How to Respond to the COVID Crisis in the Insurance Industry

Feb 1, 2021

The COVID-19 pandemic has disrupted the service industry while causing widespread destruction to the economy. Businesses, communities, and individuals are encountering economic hardship. So how should organizations respond to the COVID crisis in the insurance industry?

In 2020. the global insurance industry had lost 4.2 billion U.S. dollars due to the COVID-19 pandemic. According to Willis Towers Watson, estimates for the total losses the market will experience in 2020 range from 11 to 140 billion U.S. dollars. In contrast, Bank of America's estimates ranges from 30 to 97 billion U.S. dollars.

A recent industry survey found that many insurers know they still have a big task ahead of them, even after spending most of 2020 adapting to the outbreak’s impact. Forty-eight percent of insurance executives stated that the pandemic revealed the gaps in their business contingency plans in the face of an economic storm.

Growth for 2021 is expected to rebound 3% as emerging markets become leaders, while developed markets may experience a slight decline in revenues. The insurance industry can display leadership by helping companies perform risk assessments by acting as a barrier against losses. Medium to large corporations must have a contingency plan if the operational environment does not change significantly in the coming months. 

So many things are outside of a company’s control. However, if you do not have a plan, client relationships become stressed. Outside of the coronavirus, a company can become subject to cyber-attacks, mandatory quarantines, long-term school closures, and travel regulation that affects how you maintain relationships with clients and vendors. 

Key changes in the insurance industry

  1. Business continuity scenario planning becomes more complex. Developing the baseline may be challenging. However, specific scenario planning around simultaneous threats like IT and network outage, additional workforce reductions, natural disasters, and further spikes in demand are considerations for carefully planning, developing, and executing business continuity and incident management plans.
  2. Risk management redefined. Understanding potential exposures and threats will help insurers become more resilient and plan for what claims come in to provide a better service to their customers and allow payments to be processed faster. Doing so can help insurers with their value proposition to customers, brokers, agents, and other external stakeholders.
  3. Business continuity and resiliency planning have become a critical focus. Regulations have intensified their requirements for organizations to remain compliant with industry standards. 

The business interruption debate

In the U.S., COVID-19 business interruption insurance coverage has become a topic of legislative debate. Elected officials in New Jersey and other states discuss legislation that requires insurers that provide business interruption insurance coverage to cover COVID-19 related claims, despite virus exclusions in many policies. The National Association of Insurers has expressed concern for the insurance industry regarding these actions. Additionally, some businesses have initiated legal action, filing lawsuits against insurers over their business interruption policies

Emergency management response: addressing the insurance industry issues

The one constant that is certain is “change.” To make any progress, management and employees must move out of their designated zones to progress to the next level and effect change in the corporate culture.

Communication with your employees and clients

Safety is of the utmost importance. In this trying environment, you must communicate successfully with your insureds and employees. Employees want to feel valued as they contribute to the company’s success, diminishing litigation chances by opposing forces. Furthermore, not facing the concerns of your policyholders could lead to reputational damage. 

Considering your business continuity plan, let your stakeholders and employees know your preferred communication methods and emergency preparedness plans. Have employees check corporate communications and updates on internal websites. Ensure your private social media has pertinent news in case of an emergency, like a system outage. 

Owners can't afford to waste a second when disaster strikes. Alerting managers and supervisors alone isn't enough. Emergency alert systems come with built-in tools for customization, geo-targeting, and device delivery, so all leaders and employees can respond quickly, regardless of department and location.

Risk management teams can customize alert messages to each department and role to streamline evacuations, data backup and recovery, IT system backups, operational safety procedures, electrical safety, and more emergency protocols. 

Simultaneous disaster preparedness

Use a mobile-first strategy for emergency notification and incident management, so employees can quickly respond to messages, and you can protect your workforce, no matter where they are. Customize messages and reports and quickly notify employees based on their location, department, group, or role. 

Communicate with your stakeholders by reinforcing the vision of the company. Relay the fact that back-up plans are in place in the case of unusual circumstances. 

Business laws change rapidly, especially in the age of Congress who can make mass changes to legislation. To overcome this challenge, meet with regulators to make sure the corporation is complying with oncoming standards. Not doing so can lead to large expenses for now following guidelines. 

Boost loyalty with consumers by fulfilling requests promptly; impact consumer loyalty through the speed of service, devotion to the brand, flexibility in changes in consumer tastes, and business acumen. 

Addressing cybersecurity concerns

In times of crisis, fraud rings take advantage of the system vulnerabilities to wreak havoc on exposed computer systems. We have already seen this play out with the cyber-attacks on U.S. government systems from foreign countries. 

Take precautions to protect sensitive corporate data. Make sure your employees are aware of the company's cybersecurity strategy and training. Most hacks occur when sensitive client data is exposed through a play on employees’ emotions. Moreover, employees should rotate their passwords every 30 to 60 days. 

Computers should be locked when not in use, and employees must know when a fraudster is trying to access sensitive client data through social engineering. 

Review IT encryptions strategies to ensure there are limited breaches into the computer systems and servers by cybercriminals.

Compliance challenges are mounting

Regulators have focused on multiple areas of concern during the COVID-19 pandemic, from policy disputes over communicable disease-related coverage to purchaser protection as sales and claims management go virtual. But there are many other compliance issues for insurers to address that aren't related to the pandemic.

Among the pandemic-related regulatory challenges insurers face are:

  • Market conditions

Regulators pay close attention to how insurers handle their policyholders' claims, both prompted by COVID-19 losses, as well as the abrupt shift to virtual claims handling.

  • Business interruption

Claims will continue to be a concern, as the industry and the government consider public-private approaches to cover any potential future pandemics.

  • Workers' compensation

Claim disputes are expected to climb as more employees return to the office, while discussion over liability waivers for employers continues.

  • Financial competence

With rising natural disaster losses, such as the increasing number of hurricanes and wildfires across the nation, how does that affect insurers' financial strength? 

Among the regulatory issues unrelated to the pandemic are:

  • Natural disasters

Regulators are looking to maintain affordable coverage for policyholders in the areas prone to natural disasters while asking insurers for financial disclosures specific to the climate risk. 

Workplace recovery strategy for the insurance sector 

Depending on your industry, COVID-19 may have changed your workplace practices. It may have become challenging for employees to commute to work; therefore, many employees must work from home. 

Working remotely can contribute to a lack of morale booster with your employees. While they are remaining safe, they miss crucial physical contact for in-person relationships, leading to stress in family relationships. Productivity can suffer as well since employees will be engaging in more self- management. 

Take steps to recognize this situation by putting in proper protocols to increase employee retention and satisfaction until the pandemic is over. Below is a brief list of actions to consider when returning your operations to the office.

  • For employees still working in the office and unable to work from home, restrict access to physical locations where the virus can be active and thrive. 
  • Revise policies so that employees working in the office are socially distanced in safe spaces with the necessary protective gear. Review risk-mitigation strategies for in-office employees. 
  • Make sure your work-from-home policy manual is up to date. For at-risk employees, accommodate them with a vibrant iPad or laptop computer system with hotspot internet services. 
  • Examine your network technology and videoconferencing services. Some platforms can only handle limited data quality. 
  • Let employees know what you are doing to alleviate office stress. Have group exercises with stress ball reliever routines. 
  • Permit employees to take vacation days for mental health, doctor visits, and young child educational service.
  • Review your health insurance policy. Many employees may face additional medical needs during the coronavirus outbreak.
  • Refine your performance review expectations. Expect a dip in performance as employees adjust to working from home. Communicate with the HR Department on revised performance guidelines with flexibility as the economy improves going forward. 
  • Review your attendance policy to make sure it is adequate for the pandemic.

Speak with supervisors and managers on reviewing collaboration with teams remotely. Some employees may have adjusted to having a group meeting through Zoom or Skype; others may need assistance.


Operations, vendors, and supply chain in the insurance industry

The supply chain’s resilience is necessary to meet your policyholders', employees', stakeholders’ demands, and sometimes compliance regulations. However, a break in the chain may occur even during crisis management. While the insurance industry is not as prone to supply change disruptions as other sectors, third-party operations may be tested as time proceeds.

The outside vendor service policy could affect your internal departments —like IT support, equipment suppliers, and financial data centers. Contracted IT support services could deteriorate because of vendor problems. Off-shore contract servers may have limited ability to work from home because of coronavirus.

Suppliers who participate in the NAFTA agreement may not meet production demands because of COVID-19 and company shutdowns.

Travel restrictions could hinder suppliers from reporting financial data. Servers could be in a remote location, which makes maintenance and repair difficult.

Meanwhile, your insurance company could see spikes in service requests. As more patients enter long-term care for recovery, you could get more compensation claims. States are going into lockdown as COVID-19 cases increase, leading to an increase in event cancellations, along with the corresponding claims documentation for subsequent travel cancellation plans. 

Furthermore, this affects supply chain management policies. State governments may request assistance with worker’s compensation claims. Also, during heavy disruption, the company may have heavier than expected internet and phone traffic as clients seek help with accounts. 

  • COVID recovery for insurance companies requires a business continuity plan for your partners. Discover if your business partners have operations in areas of the world that have been hit especially hard by the virus.
  • Review every supplier, especially ones that are involved with informational technology. Examine all your contracts, third-party claims processors, payroll, accounting, and outside distributors. 
  • Examine your service agreements to make sure they are meeting key performance indicators with at-risk suppliers.
  • Ensure that the manager who oversees third-party vendors can resolve any supply chain disruptions. 


How COVID affected insurance consumer behavior 

COVID has exposed vulnerabilities to our health services as outcomes affect financial liquidity. Consumers understand this as they seek to adapt their behavior in a post-coronavirus world. While it may take 18 months or more to reach herd immunity, expect that consumers will continue to purchase more goods and services online. The future is pointing towards automation and digitization. Because of this, consumer demographics and expectations will change as the competitive pressures increase. 

Since remote work is safe and cost-effective, telework may become the norm for many established firms. Meeting virtually with your clients may open new doors to building customer relationships and selling products and services.

Conversing with customers through technology will promote better efficiency, better decision-making, and more outstanding outcomes for the insurance company and the consumer. 

Evaluate the operational model and examine workflows from every department to determine viability in this new economy. Make the necessary changes that will affect the bottom line and bring the firm back to financial health. As policy-holders go back to work, the collection of premiums for the wide variety of insurance products will increase, and catastrophic loss mitigation will be limited. 

Insurance response to COVID can determine optimal viability. Most optimistic economists expect the economy to recover full employment by the end of 2022. Harvard economists think that the economy could recover all lost jobs through December 2021.


Business continuity in the new normal

Businesses must simultaneously manage three critical phases of the COVID-19 crisis—respondrecover, and become resilient. During the onset of a pandemic, insurers responded by taking prompt steps to ensure business continuity and help customers and their communities cope. As the industry heads into 2021, insurers should consider a mix of proactive actions to accelerate longer-term recovery efforts and pivot to the resilient phase, despite challenging economic conditions.

Business risks and threats are evolving, impacting the entire industry landscape. The pandemic has contributed greatly to those changes. 2020 was a year where we experienced a lot of firsts. The only ‘known’ is that businesses can be impacted by almost anything unexpectedly, making it essential for any organization to be agile and flexible in their planning and thinking.