What’s next for Insurance?
The current pandemic has brought challenges as deep as unexpected to the insurance industry. From the outset, the drop in production, resulting from the abrupt reduction in the insurable mass, especially in P&C line business. For Chubb CEO Evan Greenberg, never, in the long history of the insurance industry, an isolated phenomenon had such a profound impact in such a short period of time.
In terms of claims, the effects of the pandemic are also significant. According to Dowling & Partners Securities, the additional claim cost in the USA, in the non-life business, can exceed USD 80 billion.
A third worrying effect is the reduction of customer loyalty. JD Power, in its most recent study of North American insurance clients, warns of the increase, by more than 80%, of clients who, following the pandemic, started looking for lower-priced insurance, and also for the fact that 1/3 of customers are reducing the coverage of their current products, as a way of reducing the price.
There is, for example, a significant increase in sales of auto insurance in the pay-as-you-drive modality, due to the significant discounts, they promise (if driving is safe…).
But, in addition to the immediate economic losses, this pandemic will also leave a very relevant and complex litigation trail. Multi-million dollar lawsuits have already been filed against US and British insurers, including representatives of Loyd’s London, for refusing to pay claims in the field of ‘business continuity’. A real legal tsunami is looming for the insurance industry.
Once the diagnosis has been made, it is important to define the best plan to return to the new normal. So, the question that arises is: “What’s next for insurance?”
The “new normal” in insurance will be based on four crucial aspects, which are technical (re) balance, social responsibility, communication, and digital tools.
First, it is essential to ensure that solvency ratios remain healthy. Insurers must be sure that they are in a perfect position to absorb the economic and financial losses resulting from this pandemic. The adoption of restrictive policies for the distribution of dividends and the allocation of bonuses and variable remunerations is a sign of the way in which insurers are safeguarding their capital reserves.
Second, the demonstration of social responsibility. Right from the start, adopting a partnership attitude with customers, distributors and service providers. Understanding customer’s difficulties, and being a little more flexible in checking deadlines and procedures. And assuming a public commitment to the well-being of the communities where they do business. Around the world, there are excellent examples of social responsibility that should be followed: in the United States, the United Kingdom, France …, and in Spain, where, for example, Mapfre has allocated 20 million euros for the acquisition of respirators and other medical material, and Sanitas has implemented field hospitals in its centers in La Moraleja and La Zarzuela, in Madrid.
Third, communicate in a systematic, consistent and targeted manner. Right from the start, on insurance: enriching the FAQ’s, opening new virtual channels, alerting to changes in procedures. But also, other risk related topics. By developing new skills and adopting new digital procedures, insurers must anticipate their clients’ behavior and alert them to the risks associated with these options.
Finally, providing the insurance companies and their representatives with the technological tools that allow them to live up to the new requirements. Christian Wiens, CEO and founder of insurtech Getsafe, says the coronavirus is accelerating the digital transformation of all industries. This is the time to invest in new digital technologies, which allow you to communicate and carry out operations in a fraction of the usual time, at a fraction of the cost. The assumption is that the insurers’ core system is up to these challenges – if not, the modernization of central systems becomes their technological priority.
In the end, what remains is the way insurers treated their customers and partners, and ensured business continuity. A good performance in these areas drastically reduces the risk of not successfully emerging from this health crisis, which has become the biggest business challenge of the current generation of managers.