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How insurers drive value and build operational resilience in the time of COVID-19

It’s a known fact that even the most stable companies face P&L and balance-sheet challenges in the wake of economic shocks such as the one brought on by the coronavirus pandemic. Studies have demonstrated that following the financial crisis of 2007-08, those insurers that failed to improve operational productivity saw their combined ratios and profitability deteriorate.

With $203bn (£162bn) estimated losses, insurers as well as many other institutions, are keen to recover quickly from the on-going global crisis. To do this, many are deploying resilience strategies and adapting functions and processes to help their business units weather current adversities with likely new ways of working.

Insurers that want to overcome current challenging times will see that an emphasis towards the acceleration of vital digitization activities to address recognizable market shifts and needs will focus on operating model redesigns including the smart digitization of policy and claims operations, the implementation of next-gen fraud detection and cyber risk prevention solutions, and a revamp of underwriting and pricing practices. 

To help you fast-track your operational resilience, I’ve put together this high level guide on ways insurers can increase their shareholder value post COVID-19. These actionable and straightforward guidelines should give your teams a few ideas on ways to deal with the abrupt hurdles resulting from these unprecedented times.

 

  • Audit your current digitization approach

 

Quarantine measures mean that companies around the world are asking their employees to work from home. Businesses of every shape and size, from SMEs to major corporations like Google and Facebook, are switching to distributed workforce models. What’s more, in many cases, this change might not be temporary. Even companies used to solely rely on physical office spaces are realizing that meetings can be held over video conference platforms, giving them an opportunity to downsize their office space and reduce overheads.

Coronavirus is forcing us to rethink the way we live, learn, and work. As an insurer, if you want to prepare your business for the post-pandemic world, you must get prepared for the next level of digitization. 

But digitizing what? Effective digitization requires a comprehensive internal audit of current business assets and IT capabilities. In other words, you need to have a reliable infrastructure in place so that your personnel, such as support agents, underwriters, and managers, can all access the resources they need to work from home. This indeed means further look at distributed and cloud based infrastructures. Most importantly, the ways in which they obtain and share information must be properly secured. Already, cybersecurity consultants have seen a surge in hacking attacks targeting companies who had to jump into a work-from-home approach without properly safeguarding their remote access tools. Fortunately, plenty of secure distance working tools are available with the 3,500 funded cybersecurity ventures already in the market.

But supporting a work from home culture internally is just the start. It’s also vital that you adapt your market-facing products, coverage, and services to fit with the new way that your customers and clients want to interact. How you practically implement this specific element of your digital transformation will, unsurprisingly, be highly dependent on those insurance products and services you provide. 

For example, insurers who offer medical insurance packages will need to understand how their clients are adapting to the rapid implementation of telemedicine and telehealth. Prior to the COVID-19 crisis, this was a little less of a priority. But now, with hospitals trying to limit patient-to-patient coronavirus transmission, health service providers are using technology wherever they can to diagnose and treat patients at a distance. Medical insurers need to consider for instance questions like: will this increase the number of misdiagnoses or fraudulent injury claims?

 

  • Rethink your approach to risk management and underwriting

 

It’s hard to comprehend the impact which the COVID-19 crisis has had on business and property insurance policyholders. Across the world, businesses in a diverse range of sectors have been forced to cease operations with no notice. In some cases, the financial impact on insurers has been direct as business interruption policyholders make claims for lost revenue.

Thus far, in many countries, it’s not clear whether insurers will be forced to pay for COVID-19 driven interruptions. In the USA, for instance, the National Association of Insurance Commissioners (NAIC) has attempted to block attempts to get insurers to cover such losses, but thousands of clients are still filing claims.

Elsewhere, we’ve even seen governments make specific stipulations, directing insurers on how to respond to the situation. Some regulators have forbidden the cancellation of auto insurance policies in cases of an expired driving license, while others have forced insurers to begin providing coverage for food delivery drivers. 

All of this is to say that the risks that insurers are exposed to are morphing rapidly into new risk types. As PWC points out, audit specialists and risk management professionals can, even in these unforeseen circumstances, help firms deal with risk. Turning to these professionals is a safe move, but another widely-recommended step is to make use of new technologies to enhance your data collection and analysis speed. Creating a series of agile risk profiles so that you can monitor this fast-moving situation in real-time is vital to drive the right level of operational resilience.  

Besides this, there are several other pragmatic steps you should take to improve your pricing and risk modeling during this pandemic. Many insurers are referring to their most recent risk assessment models to see if the pandemic has triggered other secondary risks. It’s also worth considering whether a renewed risk assessment is warranted by the circumstances and if the risk appetite of your stakeholders and board members has changed.

 

  • Adapt to emerging COVID-19 business trends and consumer behavior

 

Crises, including pandemics, commonly accelerate societal and economic shifts. It’s important that insurers are mindful of this if they want to continue generating value for shareholders when the pandemic subsides. 

It’s predicted, for example, that many of the jobs lost during the current economic turmoil won’t return and will, instead, be taken over by automation. This could happen in the form of retrieval robots at postage fulfillment centers, digital kiosks taking orders in fast-food restaurants in place of cashiers, or delivery drones. Insuring a heavily automated business means covering new kinds of emerging risks, so insurers need to begin adjusting their packages and premium pricing models to account for the change. 

While automation will be a business-driven shift, consumer spending patterns are also expected to change radically. An exemplar of this is the fact that, with two-thirds of the world’s passenger jets grounded, very few people are taking vacations, at least in the short term. This will have a direct impact on the sales and distribution of travel insurance packages, but it should also prompt the vendors of a series of other personal insurance products to lower their premiums because policyholders are staying home and exposing themselves to fewer risks, reducing the chance of a claim-generating incident occurring in the home or in the car. 

COVID-19 is impacting every sector, so move fast to stay relevant

There’s no question that now is the time for a reinvention of the insurance business model. Radical and flexible thinking is the only way to build resilience, add value, and mitigate risk during the COVID-19 pandemic. 


By Sabine VanderLinden, co-founder and managing partner of the Alchemy Crew

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