales teams require enablers for remote meeting with customers, digital forms for new business, while Underwriting teams need to perform remote assessments and Actuarial teams need to factor in pandemic and its related risks in product pricing. 

While the immediate direct impact of COVID-19 on P&C Insurance claims is obvious, insurers will need to focus on actively managing their investment portfolios.

COVID-19 Impact on Property & Casualty Insurance products

The impact on insurance products vary according to the coverage they offer – health products will likely bear a direct impact. 

While P&C products covering business interruptions as a result of lockdowns, or industries like travel and hospitality facing economic recession induced by the pandemic will witness different degrees of impact.

While pandemic cover is typically explicitly excluded in certain policies, and treated under ‘force majeure’ in certain others, instances of governments and regulatory authorities issuing advisory to insurers to consider the COVID-19 related claims compassionately have started to trickle in. 

This will add complexity into the claims process and will also be an unplanned drain on reserves.

Impact on overall claims

We believe, the initial impact will be witnessed in travel insurance products - with national border closures, airlines grounding entire fleets, and lockdowns restricting surface travel by trains and by road.

 Next in line will be the business owners and business interruption products that have claims initiated, since lockdowns literally mandate that these business establishments remain closed during that period. On the positive side, insurers can expect a decline in claims for machinery breakdowns. 

Additionally, growing unemployment will see a proportional rise in unemployment claims. On the other hand, personal and commercial auto products will see a drop in claims.

Overall impact of COVID-19 on Property & Casualty Insurance products

As remote working becomes norm, insurers can expect changes in worker compensation products to include aspects like remote workspaces, ergonomics and work-life balance for employees.  

The economic slowdown will also result in reduced homeowner policies, but higher renter policies. Similar harsh market conditions are expected for products for Auto, Travel and Small Businesses till the economy rebounds as customers will look to avoid discretionary spending and focus on essentials.

Recommended Insurer Responses

Going forward insurers need to address the following on priority, for the immediate term, as the pandemic unfolds:   

1. Proactively engage with customers, communicating clearly on the coverage available in the policies, the ways the regulatory and state guidelines - issued sporadically on differential treatment of COVID-19 pandemic scenario - impacts them, and avenues to reach out with customized information and support.

 A corollary is to enhance the call center to take up increased call volumes, and staff appropriately trained to handle calls.

2. Ensure the entire Claims function is propped to perform on full capacity and efficiency. Challenges posed by social distancing and lockdowns need to be overcome by replacing physical visits, documents, wet signatures with remote, non-touch ways of processing, balancing customer crisis communication and introducing process innovations for the immediate term.

3. Efficiently utilize technology and solutions available within the enterprise, strengthen and extend these to address wider challenges, and maximize value from the unplanned expenses incurred.

Comments

Popular posts from this blog

Social Responsibililty

                                                                        SOCIAL RESPONSIBILITY Social Responsiblity   is an ethical framework and suggests that an entity, be it an organization or individual, has an obligation to act for the benefit of society at large.  Social responsibility  is a duty every individual has to perform so as to maintain a balance between the economy and the ecosystems.  4 Types of Social Responsibility Corporate Environmental Responsibility. ... Corporate Human Rights Responsibility. ... Corporate Philanthropic Responsibility. ... Corporate Economic Responsibility. Some of the common Responsibility for example given below: Reducing carbon footprints. Improving labor policies. Participating in fair trade. Charitable giving. Volunteering in the community. Corporate policies that benefit the environment. Socially and environmentally conscious investments. Why is social responsibility important? Being a socially  responsible  company can bolster a company'

Online Education

ONLINE EDUCATION Online education is a flexible instructional delivery system that encompasses any kind of learning that takes place via the  Internet . Online learning gives educators an opportunity to reach students who may not be able to enroll in a traditional classroom course and supports students who need to work on their own schedule and at their own pace. The quantity of distance learning and online degrees in most disciplines is large and increasing rapidly. Schools and institutions that offer online learning are also increasing in number. Students pursuing degrees via the online approach must be selective to ensure that their coursework is done through a respected and credentialed institution. POSITIVE AND NEGATIVE EFFECTS OF LEARNING ONLINE Online education offers many positive benefits since students: have flexibility in taking classes and working at their own pace and time face no commuting or parking hassles learn to become responsible for their own education with inform

COVID-19 Drives Insurers to Revisit Actuarial Models

The COVID-19 pandemic has taken a huge toll on people and economies alike.  Governments and central banks worldwide have introduced a slew of fiscal measures to infuse liquidity and stability in the market.  However, in spite of these measures, the financial markets are expected to remain highly volatile for a significant duration, likely to worsen further due to lowering of interest rates and increasing credit spread gaps as well as risk of mortgage defaults.  Insurers therefore need to assess the impact on their solvency margins and IRRs, and re-assess the assumptions around mortality and morbidity rates, operational and financial costs, claims and losses, and so on.   Actuaries must review existing strategies and products and construct new ones to handle evolving risks and their interactions to be able to better model assets and liabilities as well as analyze asset and capital adequacies Moreover, insurers will have to perform strong scenario testing to identify key assumptions of a