Advice & Best PracticeComment & Analysis

The crisis curve: A race to evolve and thrive during Covid-19 for Insurance

Aside from the dramatic impact Covid-19 has had on people’s lives and health across the world, the pandemic has fundamentally changed the global economy. In the UK alone, half a million businesses have had to shut down, and for those fortunate enough to survive, they have had to put an estimated 21% of workforce into furlough and significantly reduce their profitability, if they are indeed to make any profit at all.

This situation requires us all to take an exemplary approach to protect the most vulnerable people and do everything we can to limit the spread of the pandemic. We must also work, where possible, to mitigate the long-term economic impact. 

The insurance sector is perhaps less impacted than other sectors such as travel and tourism, but various sources still point to $200bn of losses across the industry globally, this year alone. With survival likely to become a medium-term question, as legal teams prepare for battle and some lines see significant increases in loss ratios, most insurance firms are making radical changes.

Frankly, those companies whose set-up enabled a successful response have now become real threats to those who have suffered. Over time, this is likely to drive yet more consolidation in the insurance market.

Five characteristics of a successful response:

The success of work from home:

Implemented with the right support and investment, homeworking has proven successful. Based on anecdotal evidence, we’re seeing figures demonstrating productivity improvements in the region of 5-10%. Of course, several hypotheses have been drawn up to explain this rise in productivity and some believe that it is primarily due to reduced attrition and an element of Hawthorn effect. Both of which of course are expected to be temporary. Saying this however, we believe that there are other factors at play.

These include an increased focus on ‘core’ work from operational leaders at all levels, increased investment on developing remote team practices, development of rapid data visualisation, and social support systems which help employees connect with other team members via non-work-related activities. It is also worth highlighting that in preliminary studies, at least 80-90% of employees felt happy working from home. 

Rethinking operating models:

About 75% of organisations we are interacting with have taken the opportunity of this burning platform to rethink their operating model as they consider their ‘transition to the new normal’.

What will the new world look like? Where should our processes sit? What is our rightsourcing strategy? How have our partners supported us? Have we got the right systems in place? How will our loss adjusters and risk managers work in the future? How will we engage with brokers? How will we engage with carriers? What impact will digital have?

How can we finally develop and deliver a data strategy which will benefit us and our customers? We have seen at least half of transformation programmes being completely reset, not so much in terms of spend/investment, but much more around direction of travel. 

Heightened focus on regulatory compliance:

In 2018 and 2019 we observed an increase in regulatory driven activity across the sector, with a particular focus on commercial insurance – with mounting scrutiny from local regulators.

This agenda has continued to be a priority for all, from ensuring KYC/KYB/KYE compliance across geographies, to designing and delivering operational resilience programmes.

The need for these operational resilience programmes has been magnified by the pandemic, and we expect the entire insurance supply chain to address this with renewed vigour, already further underlined by the regulators.

A temporary digital agenda:

The urgent need to jump on, or quickly bolster, the digital agenda, has been driven by rapid changes in consumer and client behaviours, as well as an increase in fraud risk. Organisations have not only had to transition to a work-from-home model rapidly, but also implement secure payment systems, develop new digital interfaces and omnichannel functionality for customers, redesign rapid claims workflow systems and enable data visualisation dashboards. The list goes on.

Some have argued that these events have been perversely beneficial in moving a digitally immature industry forward, but there are challenges with this rapid digital innovation and implementation. Whilst they will have individually been proven successful on their own merits, they have mostly been ‘point’ improvements looking to solve very specific problems, and not solving the overall consumer or client need.

This is what we are now calling the ‘temporary digital’ stage, where digital solutions are going to be more present, but customer journeys still broken and fragmented. The real opportunity will be to capitalise on the progress made so far, but take a holistic view – integrating the technologies, processes, and working practices along the needs of consumers. 

Human impact:

Covid-19 has been called the biggest global social experiment ever. People’s lives have been transformed and so too have their jobs. Risk Managers are advising clients remotely, loss adjusters need new technology, building inspectors are having to work differently, transformation teams are spending hours and hours on videocalls, claims teams are even more dispersed and cannot build their knowledge up as they previously could, brokers cannot meet face to face with carriers, etc.

These profound changes are already having an impact on people’s mental health. Organisations’ budgets must consider a greater amount of investment to adapt leadership programmes, employ additional occupational therapists and coaches, set new social agendas and support options for employees at all levels. 

In summary, the Covid-19 pandemic will clearly place immediate pressure on us all (no matter what industry we are in), not to mention the impact it will have on business operations and, of course, an organisation’s resilience. 

Certainly, a permanent shift in how we think about digital, working patterns, transformation and business continuity will be essential in the insurance industry. And those that consider this early enough – with thorough due diligence – will likely emerge more favourably from the pandemic.

However, focusing solely on technology to facilitate all of these elements is not enough. Rather, insurance firms will need to balance this with a more human element (including the impact that mental health issues will have on their teams). The key here is how technology and humans can augment one another to achieve competitive advantage. 

Balancing this human lens alongside the tech will differentiate the quality of solutions offered, drive greater efficiency and will better engage people. Getting this right will ensure healthier outcomes all round, but there are no shortcuts. Insurance businesses need to be prepared to build on the momentum of change they have generated to date, to land technology for a second time after the pandemic. Only this will ensure genuine longevity.  

Herve Mazenod, managing director of insurance and investment at Gobeyond Partners. 

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