Impact of COVID-19 on Insurance
A Fadata analysis by Teodora Radoslavova, Product Manager Life Insurance. The Product Manager is the one responsible for building and developing the future outlook of our INSIS platform. Placed between two worlds — the one of current needs and functionalities, and that of future requirements and client expectations — the role requires the conjugation of thoughts and ideas ahead of their time.
Even before the Covid-19 crisis, there were disruption signs in the insurance business. Due to the historical nature of the industry and strong regulations, some of the insurance companies are quite conservative. They are selling outdated products and cannot be attractive to the newly raised customers’ demands. They operate with legacy technologies and business practices. Then, on the scene came the BigTechs — Amazon, Apple, Google, Facebook, and Microsoft. They have already twisted the business models, offer customer experience on a new level and provide ecosystems of services. They are digital, agile, and innovative.
The pandemic has caused a disruption within this disruption.
What the pandemic has caused on top of this picture:
The interest rates are at or very close to their effective lower band. Keeping low interest rates is the way to manage the Covid-19 debts. But it has a lot of side effects for insurers. Big reserves for savings products are locked meaning they do not circulate in the economy. The traditional life products with guaranteed rates are struggling to deliver their promises. In addition, there are low market growth prospects caused by the uncertainty of the economic situation and the high unemployment rates. The same is causing an increase in lapse rates or reduction of coverage.
Meanwhile, insurers are seeing increased claims volumes, or increased severity of claims for deaths, travel or business interruption, mortgage insurance, etc. There is an increased risk of litigation claims due to a huge number of rejections. Here another point is raised — what actually is covered by the policy and what is not. There is a gap between perception and reality. Claims are rejected in cases where the pandemic risk is not covered. Insurance Companies (ICs) admitted that there is a need for clarity in insurance wordings, the conditions should be transparent, the contracts should be simple, and the clauses straightforward.
Life insurers are facing challenges in underwriting due to testing difficulties and high mortality rates.
Before searching for solutions to these challenges let’s see how the customers of the insurance companies have changed in 2020.
The new Customer:
Nowadays digital adoption is no longer a function of age but has become mainstream across generations. Prolonged Covid-19 lockdowns forced everyone to learn and more extensively use digital channels. Gone are the days when insurance is sold to the customer, today customer buys specific policies in the manner they prefer.
A 2020 Capgemini survey indicates that traditional products promoted through digital channels will not be enough. Customers are hungry for new, innovative, and more personalized offerings. In 2020, the demand for usage-based insurance had skyrocketed. “One-size-fits-all” is not attractive anymore. Why not try to calculate the cost of insurance dynamically with the change of the risk? Imagine a Casco contract. The formula for the premium could depend on various factors — the distance and the hours spent driving but also daytime, historical riskiness of the road, reports for current road state, etc. Premiums seem fair and attractive calculated like this.
People need insurance in the right time.
When they are planning to purchase a high-value asset, or when they do their tax planning, or during important events in their life. Insurance could be sold easily while selling other products or services. People need insurance from the right channel. Today, customers search for information on google and recommendations on their preferred social media. They trust themselves to make policy decisions. They examine products via multiple channels and often opt to buy policy without direct input from a firm. Sales through mobile apps or websites either exceeded or matched the sales through brokers or agents.
How the landscape has changed?
Research indicates that there are several instances where change has been observed. These vary between the scale of adopting digital business, the Work From Home concept, and new business models and strategies.
For example, according to an analysis done by KPMG (2021), “the Cloud” is no more the fancy thing in the long future. Digital portals are a must for each IC planning stable growth. The necessity of enabling fast and responsive “access from anywhere” is winning out over concerns of the uncertainty of variable consumption costs compared to the fixed costs of running on-premise servers.
In addition, employees working from home have no ordinary support in the execution of their tasks, therefore the tasks should be well organized, prioritized, and measured. Workflow processes are extremely important together with task management and prioritization. Algorithms for tasks complexity evaluation and distribution are welcomed so that the most complex tasks go to the most experienced users. In this way, the companies will be more efficient and there won’t be delays. In other words, the scaling of connectivity was one of the biggest challenges facing insurance companies.
Last but not least, there is a change in business model and business strategy — there is a noticeable increase in demands for new digital products from the customers. This, on the other hand, indicates that we are to expect the establishment of new partnerships between ICs and Insurtech, faster utilization of ML and AI along with robotics and automation, for example. Areas, where the latter can be observed, are Fraud management, Policyholder interactions, Pricing, Underwriting, and Claims handling (KPMG 2021).
What are the game-changers in the business?
Digitally mature insurers demonstrated greater ability to serve customers than their counterparts. Moreover, it was an advantage for companies equipped with digitally advanced products, such as big-data-enabled underwriting, facial recognition software, Optical Character Recognition (OCR) analytics, automated claims processing, and voice- and chat-enabled customer service channels.
Let’s see how an underwriting process might be accelerated — since customers couldn’t visit medical practitioners alternative measures had to be taken. Facial recognition could do BMI calculation. Dynamic medical questionnaires could be used to drill down only in areas where IC doubts. If still there is a need for an exam, an online consultation via a platform could be arranged by IC. Then, the doctor could upload the results online. OCR could be used to “read” the documents and underwriting decisions to be made by AI. Via the platform, payment could be triggered automatically based on conducted exams. The same approach could be used in processing health claims thus closing the whole cycle of telemedicine within the IC and speeding up both policy issuance and claims processes.
The trend is IC to work more like a platform. This is linked with the tendency of IC acting proactively to prevent events rather than to insure their consequences — to arrange consultations via telemedicine, to be integrated with smart devices and to use the data for underwriting, or the data to be transmitted directly to the doctor for consultations, or to give health advice or bonuses for healthy lifestyle. With a number of questions, IC could identify whether a customer doesn’t feel safe and covered enough and may offer him additional coverage exactly when he needs one. Products recommendations might be performed via an AI algorithm. ICs could offer financial advising as an additional service. Could provide an option for savings bank accounts as an additional buffer in times of unemployment or illness. AI could be used to predict and maximize investment profitability within the range of risk tolerance of the customer.
All in all, The Covid-19 crisis was smartly used by the ICs to change the business. 10 years of change are done within one year and there is no going back. The pandemic unleashed the power of AI, digital innovations, and personalized products. And this should be recognized by the vendors. They should be able to respond to the new trends and changing demands of the ICs. To bring them higher value and help them in building their strategic vision.
References:
KPMG (2021) COVID-19 puts insurers on the fast-track to technology adoption. [online] Available at: <https://home.kpmg/xx/en/home/insights/2020/04/covid-19-puts-insurers-on-fast-track-to-technology-adoption.html> [Accessed 25 March 2021]
Capgemini Worldwide (2020) World Insurance Report 2020. [online] Available at: <https://www.capgemini.com/news/world-insurance-report-2020/> [Accessed 25 March 2021]
