One Bad & One Good: Impact of COVID19 On The Insurance Industry
As of this date, the United States is showing signs of returning to “normal” after over a year of fighting a viral pandemic that was the worst in over a hundred years. Like the Spanish Flu Pandemic of 1918, this pandemic will become little more than a memory, that is until the next one. There will be a next one. What we do not know is whether the next pandemic will arrive in ten years, fifty years or a hundred years. Nonetheless, the impact of this pandemic on the insurance industry may actually prepare it for the next possible pandemic or other long-term crisis. Here are our top 2 major impacts. One is a challenge facing the industry, the other is an innovation.
The Bad - Liquidity Challenges. As new business has been flat or even trending downward, the prospect of an increasing number of payouts in the near future is a real consideration. Now may be the calm before the proverbial storm. Liquidity may be a major concern if the current trends continue. In the wake of COVID-19, it can also be expected that we will see not only increasing claims but also increasing litigation over payout disputes. This process tends to be a long, drawn out and costly one. Even if the insurer wins the dispute, the loss adjustment expenses could be considerable. This can put even more strain on the insurer’s liquidity. The good news is that the industry seems to be responding to the possibility of a liquidity challenge. There are literally dozens upon dozens of ways to respond to it. Time will tell which method or methods work best.
The Good - Digitization. COVID19 has created an opportunity for innovation within the insurance industry, and it looks like the industry has seized it. As insurers must adjust and respond to this crisis, they are innovating as well. Digitization is hardly new in the insurance industry, but because of the pandemic, the process had accelerated greatly. as insurers looked to better serve customers and remain competitive in today’s evolving marketplace, digital adoption in the insurance industry grew 20% globally in the past year. This innovation is taking place in all facets of the policy lifecycle, from marketing to claims submissions to digital policy servicing. One survey from late 2020 found that almost half of respondents (47%) filed an auto and/or property claim in the last year, and of those, nearly four in 10 (39%) used a mobile app, website portal or e-mail. COVID-19 social-distancing guidelines and stay-at-home mandates also have exacerbated the need for digitally-driven solutions within the life insurance industry. One such way life insurers are meeting this need is with accelerated underwriting which utilizes a great deal of third-party data to streamline the process and minimize the need for an in-person meeting with the prospective insured. The bottom line is that the entire insurance process, from initial application to claim payout will be faster, more efficient and cost effective. This translates into a greatly increased level of customer service.
Obviously, there are other impacts on the insurance industry due to the pandemic. These are just two.