Perspectives on Insurance’s Future: Near-Term View
In 2015, as InsurTech news was gaining momentum and as investment was growing rapidly, there came a point at which too many things were happening at once for any one person to keep track. It was very clear that the impact of InsurTech would be so far-reaching in creating change that the discussions and activities would need to separate into branches, such as customer-facing digital, third-party data, artificial intelligence, distribution, claims, new products, and more.
COVID-19, though completely different, is giving insurers a similar motivation to change. There will be internal impacts, external impacts, knee-jerk reactions and long-term plans that may deserve action on a much quicker timeline. What will these impacts be? How will we begin to prioritize? To focus on what is important, we thought it might be helpful for a few industry influencers to share their first thoughts about what insurers should be looking at right now.
To assist, I asked three other InsurTech Top 50 influencers to join me in a forward-thinking conversation. We recorded the conversation in last week’s webinar, “The Future of Insurance Post-COVID-19: Insights, Learnings & Recommended Actions from Top 50 InsurTech Influencers.” After a brief discussion on how the industry changes due to other crises, such as 9/11 and the 2008 financial meltdown, we split our conversation into three segments: Near-Term Impact, Mid-Range Impact and Long-Term Impact. In this blog, we’ll look specifically at COVID-19’s Near-Term Impact and some advice that we can give insurers that is relevant at this stage.
Joining me in the conversation were Sabine Vanderlinden, Co-Founder & Investor, Startupbootcamp InsurTech, Chris Cheatham, CEO of RiskGenius and Mike Connor, Co-Founder and CEO of Silicon Valley Insurance Accelerator.
Risks, Regulations, and Reputations
There is an invisible, yet palpable center of COVID-19 impact in the insurance industry. It is the three-way juncture where actual claims risk meets governmental regulation and customer sentiment. It is, effectively, a balancing point. Tip too far one direction and insurers fail. Tip another, and governmental regulation ties insurer hands. Tip further and consumers may no longer trust the premise of insurance. If we achieve the right balance, however, insurance delivers on its promise, customers are reasonably satisfied, and the government maintains or clarifies regulations to keep both customers and insurers safe.
We started by asking Chris Cheatham to paint a picture of what he’s seeing.
“We’ve been tracking government orders, governmental directives and even rumblings about potential legislation,” said Chris, “On the property side, we’ve seen 7 states that have proposed legislation that would create some sort of mandatory coverage under property policies, despite the fact that there is an exclusion for virus, or there is a requirement for physical loss or damage.”
Insurance is, of course, regulated by states, so these state-level efforts make sense. What gets more complicated is that both the Federal government and local governments are also wanting to weigh in. At the Federal level, Chris pointed out that there is a possible Pandemic Risk Insurance Act in the works. It would be forward looking and not retroactive. Local level efforts, though, may be where the most litigation occurs.
“We’ve been tracking emergency orders at the city, state and local levels,” said Chris. “Some of those orders are intentionally including language that would be intended to trigger a property claim.”
On the casualty side, Chris sees Workers’ Compensation as an area of great interest.
“Some states, like Illinois, are pushing for a presumption that if a medical worker gets COVID-19, they got it on the job. That could have a huge impact on workers’ comp claims. On the flip side, proposals are out there that would create immunity for businesses from lawsuits related to COVID-19 if they open up and a worker or consumer catches COVID-19.”
Immediate Legal Risks
From an insurance standpoint, there are some quick actions and reactions that make sense. Mike Connor gave some current advice to carriers from the legal community based on a recent webinar he participated in.
“Make sure you document everything during the period of time,” said Mike. “It is going to be a shifting sand in terms of what (legislation) moves forward and what doesn’t. In addition, regulators are going to come back and do retroactive looks at the decisions that were made, when they were made and why they were made. Document it. Tag it as COVID-related so that when an audit happens, you have a paper trail and digital trail to identify it.”
Mike also sees industry groups as a necessary and valuable venue for crafting an appropriate and effective response.
“Get together and have a conversation about what the response needs to be. Governments ultimately realize that they can’t afford to put insurers out of business…Make sure you’re in conversations with industry groups to support an industry stance on this. ”
Could a Governmental Backstop reduce risk, save insurers and help business owners?
There has been discussion in the industry about a government backstop for insurance that would be specific to pandemic situations, much like the one that was put in place for terrorism after 9/11.
“This is going to be a huge risk in people’s minds going forward. You are going to have companies asking for coverage for pandemics,” said Chris, “and you’re going to have insurers not wanting to issue insurance for that kind of coverage…it is catastrophically expensive to try to cover business interruptions during this time.”
“From Europe’s side,” said Sabine, “many insurers didn’t have pandemic as a part of their policy, so they didn’t have to pay. The FCA and the authorities have written to the insurance industry to ask them to react and, instead of paying dividends, to pay claims. We have started to see young businesses going after major insurers. We are seeing a lot of insurers trying to navigate those claims.”
In Europe, Sabine pointed out, a small business claim can go up to $110,000 (US). Multiply that by the number of businesses that are poised to fail, and insurers will clearly be stretched beyond their limits. So, a backstop solution, whether or not it will mitigate the COVID-19 impact, will certainly be a benefit in the future. The Terrorism Risk Insurance Act (TRIA) was put into place fairly quickly (on governmental terms), after the 9/11 terrorist attacks. It took roughly 14 months.
“At the end of the day,” said Sabine, “we need to find the right balance so that everything doesn’t crash.”
Have We Arrived at Digital Preparedness (Yet)?
So far, we have covered some of the external threats to insurers and what they are facing on the road ahead to stay in business. But what is the near-term impact on traditional face-to-face insurance business models? Have processes that required agent and broker interaction been affected?
A critical issue exposed during this crisis has been a lack of full digitalization of insurance processes. My theory was that our panel would have had their own experiences related to the impact.
“The (prospect) leads at digital-first brokers are going up,” stated Chris, “the general suspicion is that people are at home. They are worried about the price of their insurance. And so they are shopping at home right now for insurance policies. I think you will see a rush now in using digital solutions and it is going to speed up how people buy insurance online.”
The net effect will be a naturally-improved competitive stance at a time when interest in insurance is also very high. In my last blog, I mentioned that a recent article in Forbes suggested that life insurance for some online providers saw a 30%-50% increase in applications during the pandemic.[i] This would be in line with a historic surge of 70% in life policies following the Spanish Flu noted recently by the NAIC.[ii] For those currently without a life policy, many will do their first research online and many will get quotes and place applications online.
“This is going to create a speed-up to digitalization,” said Chris, “and I think on the insurance side, it will be more pronounced than in other industries.
How Can Digital Preparedness Affect Insurance’s Tipping Point?
“In talking with carriers about their near-term response to this, the larger carriers were set up to be able to work remotely. Some of the smaller mid-tier carriers really had not prepared for this at all. So, some of the efforts we’re seeing are getting grants out to employees to buy equipment so that they can stay safe and secure…We do see some silver linings. I think people are beginning to understand that a lot of the operations that they didn’t think could be remote are effectively being handled remotely.”
On the InsurTech side, Sabine does see an uptick in business for those InsurTechs that can insert their digital services into incumbent processes. An Israeli startup, for example is supplementing call center services by implementing chatbot features. They were able to raise funding because they could deal with this issues that are right now affecting incumbent businesses.
“When you look at InsurTech,” said Sabine, “a lot of the work has been digitizing and going direct to consumer. There are not that many InsurTechs that looked at the broker as a key implementation channel that should be digitized.”
Sabine sees this changing quickly as carriers and brokers and even InsurTechs are pushed into new territories. “Those who suffer the most (now) are the ones who are likely to change and get trained on how to use the (digital) tools.”
So that brings us to the most important question, related to you and your organization:
Is Your Organization Digitally Prepared to Deal with COVID-19?
Aside from legal and regulatory issues, the best coping mechanism for insurers is to sell more policies in an environment where there will likely be an uptick in life policies and an increased focus on usage based insurance, a greater amount of shopping around and potential turnover in policies in the P&C realm.
Digital quoting, application, sales and service will become the mandatory methodology for every insurer, broker and agent. This is going to require insurers to pursue new business models which are operationally very different and supported by completely new digital, cloud-based solutions. If there is another silver lining for insurers, it may be that their survival is now based on cutting-edge technologies that they were planning to implement anyway. Now…they have a mandate to move more rapidly from planning into action. If this describes your organization, we would invite you to discuss with us how you can quickly move from a traditional model to a flexible digital environment that is prepared for the future.
In our next blog, we’ll look further ahead to the mid-range and long-term effects of COVID-19 upon the insurance industry. How will the government, insurers and organizations work together to create the innovative solutions we need to maintain a thriving industry? How will they adapt to this new normal? How are some insurers looking to digital and cloud tech companies to help them quickly gain the competencies they need to survive? For a preview, listen to the complete Majesco webinar, “The Future of Insurance Post-COVID-19: Insights, Learnings & Recommended Actions from Top 50 InsurTech Influencers.”
[i] Danise, Amy, “Consumers Panic Shopping For Life Insurance In The Face Of Coronavirus,” Forbes, March 12, 2020, https://www.forbes.com/sites/advisor/2020/03/12/consumers-panic-shopping-for-life-insurance-in-the-face-of-coronavirus/#351a4a826a6f
[ii] Zawacki, Tim, “US life industry’s statutory income statement strength set to sink,” S&P Global Market Intelligence, April 13, 2020