It is strange how coronavirus has been shaking the entire world in the past 2-3 months, and we haven’t even realized how quick this period has passed. But with the virus spreading and taking lives rapidly, there’s a lot more to come. Not only humans, but many businesses are experiencing its impact around the globe, and insurance is amongst the most severely hit businesses. The impact of COVID-19 on the insurance industry will leave its remarkable footprint.
Let’s read what insurers say about the impact of coronavirus outbreak on their business.
1. Giving appropriate compensation to customers and saving them from financial catastrophes
The insurance industry is moving very quickly to assist with the current crisis. We have had a record number of claims in our life, individual medical, group medical, event, and commercial insurances. This is something we have never seen in our 35 years of existence, and we are doing our best to get everyone their proper compensation and save them from financial catastrophes so that they may deal with the larger issues at hand.
In the long term, both customers and the insurance industry will have a greater understanding of new outbreaks since this is different than anything we have seen before. This will create less friction for people in the future with their claims processes and help them understand why it is important while also learning more about the coverages that are available.
2. Pressure on premiums is restricting coverage
The commercial insurance industry is a direct reflection of the economy at large. As the health and economic consequences of covid19 begin to reveal themselves, businesses, their brokers, and insurers begin to find clarity in what the future holds.
Current issues include:
Increased risks of covid19 will compound existing market hardening for many lines of business, placing upwards pressure on premiums and restricting coverage. Some insurers are already beginning to withdraw from certain markets.
Business solvency is going to play a big part on insurers ability to collect premiums (currently owed and in the future), reducing premium pool.
Some insurers have already come to the aid of their clients, delaying premium payments and refunding premiums (e.g., for travel policies). But can this be sustained in the long term?
This will, in turn, place pressure on insurers’ ability to pay future claims. The industry appears to be adapting, with many employees able to continue working from home. This has certainly benefited firms that have made the necessary technology investment in advance. (Industry is not known to adapt to change quickly)
3. Increased demand for life insurance
In times of uncertainty, it’s natural for individuals to think about ways to protect themselves and their families. As a result, there’s been a recent, increased demand for life insurance.
4. Market experience is affected
Coronavirus looks like the 2004 Tsunami all over again — much suffering, few insured losses. Same was true in other disasters — e.g., Typhoon Haiyan, Nepal earthquake — and is true every day for households which experience a major illness, fire, accident, or other loss. Lack of insurance is a cause of persistent poverty.
*In the wake of coronavirus, insurers will either serve emerging consumers willingly or else policy-makers/regulators will compel them.*
Globally, insurance penetration is anemic. Customer willingness to pay isn’t the problem. The problem is supply. There are ~8 billion people, ~9 billion mobile phones, and only ~12% of the world has insurance. ~5 billion of the uninsured top-up their mobile data and airtime regularly but cannot afford a loss which would cost 3 months income — we call this segment emerging consumers.
The impact of COVID-19 on insurance industry increases demand, and the effect lasts for years. We have reviewed MERS, SARS, and Swine Flu using public data from Swiss Re. Affected markets experience big increases in health/life.
5. Limited coverage or no coverage
Thomas Bradbury, Technical Director at Get Song KEY
The COVID-19 outbreak has caused a lockdown to be declared in many countries. Only essential services are allowed to continue operating in most of these locations. In turn, a lot of small and even some larger organizations are required to shut down until these lockdowns come to a halt.
There are many insurance providers that are not providing coverage for the losses incurred during the COVID-19 outbreak. Even some insurance providers that provide coverage against business interruption have announced that no coverage is provided for the interruptions caused by COVID-19.
At the same time, some insurance providers may provide adequate coverage. When coverage is provided, it will generally be limited, as there is no physical damage or loss caused by the impact of COVID-19 pandemic on the insurance industry.
Bottom Line: Many insurance providers will not cover losses that occur due to the COVID-19 pandemic.
6. Higher premiums and deductibles due to increased healthcare costs
Omar Fuentes, Chief Executive Officer | Accelerated Health Benefits
Insurance plans have taken certain emergency measures to address the COVID-19 pandemic. These steps include waiving patient cost-sharing (copays, deductibles, and coinsurance) for testing and treatment for COVID-19. Insurance plans are also waiving prior authorization for those seeking testing and treatment for COVID-19 in order to make access to care more efficient.
The implications of this pandemic are increased spending and healthcare costs over the next 12 months and more. This will ultimately translate into higher premiums and deductibles for traditional insurance plans. Prior to this pandemic family insurance plan, premiums increased by 54%, and deductibles increased by approximately 160%, according to the Kaiser Family Foundation. Now enter in this COVID-19 crisis, and while insurance companies are doing the right thing today, what about tomorrow, post-COVID-19?
As this pandemic adds to the financial burden of an already chaotic healthcare system, employers and consumers will ultimately need to re-evaluate their plans and determine how they can obtain access to quality and affordable care. Physicians will demand less red tape and bureaucracy in treating patients, and both will demand leveraging technology, such as telemedicine, for greater healthcare efficiency.
7. Affecting operational continuity & increasing workload
Mika Edward, Process Associate at Cogneesol
Though there are mixed impact of COVID-19 on insurance industry, many are prepared to deal with them. Insurers are dealing with a shortage of human resources, having issues in maintaining operational continuity, and are under immense pressure to manage the growing workload.
Due to lockdown in some states, many insurance companies have become unable to operate efficiently as many of their employees are unable to come to office while some don’t have appropriate technological tools to work from home. At the same time, data security is a big concern for those who have allowed their employees to work from home.
Although they can tackle the shortage of workforce if they outsource some back-office operations to a company in another country where risks are less, they will still need to deal with a lot of issues, such as claims review and processing.
They really need to review documents, claims, and process compensation quickly as with the growing number of patients, the number of claims is increasing, increasing their workload.
Processing claims means they are spending more money by paying out compensation, which in result might cause financial loss, and they might increase premiums and policy rates for some time to recover.
Besides, it is challenging to decide whether a business is covered against COVID-19 under business insurance or not. With that, they are analyzing policies, current situation, etc., to improve or form new policies that will cover the effects of such pandemics on businesses in the future.
Below are coverages that may apply:
1. Workers Compensation Insurance
2. Business Interruption Insurance
3. Trade Disruption Insurance (TDI)
8. Insurance carriers might add pandemic coverage into business interruption coverage in future
MitchSharp, Marketing Associate, Insurance Shop LLC
Yes, the insurance industry has reinsurance markets to spread the risk they take on. Each individual policy has language within it that may or may not make claims covered relating to COVID-19. The problem for most small businesses is that a business interruption claim is usually an addition to a commercial property policy. The language in these policies usually states that the business interruption claim does not kick in unless the reason for the business closing is a covered loss.
Examples of a covered loss are fire, tornado, hail damage, etc. Because the reason for closing due to COVID-19 is not physical damage to the facility, in most cases, the commercial property policy is not enacted, so the business interruption policy is not valid either.
What are the impact of COVID-19 for the insurance industry?
On the personal side, most insurance carriers are offering rebates on personal car insurance and are discounting rates for the next few months.
The Workers Compensation System is governed by the states and not the Federal Government. Each state and each carrier are dealing with these situations differently. Workers Compensation Claims are paid only if the business and employee can prove the employee contracted the virus at work.
Businesses that cannot afford to pay the premium at this time should call their agent first and also notify their carrier. Most carriers are working with business owners to keep coverage in place.
It is not a good idea for a business owner to have a lapse in coverage. If there is damage caused during a period when coverage is not in place, the business will be responsible for the damages. When the business is able to open again, coverage will be more difficult to find and cost more because of a lapse in coverage. The best thing a business owner can do at this time is to speak long and honestly with their agent and carrier about what they can and cannot afford at this time. The insurance companies want to keep your business.
And what longer-term trends might the outbreak serve to usher in for the future.
Insurance companies offer specific policies for pandemics. Most businesses do not decide to purchase them because of the cost. In the future, insurance carriers may have to find ways to either ad pandemic coverage into business interruption coverage, offer it as an add-on, or offer it as a separate policy. The problem is this additional coverage will be added into the risk the insurance carrier is taking on and will cause the rate for the premium to go up. Most businesses are simply not in a place to pay for this coverage.
9. Due to the loss in profitability owing to COVID-19, insurers need to increase the premiums to compensate
Randy VanderVaate, Owner & President, Funeral Funds
*Do insurers have COVID-19 covered?*
Burial insurance companies cover COVID-19 death, just like other causes of death. If you have an active insurance policy before the pandemic, you have nothing to worry about. Your beneficiary will receive your death benefit payout when you pass away due to coronavirus disease.
So far, only a few companies put exclusions on newly issued policies. You will find this exclusion in the health question in the life insurance application form stated this way:
The insurance company will not cover any claim caused by or resulting from:
– COVID-19 coronavirus disease
– Severe acute respiratory syndrome coronavirus (SARS-CoV-2)
In the short term, this means that if you buy life insurance from these companies, you will not be covered if you die from these diseases.
*What are the impact of COVID-19 for the insurance industry?*
The insurance companies are still studying the long-term effect and the risks of COVID-19. We are seeing some applications being put on hold temporarily. Since this pandemic is causing a higher mortality rate in the United States, this would create a loss in profitability, and they may need to increase the premiums to compensate for this loss.
*And what longer-term trends might the outbreak serve to usher in for the future. *
Senior citizens with respiratory diseases are significantly more likely to die from COVID-19. Most life insurance companies will likely choose to limit sales to these applicants. If this would happen, people will more likely buy non-medical life insurance. We will see an increase in demand for non-medical exam or no-health questions life insurance policies in the future.
10. Likely to face massive loss due to BI litigation
Following what we saw after Hurricane Katrina, I expect a plethora of business interruption (BI) claims to erupt. Most insurers will deny outright BI claims leading to expensive and protractive coverage disputes in courts throughout the nation. It could take years to resolve. I saw this on the defense side of claims, and I expect to litigate this now on the plaintiff’s side.
BI litigation could involve billions of losses and hundreds of thousands of claims and failed businesses. The law on BI claims and how insurance policies should be interpreted is not clear cut, and the money at stake is profound, so high-stakes litigation is imminent.
11. Insurance business will be under pressure due to continued low-interest rates
Dennis Ho, co-founder, and chief executive of Saturday Insurance
As an actuary and owner of an independent insurance agency that focuses on life and retirement products, I’ll answer this question from the perspective of these markets.
Do insurers have COVID-19 covered?
On the Life Insurer side – yes. In the short term, while COVID-19 could lead to additional life insurance claims, the impact will be modest for several reasons. First, deaths are concentrated in older age groups, which typically have less insurance. Second, life insurance is typically a small percentage of most insurers’ businesses, and other products such as disability insurance and annuities continue to perform as expected. Finally, most insurers use reinsurance and other tools to protect against elevated life insurance claims, so the losses are spread amongst several entities.
The above, combined with the strong capital position and diverse businesses of life insurers, means the near-term impact of COVID-19 should be limited. Consumers should always review the credit ratings (claims-paying ability) and history of the companies they are thinking of doing business with, but by and large, the life insurance industry is well situated to withstand the impact of COVID-19 from a claims perspective.
What are the impact of COVID-19 for the insurance industry? And what longer-term trends might the outbreak serve to usher in for the future.
Over the longer-term, COVID-19 will likely have a significant impact on insurers.
1. Insurers will accelerate digitization and automation. We’ve seen many insurers be more flexible during this time by waiving medical exams for life and disability insurance applications and putting greater emphasis on using digital tools for customer service.
If these new processes perform well in the next few months, it’s likely they will stay in place for good and give insurers the confidence to digitize and automate more of their business processes, which is a positive for consumers. Technology has improved to the point where automated service can be as good as, and in some cases, better than phone or an in-person experience.
2. Customers will be more comfortable going online for personalized financial advice. On Saturday, we’ve seen a marked pickup in individuals going online to seek insurance and retirement advice. In the recent past, most individuals began their research online but then went offline when they were ready to talk to someone, but COVID-19 has changed that.
Many of the people we’ve helped in the past month were pleasantly surprised by the experience and felt that working with an online firm like Saturday gives them the best of both worlds – a convenient, digital experience + personalized, expert advice when the needed it. We expect this trend will continue to grow going forward.
3. Continued low-interest rates will put pressure on insurer’s businesses. Interest rates are a key driver of insurance company profitability: interest income makes up 20%-50% of an insurer’s annual revenue. A sustained low-interest-rate environment will continue to cause insurers to rethink the products they offer (especially the most rate-sensitive ones like long-term care insurance and income annuities), the price of those products, and markets they serve.
12. Insurers will be more critical of pandemics in the future
Jordan Shanbrom, Insurance Broker, California Life Coverage
For Life Insurance, Coronavirus has changed how the underwriting department of insurers looks at applications. We now have to ask about whether or not clients if in close proximity to those who have symptoms and we do check their medical records. We see if they have receive proper diagnoses with any symptoms of COVID-19.
If so, they are no under this coverage for up to 6 months or longer, depending on the severity of the case. Some of our carriers that we offer are including exclusions altogether, if you travel outside of the country, or if you get COVID-19 and pass away, it will not be covered. It depends on the Insurer.
The implications are huge. It means that insurers will be more critical of pandemics in the future, and most of the time, exclusions are kept and not removed, meaning that older policies will have stronger value than newer policies in regards to covering these types of conditions and situations.
Clients will still need life insurance, but they will need to be more careful.
Long term effects could be stricter underwriting guidelines and more competition among insurers since some insurers will be willing to take on risks that others will not. There might be either more exclusions, a stricter underwriting process, or an increase to premiums to outweigh risks and claims.
13. The industry will become clearer about their terms to handle outbreaks should in future
*What are the implications of COVID-19 for the insurance industry? *
I think the largest implication that COVID-19 will have on the insurance industry has to do with customers continuing to pay their insurance premiums.
While there has been a rush on the insurance industry for various types of coverage; the real question is will the customers keep their coverage or let it lapse when the COVID-19 scare is over.
It could mean that this boost in revenue for the insurance industry is really fake, and we will see a mass cancellation of policies in the near future.
*What longer-term trends might the outbreak serve to usher in for the future*
I think this outbreak is going to push more companies into creating better systems and processes for purchasing insurance.
I also think it will make the industry even more clear about their terms on how to handle future outbreaks.
14. Insurers are now in pressure to react quickly and scale excellent CX
*Do insurers have COVID-19 covered? *
From a life insurance perspective, if you already have a life insurance policy, you will get coverage under COVID-19. New policies *now* may cover COVID-19, but as the ramifications of this pandemic evolve daily, that’s changing. Insurers are introducing stricter guidelines and questions in the application process to address those who may already have COVID-19.
*What are the implications of COVID-19 for the insurance industry? And what longer-term trends might the outbreak serve to usher in for the future.*
Consumers want financial protection and a sense of security now more than ever. From the insurtech perspective, COVID-19 impact on insurance industry is causing an influx in consumer demand for life insurance coverage. People are suddenly more aware of needing to get finances in place if the unexpected happens. They want coverage quickly, and they don’t want to leave their homes to do it. This means insurance providers are under pressure right now to not just react quickly, but also scale excellent CX.
To meet this demand, insurers will need to replace traditional methods with more nimble processes. We’re seeing both insurtech startups and traditional vendors who provide tools for underwriting trying to make the business case for their tool to adaptive as a replacement for traditional testing etc.
For example, can an older lab test be located and transmitted to the insurer for review instead of relying on a fresh test?” Insurers need to watch trends in the virus closely and adjust models as necessary. Look for early indicators in customer behavior and be ready to react. Those who are forward-thinking and creatively servicing customers while maintaining enough risk controls will come through in good shape.
Technology is how we’ll achieve the necessary scale to meet this demand while maintaining excellent customer experiences. Insurtechs like Ethos are mobile-ready and leverage predictive analytics to underwrite more quickly. This means we can get consumers coverage in 5-10 minutes – via their phone.
At Ethos alone, we’ve seen a 2x increase in applications in the past few weeks. It’s our underlying technology that allows us to adjust to this influx without seeing negative impacts on the services, support, and experiences we give consumers.
On top of all this, life insurance stocks are in downfall further than the overall market in the past week, but not because the coronavirus is killing a large number of people with policies. Rather, it’s because of large investment portfolios. The regulatory environment and conservative nature of life insurance mean insurers have heavy exposure to bonds.
As yields drop on things like Treasury Notes, it puts pressure on profitability. Insurers are also concerned about the persistence of business. Not only new business as noted above, but in-force business. Will people continue paying the premiums, or use those funds for other near-term needs? In 2008 and 2009, we saw a temporary dip in persistency.
Insurers are yet to see other or more severe consequences of the outbreak for their business. However, as much as they have gone through so far, they have an idea of what they need to do in the future to deal with such epidemics. But there’s one more thing that they have to deal with in the current situation – shortage of workforce. Due to this, many insurance companies are heading toward insurance outsourcing companies to get the support.
However, many industry leaders have been taking help from insurance business process outsourcing firms. It helps them to manage their workload, staff uncertainties, and capital fluctuations efficiently.
We all know the world is going through a tough time, but the key to get through this is collaborations. Staff problems are occurring everywhere, regardless of the business type. As more and more people are admitting or dying in hospitals, claims management of processing work is increasing unstoppably.
If your insurance company is also having loads of work and running short on staff, call Insurance Support World. We are an insurance outsourcing company offering competent and quality services to insurance companies around the world. With qualified, trained, and experienced insurance experts, we can fulfill your need at affordable costs. We ensure that you survive the adverse impact of COVID-19 on the insurance industry.