COVID-19’s Effects on the Insurance Industry

During times of economic stress, insurance companies play a pivotal role in assisting households and companies navigate risks and protect against losses. But the insurance industry is also one of the biggest investor groups, and volatility in the financial markets can increase the industry’s vulnerability.

Insurers have and continue to strategize about how best to respond to the COVID-19 outbreak. Claims payers, employers, and investment managers elements each have their own challenges.

A Deloitte report evaluated the potential long-term impact on insurance companies. It noted that the pandemic’s financial impact will vary depending on circumstances but hypothesized that:

  • Falling equity markets and interest rates could pressure savings products-related balance sheets, life product profitability, and investment management fees
  • Insurance claim time-lags are inevitable
  • Insurers/ reinsurers with highly concentrated classes of business most impacted by COVID-19 could suffer greater losses than those (re)insurers with well-diversified risk portfolios

General Insurance

Travel, event, and trade credit insurance premiums have decreased drastically since the pandemic started, whereas home and motor insurance premiums have stayed fairly stable. The volume of initiated claims for business continuity coverage has also increased. Because the crisis has not affected government bonds, financial market volatility hasn’t impacted general insurance significantly.

Life and Pensions

Because COVID-19 has greatly impacted employment levels and economic activity at the global, regional, and local levels, consumer spending power has shrunk quickly in a fairly short time. Many insurers have offered payment breaks to reduce a potentially high number of lapses.

Market volatility and decreasing consumer confidence has led to a decrease in spending, too. Life insurers anticipate lower business volumes for the foreseeable future.

Market values and interest rates have also dropped, leading to financial strain and — in some cases — cuts in expenses. Finally, life claims may increase either from mortality caused by COVID-19 or from people delaying care because they fear catching the virus.

 

Health Insurance

Because of the global diversity of healthcare systems, the pandemic’s effect on health insurance won’t be uniform. Strict country mandates and enforced self-isolation rules have led to sharp decreases in elective procedures, and those claims volumes have also dropped.

Governments have driven the treatment of patients with COVID-19 and limited the health insurers’ payment burdens. But potential future exposure and costs to insurers is still evolving.

The pandemic has speeded up the already expanding use of digital healthcare consultations, and that trend will likely continue. Some experts anticipate that the crisis will drive increases in medium-term government spending.

Directors & Officers (D&O) Liability

Experts aren’t sure what COVID-19 claims will look like in the future. In the spring, COVID-19-related claims had been filed against Norwegian Cruise Lines, Zoom, SCWorx Corp., and other companies. However, the burden of proof falls on the insured, and it’s difficult to prove negligence in preventing this size pandemic.

It’s possible that D&O litigation will increase, especially if companies have allegedly misrepresented their preparedness for a possible pandemic. Some have recommended that risk professionals should prepare for 20% to 50% premium increases depending on the industry sectors, with hospitality, health care, retail, and other distressed industries experiencing even higher premiums once it’s time to renew policies.

Workers Compensation

Because workers compensation claims carry no statutory limit, claims could become quite expensive. Many states have eased traditional burden of proof rules for first responders — and that relaxation could lead to more claims, too. Companies have adjusted to comply with HIPPA, EEOC, and OSHA guidelines — all updated to reflect the safe working conditions meant to reduce or remove the risk of COVID-19. But if businesses don’t enforce rules and employees sicken after they’ve returned to work, workers compensation claims could skyrocket.

Trade Credit

The trade credit line of insurance, designed to protect against non-payment of outstanding debt, has already been affected as companies declare bankruptcy. Many retailers and restaurants were already struggling before early spring — and the pandemic only exacerbated the financial challenges they faced.

Prior to the pandemic, some credit insurers had already forecast declining business performance. They reduced or eliminated coverage and — according to one industry expert — while major trade credit firms still operate and accept applications, smaller- and middle-market businesses have found it more difficult to gain coverage. Premiums are likely to increase significantly.

Fast-Tracking Technology Adoption

As the pandemic spread in early spring, forcing companies to rethink the way they operated, most businesses transitioned to a work-from-home model. The insurance industry already has in place architecture and infrastructure for digitization; however a greater volume of simultaneous users strained the system. 

Scaling to address challenges led to:

  • Reconfiguring systems to filter and distribute traffic between private/ public networks
  • Extending virtual desktop imaging from the back office to business users
  • Leaning on cloud providers to help scale up virtual/ physical infrastructure
  • Adopting enhanced call and video conferencing systems
  • Purchasing additional hardware and software
  • Adjusting employee hours to reduce capacity constraints on VPN

Many months later, the new model is working more efficiently. Workforces can access systems through VPNs; everyone has the equipment they need. And many experts anticipate that just as the COVID-19 pandemic forced insurers to adopt digital and remote processes while designing and implementing new protocols, the industry must remain diligent about the threats to cybersecurity posed by cybercriminals and scams.

It’s likely that many insurers will recognize and reprioritize the importance of digital transformation industrywide. The Internet of Things (IoT), big data technology, artificial intelligence (AI), and intelligent automation will help to streamline and enhance:

  • Pricing via real-time, dynamic behavioral models
  • Underwriting by speeding up risk assessment and data collection
  • Claims handling by using drones to conduct assessments and replace notice of loss
  • Labor-intensive policy holder interactions by incorporating voice/ text chatbots and personalizing customer experiences
  • Fraud management by leveraging enhanced forensic tools to collect and analyze data that can detect, predict, or prevent fraud patterns and attacks

The Path Forward

The insurance industry is nuanced and complex, and the pandemic will continue to reverberate and impact individuals, businesses, communities, and the economy worldwide. Insurers will face many challenges, but there are new opportunities as well.

Changing customer behavior, digital innovations, service-based strategies that grow profits, and regulatory challenges and opportunities will continue to influence and impact insurers and the way they approach business. CREA United’s members include several professionals, including Jack Ishak with All Point Insurance Agency and Jonathan Marzella of Dale Group Insurance & Bonds,  who are well-versed in the insurance industry. They’re here to answer your questions about insurance during the COVID-19 pandemic — and beyond.

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