The pandemic has caused global disruption for insurance companies. Insurance companies felt severe effects as they have to price risks for a pandemic which was always thought of as a low probability event.
The pandemic, although having brought difficulties, have also possibly been a catalyst for positive change in the industry. For individuals, the pandemic brought many unknowns and uncertainties.
According to Google Trends, the global search term ‘uncertainty’ rose more than three-fold between December 2019 and mid-September 2020.
Seeing that insurance companies have experienced adversity, they are likely to continue to see further impacts due to the pandemic. This article will explore how insurance companies, as organizations having to manage and price risks, have performed during the pandemic.
Pricing Pandemic Risks
Insurance acts as a way for individuals and businesses to transfer possible risks. Policyholders pay premiums to prevent large risks from blindsiding them, while insurers forecast, manage and pay out claims.
Many insurers have considered and included pandemic risk into their insurance risks, but the COVID-19 pandemic has been an event in our history being much larger than we could have expected.
The pandemic has not been simple and one-dimensional regarding the effects on the insurance industry. The pandemic has affected a range of areas which have insurance coverage, such as business interruption, trade credit insurance, travel, cyber liability and event cancellation.
Due to this, pricing has been a difficult task. Additionally, seeing that the pandemic is a low probability event and that insurers had little to none of data or information to forecast pandemic risks, pricing has been extremely difficult.
General insurance has performed reasonably well during the pandemic seeing that the impacts of the pandemic depend on the types of coverage which specific insurers offer.
For example, the pandemic has affected new premiums on travel, events, and trade credit insurance, seeing that losses of these businesses may become significant.
But the premiums on motor and home have remained relatively stable. The claims volumes for areas like motor and homes have decreased due to the lockdowns caused by the pandemic.
Regarding operations, general insurance insurers have fared well seeing that a large part of their workforce have had to work remotely.
Many of these insurers have been able to develop digital capability in order to satisfy the needs of customers and to ensure engagement.
Life And Pensions
The consumer spending power has reduced due to the pandemic. This has been due to the pandemic having an extensive impact on economic activity and employment levels.
To ease this strain, insurers have been offering payment breaks. Additionally to the reduction in consumer spending power, there has been market volatility and general uncertainty on consumer confidence which has had an impact on willingness to spend.
Life insurers have projected these impacts to cause a decrease in new business volumes. There has also been a drop in market values and interest rates.
This has impacted life assurer income levels which has led to financial strain and the need of expense cuts in certain situations. Regarding operations, Life and Pension insurers have fared similarly to general insurance insurers.
Many were concerned that the pandemic would have had a large impact on health insurance, with health insurers experiencing significant additional payouts due to COVID-19 related hospitalizations and treatments.
According to AM Best commentary,COVID-19 impact on health insurance companies has been smaller than expected. This has been because most of the diagnosed individuals have been able to, and have chosen to, self-isolate at home rather than being hospitalised.
New Opportunities For Insurance Companies
Despite the global disruption the pandemic has caused, it may have provided opportunities for some positive change in the industry. These opportunities have risen due to the pandemic forcing most industries, if not all, to evolve and digitalize. One example of this would be remote working.
Due to lockdowns, insurance companies have realized that employees can work virtually while maintaining productivity and a streamlined service.
Remote working has proven to be effective for many insurance companies and may continue into a post-pandemic world. This will lead to cost savings, with Global Workplace Analytics projecting employers may save roughly $11,000 per annum for every employee working remotely half of the time.
Another opportunity caused by the pandemic may be telematics in insurance product offerings. Telematics function to monitor the insured consumers to formulate their policy premium.
Auto policies are largely affected by this, where cars can be fitted with fitted devices to measure indicators such as speed, location and accidents.
Additionally, telematic offers benefits for insurers and insured consumers, such as the encouragement of better driving habits, lower claims costs for insurers, and being able to change carrier to customer relationships from being reactive to proactive.
Telematics-based insurance cover offers personalized benefits to policyholders seeing that the pandemic has caused significant changes in driving behavior.
The Bottom Line
The pandemic has had disruptive effects on most, if not all, businesses across the globe, including insurance companies.
Seeing that the long-term impacts of the pandemic are currently not clear, insurance companies will likely face more changes and challenges.
Despite this, insurance companies will also experience potential opportunities. For entrepreneurs looking to take advantage of these new opportunities presented to insurance companies, they would need to know which are the best business insurance companies.
For entrepreneurs looking for more information about this, The Really Useful Information Company (TRUiC) is able to offer more information.