Covid-19 is shaking up the insurance sector

As customer needs change.
The stability that existed has changed, and insurance products and business models need to adapt. Image: Shutterstock

The Covid-19 crisis has triggered an unexpected change in the insurance industry. Aside from making people more aware of their mortality, it’s also seeing them get cover through digital channels.

Traditionally, people get insurance coverage through a broker but now they are increasingly open to the internet for the ‘grudge’ purchase.

Cape Town-based insurance technology (Insurtech) firm Simply Financial Services, which sells products underwritten by Old Mutual Alternative Risk, for example, has seen more than 40% month-on-month growth in its retail life, disability and funeral cover sales since February.

Read: Check your insurance policy

Businesses are not only being forced to change the way they communicate with clients and potential customers but also to change their products and approach. Insurtech, for instance, does not demand blood tests or physical medical exams.

A few decades ago, most customer communication was done via post and there has a been a dramatic shift towards email, telephonic and other electronic communications, which will rapidly evolve to more innovative platforms in the coming years.

Data and technology are also expected improved customer service, potentially lower the cost of insurance, and allow more tailored products for different customer segments.

Increased customer interaction

Old Mutual Insure CEO for Retail Insurance Soul Abraham predicts that there will be visibly increased customer interaction on channels such as social media, webchat, apps, and messaging services such as WhatsApp.

“The industry has been evolving to cater for these customer communication requirements,” says Abraham.

Soul Abraham, Old Mutual Insure’s chief executive for Retail Insurance. Image: Supplied

“The trends over the last decade are clear – more customers show a preference [for] interacting over digital platforms be it email, SMS or apps,” he says. “Intermediated insurers and brokers will have to continue thinking about how to evolve their businesses to effectively service the needs of the customers in ways that resonate in the new world, especially given Covid-19.”

Read: Business interrupted, but insurers don’t want to pay

Usually, the broker business is primarily a relationship-based business and is generally conducted face-to-face.

However due to lockdown regulations, things have been difficult for the intermediated industry and it has seen a significant reduction in sales and quotes.

Read: Driving down your insurance premiums

“However, brokers have been adapting very well to the changes and opportunities,” Abraham says.

He adds that Old Mutual Insure has been using digital platforms to engage with brokers to bridge the communication gap, and has seen brokers adopting and using these quite actively.

Covid-19 impact differs

According to a report by Deloitte, the impact on general insurers will vary depending on the products and types of coverage they offer.

It says the pandemic has taken a toll on new premiums in certain product areas – such as travel, events, and trade credit insurance – and losses from this type of business may become significant. Other lines of business, such as motor and home, have however remained relatively stable.

“In some notable cases, general insurers have offered credits and rebates to policyholders due to [the lockdown] restrictions. Operationally, general insurers have responded relatively well in the initial phase of the crisis with most workforces working remotely,” the report states.

It says there were challenges with contact centre operations and third-party provider services, but “these issues have not been across-the-board”.

“Those insurers that had developed digital capability have been in a better position to respond to customer and intermediary self-service and engagement needs.”

Deloitte says that from an investment perspective, the volatility in financial markets has not yet had a pronounced impact on general insurers, with government bonds having been relatively unaffected by the crisis.

“Operationally, life and pension insurers, similar to general insurance companies, have managed well with the initial crisis.

“However, with self-isolation rules in place, digital capability is becoming increasingly important due to the nature of life and pension products and dependency on agents and other intermediaries,” Deloitte states.

New trends

In 2019, Deloitte identified several trends that were to define insurance in 2020 and beyond such as:

  • Changing customer behaviour

Customers’ needs, knowledge and expectations towards the insurance industry have expanded considerably in the past decade. In an age of immediacy, constant change and overwhelming choice where loyalty is no longer a given, the industry has to extend beyond its core products and services if it is to retain its customer base.

  • Growth through the negotiating table

In a highly competitive environment, many executives acknowledge that organic growth may not be enough. In 2019, while merger and acquisition (M&A) activity in the US slowed down, globally the pace picked up considerably. The question is how the industry use will M&A, equity partnerships and alliances to drive growth.

  • Digital disruption

While the vast majority of insurer IT spending still goes toward maintaining legacy systems, budgets are starting to shift away from core applications toward analytics, artificial intelligence and other advanced functionality to enable more flexible products and enhanced customer experience.

  • Synthesis challenge

Ultimately, how well insurers resolve the “synthesis challenge” – integrating innovation in technology, talent, and business models into change-resistant legacy environments – may be the biggest success factor for the industry in the decade ahead.

“We believe the Covid-19 crisis will further accelerate a number of these trends across the industry,” says Deloitte.

Customers [and intermediary partners] will expect to engage with insurers in a different way as digital will drive more enhanced customer experience and be less face-to-face based, it adds.

“Customers’ experience over the last months will accelerate their expectations of what products and solutions they need. The stability that existed has changed, and insurance will need to adapt,” it reads.

The firm adds that the coronavirus epidemic will further hasten innovation in the sector and the role of Insurtech solutions in insurer operating models.

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