Melissa Womack: It's an extremely critical phase for most of the businesses, and insurance is not insulated either. How do you see the pandemic affecting the insurance industry in short to the mid-term horizon?
Shyam Somani: The world, as we know it is going through a significant upheaval. While the insurance industry is bound to absorb some shocks in short to mid-term, the new business applications will either get plateaued or witness a dip.
Every business entity needs liability insurance, property insurance, and workers' compensation policies if it employs other people. Most new business plans would have been put on the backburner or shot down for the mid-term horizon. For the insurer, this means they are losing on new policy selling. Likewise, a similar effect would be seen in auto, real estate, which will hit personal lines carrier as there will be fewer buyers for insuring these assets.
For example, one of our clients here in North America is a leading specialty insurer and we anticipate impact to their book of business with respect to revenue loss and/or increased claims payout because most of the sporting/entertainment events have been canceled or pushed out to later in the year.- Travel insurance will be significantly affected by reduced or stalled travel (both leisure/business). There will be a surge in the cancelation of policies, which will further lead to degrowth; many companies have shut down during the pandemic forcing them to either cancel or non-renew the policies.
- Non-essential coverages may be removed from policies such as physical damage coverages because vehicles are not driven as usual. Limits on essential coverages such as liability coverage may be reduced to comply with compulsory insurance law requirements. This aspect will negatively impact the existing book of business.
- For claims, there will be a surge in workers' compensation claims as essential workers like medical practitioners, and law enforcement still need to be out there on the forefront to contain the spread and support the community. There is also the possibility of litigation from small businesses that had to suspend operations due to pandemic and are trying to seek claim payment under business interruption coverage.
Melissa Womack: How would this pandemic affect the insurance industry in the long term?
Milind Sathe: This pandemic has opened up strategic and operational gaps that need to be bridged to make the insurance companies more insulated to external forces, especially the ones that emerge out of black swan events like COVID-19 crisis.
The industry will undoubtedly learn from this crisis, and they will need to redefine business models to prepare for such events in the future. There is a risk of insurance companies getting insolvent due to the market volatility affecting liquidity and investments, ultimately affecting their ability to pay claims. Second, they may be asked to pay for business interruption claims on a scale that was not forecasted by actuarial models, thereby leaving no option for them but file for bankruptcy.
Insurers are struggling with responding to policyholder inquiries, service requests, and handle the surge in website/call center traffic. They will have to improve their response time by providing digital self-service capabilities such as Mobile apps, portals, chatbots. It's the right time to prioritize legacy modernization programs and upgrade infrastructure to handle the traffic and opt for cloud migration, so application is available 24x7 to their staff and customers. This tactic would also ensure that no person has to visit the premises in the case of the server crashing down.
Their existing BCP plans were not equipped for such a fast-moving crisis and unknown variables. Typical contingency plans promote operational effectiveness following events like natural disasters, cyber incidents, and power outages, among other emergencies. They don't generally take into account the widespread quarantines, extended school closures, and added travel restrictions that may occur in the case of a health emergency. The insurers should deliberate on introducing products/coverages to cover the claim for such events. E.g., offer minimum coverages for suspended operations to business owners reducing their costs and also retain business for carriers.
"Insurers are struggling with responding to policyholder inquiries, service requests, and handle the surge in website/call center traffic. They will have to improve their response time by providing digital self-service capabilities such as Mobile apps, portals, chatbots. It's the right time to prioritize legacy modernization programs and upgrade infrastructure"
- Milind Sathe
Melissa Womack: How do you think insurance distribution, underwriting, and claims would get affected by this crisis, and how should the insurers respond to it?
Shyam Somani: The gap between agents, brokers, and financial advisors will get widened. One way for the companies to solve for that problem is by driving proactive collaboration and education to roll out new products and coverages. The insurance will have a high propensity to suspend a specific product, and they should have all the means to communicate it effectively to the customer without depending on traditional channels of communication. The commissions should be paid electronically. If that's not the case, do all you can do to facilitate that process. Insurers must provide or enhance mobile apps or agent portals to foster remote work for intermediaries and support them with all they need to service their customers. Besides this, they should switch to e-mode; eliminate everything that's paperbound, as much as possible. E.g., e-delivery of policy, e-billing of policies, and electronic signature supported documentation/processes for new/renewal business, e-payments for claims, etc.especially the ones that emerge out of black swan events like COVID-19 crisis.
Underwriters should be prepared to add or remove coverages, as appropriate, to meet the surge in policy requests. They will be spread way too thin on these requests from customers either to do with understanding policy better, queries regarding amending insurance policy. It's the right time to go back to the desk and revisit risk management and the exposures they are dealing with and evaluate how they can respond to the customer in a comprehensive and timely manner.
Claims managers broadly speaking have three areas that they need to address: (i) As much as possible, automate intake and processing. This move will go them a world of good, especially on the low dollar value claims, which can be settled automatically. (ii) they would witness a surge in fraud claims like staged accidents in the case of auto frauds. (iii) it's time when service quality and customer experience can win your customers for life, or you lose them forever. I'd recommend insurers should maintain a minimum threshold response time to customer inquiries. They should encourage the use of other digital channels to share information regarding business operations (office re-opening), future payment, policy renewals, cancellations, etc. and proactively provide information on future payments.
Melissa Womack: What do you think are going to be the key triggers and catalysts for the transformation of the insurance industry in this crisis?
Shyam Somani: There are three main triggers that are going to drive the transformation in the insurance industry as we navigate through this crisis-
- Improving underwriting efficiency and claims management
- Increasing customer and stakeholder engagement across digital channels
- Embracing legacy modernization
"Claims managers broadly speaking have three areas that they need to address:
(i) As much as possible, automate intake and processing. This move will go them a world of good, especially on the low dollar value claims, which can be settled automatically.
(ii) They would witness a surge in fraud claims like staged accidents in the case of auto frauds.
(iii) It's time when service quality and customer experience can win your customers for life, or you lose them forever."
- Shyam Somani
Melissa Womack: Do you think the insurers were prepared for a black swan event like this in terms of activating business continuity plans? How should they respond to it and minimize knee-jerk reactions that could lead to potential losses?
Milind Sathe: The majority of insurers have a BCP plan but not to handle a disaster of such magnitude. Priority should be given to customers and minimize disruptions to their life due to the crisis. Make sure all requests/inquiries (coverage change, claim reporting, etc.) are responded to promptly. Provide clear instructions on different ways insurers can be reached and where information could be found for support on most common issues. Their most valuable asset is their employees, so the safety and wellbeing of those should be given a priority so they can return to work when it is safe to do so as the majority of the country has some shelter in place order. Promote flexible work arrangements so they can support business from remote locations. Provide adequate safety gear if they have to be in the field to ascertain loss for a recent claim and make payments.
Melissa Womack: What's going to be your recommended checklist of things that all insurers must keep in mind as they navigate through this crisis?
Shilpa Bhandari: That's a great question, Melissa. Here are some essential pieces of response that come to mind drawing from my personal experience of over two decades in the IT Services industry as well as the work we at Birlasoft are doing with our clients as their partner and helping navigate through this crisis
