Just like many other sectors, the pandemic has brought serious changes to the way the insurance industry functions, forcing them to innovate rapidly to get aligned with the so-called “new normal”. As the US is the biggest market for insurers, most of the innovations are being triggered in the US insurance industry to address the potentially dire financial reality. Statista revealed in May 2020 that the total loss suffered by the global insurance industry stands at 4.2 billion, because of the pandemic. And by the end of the year, this number is expected to reach $11-80 billion, as per analysis by Willis Towers Watson.
Besides the fear of losses, some other factors are pushing the insurance companies and carriers to innovate their methods, plans, and strategies.
The basic understanding of the nature of crisis has evolved
All insurance providers use a set of algorithms and actuarial calculations to come with the insurance cover that they offer the customers. The current situation, which put a ‘near-stop’ to all kinds of economic functions over the world and brought every industry to a standstill in the wake of the COVID-19 pandemic, has changed the idea of “crisis” that the insurers had. The previous crises that they faced were geographically limited and spanned a community or a country at large, but this one has expanded beyond national boundaries. This has changed the definition of ‘crisis’ itself. Hence, they are being forced to include new factors into their algorithms to come up with more flexible, tailor-made investment options for their customers to address new risks that may emerge post-pandemic.
Life and work is very different
Remote working has become the norm in the US and other countries of the world, because of the need for social distancing and avoidance of public contact. This has brought about a need to customize business insurance covers and include home-offices as well. Traditional policies are being found wanting to encompass all the risks of working from home. This is creating a lot of confusion among business owners. For example, the ‘worker’s compensation insurance’ that covers the expenses of employees, who get injured or suffer from medical issues at the workplace, can no longer be valid for the remote working situation. However, it would seem that it should. As the employees are still working for the companies, their health and welfare should be included in the organization’s insurance policy. In another example, many buildings faced a steep loss of rental income due to the pandemic. The question became, how to insure unoccupied premises? Such new concerns drive the need for innovation in policy definitions.
Small businesses are facing the worst of times
The COVID-19 situation has been terrible for small businesses. They are suffering from a loss in income, customer skepticism, and inconsistent international supply chains for raw materials and finished goods. With almost all economic activities, except essential services and products, becoming constrained, these businesses are now looking for new avenues to start afresh. They are seeking flexible solutions from their existing investments in insurance coverage and the like. However, insurance companies are somewhat unsure of how to help them overcome the current challenges. This is leading to a loss in faith and disappointment on the part of the small business owners. If this carries on for long, this section of business owners will lose their trust completely on their insurers. It’s up to the industry to think of something quickly to prevent that from happening.
Old models have fallen short of expectations
As mentioned previously, premium calculations are based on an idea of potential risks and how they spread out. The insurers take a community or population as a single group and determine the spread of risk, assuming that a section of the people will need the claims’ money at some point in time. The premium from the remaining people makes up the cash towards the claims and the operations of the company. This is the prevailing model of insurance. However, the pandemic has upturned this model, as everyone is at risk right now. The entire community may be at risk and needs relief. This suggests the need for newer and better models through rapid innovation.
Sectoral insurance needs have evolved
One of the most obvious changes that the industry is facing right now is in the auto insurance sector. The nation-wide lockdown that followed the pandemic declaration halted all the auto activity in the country, and most insurance providers responded by giving refunds to their customers during that time. But, that’s not the end of the tale. Customer preferences and activities are changing fast. These days, people are more inclined to ride their vehicles instead of taking public transport, which increases the risks of road accidents, a major factor that influences the rate of premiums. Many insurers also argue that the shift to working from home will help keep the number of cars on the roads within a certain limit. It’s fair to say that a degree of confusion abounds but old assumptions are being challenged. Other sectors face similar changes too like home insurance and commercial property insurance. However, owing to the evolving needs of customers insurers will be under pressure to change too.
For insurers, this is the right time to evolve and embrace the. This will go a long way to establish trust and loyalty in the customers. Customers will look forward to investing in flexible, customized policies that consider the current social and economic changes, as well as the new risks. Therefore, innovation will become key in keeping insurance businesses afloat in the new world.