A survey carried out as early as 2013 found ‘global pandemics’ to be one of the most important extreme risks for the insurance industry in the long term. And, we are seeing this scenario play out in the midst of the COVID-19 crisis.
Infact, The Insurance Information Institute, in its first-quarter ‘Global Macro Outlook’ reported that “COVID-19’s impact on global growth and the insurance industry is likely deeper and wider than the current consensus and could last well into the third quarter and beyond.” Additionally, AM Best draws attention to the fact that reinsurers will be subject to higher levels of coronavirus-related risk compared to primary life and health insurers. All pointing to this being an extremely complex time for insurance companies to navigate.
In this article, we explore the insurance business areas that are currently under great pressure, and the pragmatic efforts needed to equip them to better handle an unpredictable future.
Post–COVID-19, the insurance industry should have laid the foundations needed to innovate and build organisational resilience. It makes sense to use this time wisely, to reimagine business processes to consider all stakeholders - customers, employees, distribution channel partners, vendors. This is pertinent because at the end of the day, the industry’s core mission is to help manage risk and buffer against shocks like COVID-19. The below approaches will also ensure that the sector’s focus shifts to contextual, transparent and clear communication to customers.
Here are a few insurance business areas that could benefit from a ramp up:
Thoughtworks’ recommendation is for companies to adopt a more agile product development process so that they can adapt to changing market landscape quickly. Starting point will be to review their existing product portfolio and product mix to look for products that can be adapted quickly to address the needs of customers in the short term.
An example of one of India’s first and timely corona specific products is the digital payments company PhonePe’s insurance policy, Corona Care. This was launched in collaboration with Bajaj Allianz General Insurance for people who have been infected and hospitalized for COVID-19 treatment.
Our suggestion is to design a robust strategy that does not ramp up only during emergencies or crises. They need to adopt an exhaustive framework which continuously evolves and models all possible permutations and combinations of risks and redressals.
3. Build digital capabilities
The genie of digital insurance is out of the bottle and will be hard to put back in. Our recommendation is to invest in digital platforms that will enable remote and seamless collaboration of diverse stakeholders - insurers, emergency services, hospitals, employers, mental health consultants, etc.
As an example, the COVID-19 crisis has given rise to unique situations where a nominee might not even be aware of the insured’s ongoing treatment because of strict lockdowns. In such scenarios, insurance companies will need to extend the benefit of doubt (circumstance) to the nominee, without requiring additional action like intimation, form submission etc. This can be easily facilitated by proactive, regular and consistent communication through digital channels.
Additionally, many insurance companies’ business continuity plans are falling short in this crisis. The digitization of business processes can help in such situations and bring about overall operational efficiency.
Internal processes like virtual inspections, DIY claims reporting for first notice of loss (FNOL) and AI-based damage assessments also ensure ramping up to serve customers in their hour of need. In fact, we advise that insurers and regulators accelerate their involvement in emerging tech like blockchain which has the potential to eliminate intermediaries, duplications, erroneous records, lengthy claim processing, claim denials, excessive checkups and more.
4. Evolve decision intelligence
Developing decision intelligence and management is a valuable addition to the insurance industry’s main line decision-making processes, and in particular to the underwriting, claims and policy/customer administration processes.
Our suggestion to insurers is to pick a straightforward point to start this data management journey. It could be anything, from targeting macro decisions, to day-to-day operations. Identify a motivated line-of-business sponsor so that the project does not lose steam. The practitioners on the project team could begin with a decision-making or design thinking workshop.
Additionally, the project should engage operational and technical folks to examine institutionalizing new approaches. Finally, determine metrics to be tracked to ensure that the project functions within expected tolerances and all learnings are recorded for the continued data management journey.
5. Enable flexible operating models and a remote workforce
Operations like processing inbound documents is a high-volume, people-intensive activity. And, in cases where documents require production and mailing, employees have to be physically present on site - not ideal in the current scenario. We would lay significance on building digital input options, automation and digitizing inbound documents and correspondence that can help alleviate such challenges.
Upskilling and cross-skilling agents, adjusters and other field operatives to be adept with digital collaboration tools will help manage the increase in operation volume during a crisis-like situation.
We foresee that as remote working becomes the norm, equipping insurers with the mindset and technical ability to supervise their remote teams and employees will become pertinent. A small step in this direction are the recommendations that insurance regulators have started issuing to employees working from home.
6. Proactively address cyber risks
It is common knowledge that the insurance industry is in early stages of a comprehensive digital transformational journey. COVID-19 has created a sense of urgency about building these aspirational digital capabilities. Add to this, the findings of the Aon Benfield report that states, a majority of the people working in the insurance industry are likely to see at least one pandemic during their careers, so future disruption seems likely.
Such crises open them up to new cyber threats both from cyber criminals as well as human error related risks caused by employees not used to working remotely. Insurance companies will require ongoing IT projects to be re-evaluated as per deliverables that are immediate versus long term. This will also call for a heavy scrutiny of data and process security. Our immediate guidance would be for insurance companies to build-in better system resilience by proactively identifying security abnormalities and instituting daily, virtual threat intelligence processes.
In conclusion, the world of insurance has changed dramatically in the last six weeks and the companies able to adapt quickly will be better equipped to survive with both their bottom line and reputation intact.
Infact, The Insurance Information Institute, in its first-quarter ‘Global Macro Outlook’ reported that “COVID-19’s impact on global growth and the insurance industry is likely deeper and wider than the current consensus and could last well into the third quarter and beyond.” Additionally, AM Best draws attention to the fact that reinsurers will be subject to higher levels of coronavirus-related risk compared to primary life and health insurers. All pointing to this being an extremely complex time for insurance companies to navigate.
In this article, we explore the insurance business areas that are currently under great pressure, and the pragmatic efforts needed to equip them to better handle an unpredictable future.
Post–COVID-19, the insurance industry should have laid the foundations needed to innovate and build organisational resilience. It makes sense to use this time wisely, to reimagine business processes to consider all stakeholders - customers, employees, distribution channel partners, vendors. This is pertinent because at the end of the day, the industry’s core mission is to help manage risk and buffer against shocks like COVID-19. The below approaches will also ensure that the sector’s focus shifts to contextual, transparent and clear communication to customers.
Insurance Industry affected by the COVID-19 crisis
Impacted areas
- Risk identification and defining losses - as the first wave of Covid-19 suits are filed, insurers will find it tough to track cross-accumulated exposure.
- Claim payouts - with claims team or investigators now working remotely due to lockdown they are unable to investigate claims. Specialist insurers for industries such as travel and events are likely to face mounting claims, alongside discussions about what is and isn’t covered under policies. This could result in financial risk for themselves as well as reputational brand damage.
- Return on investment - insurance companies are also vulnerable to volatility in financial markets during an economic crisis. Fitch Ratings has recently issued a warning that life insurance companies could be hit hardest by the combination of falling stock markets and increasing mortality rates.
- Business continuity planning - typical contingency plans don’t generally address fast-moving crisis events like COVID-19, social distancing or global lockdowns.
- Cyber crime - remote working means higher levels of remote access to core systems by employees makes companies more susceptible to cyber crime and hacking attempts.
Opportunities to ramp up
While 2019 was a record year with over $6 billion in investment, for global insurance-tech start-ups and scale-ups, it’s only the current global crisis that has effectively forced insurers to re-evaluate their entire businesses’ structure, operations and customer service.Here are a few insurance business areas that could benefit from a ramp up:
1. Agile and faster product development
India’s insurance regulator IRDA has already moved to revise insurers’ product portfolio. They have advised insurance companies to design products that cover treatment costs for COVID-19 patients.Thoughtworks’ recommendation is for companies to adopt a more agile product development process so that they can adapt to changing market landscape quickly. Starting point will be to review their existing product portfolio and product mix to look for products that can be adapted quickly to address the needs of customers in the short term.
An example of one of India’s first and timely corona specific products is the digital payments company PhonePe’s insurance policy, Corona Care. This was launched in collaboration with Bajaj Allianz General Insurance for people who have been infected and hospitalized for COVID-19 treatment.
2. Reimagine risk models
Despite the history of worldwide health crises like H1N1 and SARS, there is very little evidence of insurtech companies building solutions to model the risk of pandemics. One of the biggest reasons for this is the lack of enough historical data to build credible loss curves for events like COVID-19. Sophisticated approaches leverage stochastic models that are based in epidemiological science. These models are built from the ground up using a wide range of inputs - a disease’s transmissibility, lethality, point of origin and status of a vaccine in production. However, there is no widely accepted risk model available in the market.Our suggestion is to design a robust strategy that does not ramp up only during emergencies or crises. They need to adopt an exhaustive framework which continuously evolves and models all possible permutations and combinations of risks and redressals.
3. Build digital capabilities
The genie of digital insurance is out of the bottle and will be hard to put back in. Our recommendation is to invest in digital platforms that will enable remote and seamless collaboration of diverse stakeholders - insurers, emergency services, hospitals, employers, mental health consultants, etc.
As an example, the COVID-19 crisis has given rise to unique situations where a nominee might not even be aware of the insured’s ongoing treatment because of strict lockdowns. In such scenarios, insurance companies will need to extend the benefit of doubt (circumstance) to the nominee, without requiring additional action like intimation, form submission etc. This can be easily facilitated by proactive, regular and consistent communication through digital channels.
Additionally, many insurance companies’ business continuity plans are falling short in this crisis. The digitization of business processes can help in such situations and bring about overall operational efficiency.
Internal processes like virtual inspections, DIY claims reporting for first notice of loss (FNOL) and AI-based damage assessments also ensure ramping up to serve customers in their hour of need. In fact, we advise that insurers and regulators accelerate their involvement in emerging tech like blockchain which has the potential to eliminate intermediaries, duplications, erroneous records, lengthy claim processing, claim denials, excessive checkups and more.
4. Evolve decision intelligence
Developing decision intelligence and management is a valuable addition to the insurance industry’s main line decision-making processes, and in particular to the underwriting, claims and policy/customer administration processes.
Our suggestion to insurers is to pick a straightforward point to start this data management journey. It could be anything, from targeting macro decisions, to day-to-day operations. Identify a motivated line-of-business sponsor so that the project does not lose steam. The practitioners on the project team could begin with a decision-making or design thinking workshop.
Additionally, the project should engage operational and technical folks to examine institutionalizing new approaches. Finally, determine metrics to be tracked to ensure that the project functions within expected tolerances and all learnings are recorded for the continued data management journey.
5. Enable flexible operating models and a remote workforce
Operations like processing inbound documents is a high-volume, people-intensive activity. And, in cases where documents require production and mailing, employees have to be physically present on site - not ideal in the current scenario. We would lay significance on building digital input options, automation and digitizing inbound documents and correspondence that can help alleviate such challenges.
Upskilling and cross-skilling agents, adjusters and other field operatives to be adept with digital collaboration tools will help manage the increase in operation volume during a crisis-like situation.
We foresee that as remote working becomes the norm, equipping insurers with the mindset and technical ability to supervise their remote teams and employees will become pertinent. A small step in this direction are the recommendations that insurance regulators have started issuing to employees working from home.
6. Proactively address cyber risks
It is common knowledge that the insurance industry is in early stages of a comprehensive digital transformational journey. COVID-19 has created a sense of urgency about building these aspirational digital capabilities. Add to this, the findings of the Aon Benfield report that states, a majority of the people working in the insurance industry are likely to see at least one pandemic during their careers, so future disruption seems likely.
Such crises open them up to new cyber threats both from cyber criminals as well as human error related risks caused by employees not used to working remotely. Insurance companies will require ongoing IT projects to be re-evaluated as per deliverables that are immediate versus long term. This will also call for a heavy scrutiny of data and process security. Our immediate guidance would be for insurance companies to build-in better system resilience by proactively identifying security abnormalities and instituting daily, virtual threat intelligence processes.
In conclusion, the world of insurance has changed dramatically in the last six weeks and the companies able to adapt quickly will be better equipped to survive with both their bottom line and reputation intact.
Disclaimer: The statements and opinions expressed in this article are those of the author(s) and do not necessarily reflect the positions of Thoughtworks.
