How Can Life & Annuity Insurers Address COVID-19’s Impact on the Industry

The COVID-19 pandemic and its rapid spread has broad-ranging impacts on Life and Annuity insurers. While the need of the hour for insurers is to device an immediate tactical response to the situation, it is critical to have a robust plan to address the mid/long term implications. With that context, let us look at the key impact areas and strategic imperatives that will help insurers stay strong during and post this global crisis.

Immediate impact areas and ways to address

As the pandemic spreads at an unprecedented rate it is critical for insurers to quickly put together a support ecosystem to ensure the safety of their employees while ensuring business continuity with minimal disruptions to customer experience. The following key focus areas will help insurers address the immediate impacts.

Ensure employee safety and business continuity: The biggest focus area should be on ensuring employee safety and enabling them to work remotely. In order to operationalize this, it is critical to ensure that the employees have access to all the resources to conduct business remotely. The complexities and needs for remote work enablement could be different across functional groups. Also, there could be potential policy provisions which restrict certain remote work. Insurers should address these challenges by ensuring faster decision-making and proper guidelines/communication for employees across functions around potential exception situations.
Address customer and channel partner needs: As customers grapple with the double whammy of the virus spread and the volatility in the markets, there will be an increase in customer/partner inquiries across channels and functions. There will be a significant spike in claims related operations/inquiries. Insurers should be prepared to handle these situational needs for the customers/channel partners on a priority. In addition, they should have customized communication with all stakeholders ensuring their support during the difficult time.
Mitigate privacy and cyber risks: A significant segment of Life and Annuity (L&A) operations deal with critical customer confidential information. So, as the workforce pivots to a remote working arrangement it is critical for insurers to ensure strict data protection measures. There may be a need to establish additional cybersecurity protocols to support the new and remote business models. An assessment of the existing security ecosystem and a quick deployment of additional best practices will help curb data protection threats.

Medium to long-term impacts and ways to address

According to Insurance Information Institute (III), COVID-19’s impact on global growth and the insurance industry could last well into Q3 and beyond. III also highlights that the impact of this pandemic “could reduce global GDP growth from 3.3% to 2.3% and delay recovery by up to 12 months”. This will lead to a lower premium growth. Owing to the prolonged impact of the virus, high mortality rates would lead to an increase in Claims payouts. To make things worse, lower interest rates and volatility in the equity markets will hit the bottom line for the insurers. In order to ensure a safe exit from the current crisis, and remain competitive, insurers should start preparing for their recovery journey. Some critical considerations that would help in their recovery journey are:

Recalibration: Recalibrate/adjust product portfolios and investments to address exposure to the low interest situations
Continuous Model Refinement: Continuously model the range of impacts of the pandemic. Despite the uncertainty, they should continue to use the latest available data to adjust and refine the models and assumptions
Solvency Monitoring: Ensure accurate and timely solvency monitoring and management
Reinsurance Exposure: Reassess reinsurance exposure for the future. Insurers with low levels of reinsurance exposure would be hard hit by this crisis. So review and remediation of the reinsurance situation is critical
Focus on Improving Bottom line: The biggest focus however would be to improve profitability to sustain and differentiate during the difficult times. The best way to improve bottom line is to continue focusing on Automation and Digital Transformation which will help variablize their cost structures and help reduce cost through automation

The proactive way forward

In summary, the rapid spread of the virus and the resulting consequences will need insurers to respond really fast to the new market reality. They have to not only focus on sustaining their business as usual but also prepare for the “new normal” once the situation gets better. To remain successful in the market, the guiding principle should be to ensure financial stability while minimizing any customer experience impact.

About the author

Aveek Basu is an Associate Consulting Partner in the Global Consulting Group at Wipro. He is a management consulting professional with 15+ years of experience in the intersection of Insurance and IT. Aveek guides his customers in the areas of Digital Transformation, Product and Platforms Strategy, IT Roadmap Development, Growth Strategy, Product Development/Management and large-scale business transformation implementations. He is a technology enthusiast and is interested in the business application of new age digital technologies.

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