COVID-19: Implications for the Insurance Industry

COVID-19 has put the insurance industry in a tight spot. The industry has been a laggard in adopting digital transformation, hasn’t been ranked high on customer experiences, and relies heavily on a large workforce. For such an industry, a pandemic that has forced global shutdowns and quarantines can be extremely disruptive.

To ensure business continuity and to reduce operational risks in the future, the insurance industry needs to reimagine the way it operates. Insurers should consider investing in cloud services, automation, and remote collaboration technologies to enhance customer experiences and reduce human dependencies.

The world is going through an unprecedented crisis that's disrupting businesses, wreaking havoc on our livelihoods, and, consequently, on global economies. According to the IMF, there would be a 0.1% decline in global GDP growth. Businesses across industries are already felting the pre-effects of this decline.

For the insurance industry, the impact is reflecting not only on revenue but also on the workforce. In 2018, insurers employed a staggering 2.7 million people in the US alone. Since it relies heavily on human capital, COVID-19 puts the entire industry in a very tough spot. Let's delve deeper to understand why.

Assessing the impact on revenue for 2020

The world equity markets lost $40 billion during the 2003 SARS epidemic. The COVID-19 pandemic will cause a more significant impact on not just equities and interest rates but also premiums, especially for health, business, and travel insurance portfolios.

While several health insurers have exclusion policies in place for flu-type outbreaks and pandemics, there will still be a considerable spike in claims. Also, with higher mortality rates, the number of death benefit claims will be on the rise.

With quarantine and social distancing, businesses facing interruptions will claim coverage for their losses, whereas employees at high risk, such as first responders (paramedics, police, firemen), will seek workers' compensation.

Meanwhile, canceled flights and trips will lead to a surge in travel insurance claims. Organizations that deal with events (sports, concerts, productions) will expect insurance to cover their financial losses.

How is the impact being felt? Firstly, sustaining spikes in demand will put a more significant strain on the already reduced workforce. Secondly, since airlines, hospitality, and events firms will bear substantial economic brunt, future demand from these portfolios might decline considerably. Even the sectors that aren't majorly impacted, such as auto insurance, will have to review their coverage policies, premiums and brace themselves for a looming global recession. Now let's see how COVID-19 will affect the insurance industry workforce.

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Reviewing the impact on the workforce

Within four months, WHO has confirmed over 1.2 million COVID-19 cases across 169 countries, with 67,841 deaths, which has led to global lockdowns and social distancing. For a vast industry such as insurance that employs millions, the effects can be significant. With call centers getting shut down and a third of the world's population under quarantine, insurance firms have to rethink how they operate to ensure business continuity. For example, since claims adjusters won't be able to travel on-site, the way claims get investigated and processed needs to change.

Secondly, almost overnight, underwriters, claims adjusters, and actuaries had to transition from office-protected environments to remote work. Employees had to switch to alternate work arrangements using IT-issued laptops, home internet, VPNs, and virtual collaboration tools. When the entire workforce goes remote, the responsibilities of IT at insurance companies go up too. Some of their top priorities include reviewing and upgrading cybersecurity protocols, investing in remote communication tools, and setting up systems for virtual data access.

Digital transformation for business continuity

COVID-19 could be the tipping point for the insurance industry, and to ensure business continuity, they should consider investing in cloud services, automation, and remote collaboration.

Provide better user experience with digitization

The first step is migrating to the cloud and implementing the latest security protocols and access controls. Following this, insurers should use websites and self-service apps with user-friendly, easy-to-navigate interfaces. Lastly, insurers should identify processes that can be wholly digitized, such as policy and claims-related document submission, payments, and renewals.

Reduce human dependencies with automation and chatbots

Any industry that employs a massive workforce is at risk during COVID-19. That's why businesses should automate as much as possible to reduce human dependencies. Insurance processes such as fraud detection, risk assessment, FNOL, claims collection, and policy renewals can be automated using AI/ML systems. Using image recognition systems, insurers can avoid human intervention to a great extent in risk assessment as well as in claims management. Further, using AI-powered chatbots 24x7, insurers can reduce dependency on customer service staff. It will offer an excellent user experience, thereby improving customer loyalty.

Facilitate remote collaboration

While digitization will reduce the size of the insurance industry's workforce, insurance remains a people's business. That's why insurers should reassure their employees and policyholders, and provide assistance with their livelihoods during these uncertain times. From investing in virtual collaboration tools to improving transparency, insurers should do everything possible to build trust and loyalty.

Final word

Businesses everywhere are adjusting to a new normal, and even after the crisis, the world might not go back to the way things were before COVID-19. To ensure business continuity and minimize risks from such events in the future, the insurance industry should completely embrace digital transformation.

    
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