Starting in late 2019 in Wuhan, China, the COVID-19 pandemic has quickly spread all over the world. As the pandemic continues to burn it’s way through much of the world many businesses and economies have been impacted. Many businesses are shuttered while others like Netflix, Amazon, and grocery store chains are booming. From our vantage point as insurance brokers, we get to see first hand how the insurance industry in Hong Kong reacts to this unprecedented crisis.
During this pandemic, insurers must deal with this issue on multiple fronts as investors, employers, and claim payers.
Investing & Profitability Challenges
When customers pay their insurance premiums, the premiums are collected and invested in order to generate a return while holding enough cash to pay claims should they arise. While insurers try to collect much more in premiums than they pay out in order to generate an underwriting profit, many are unsuccessful and rely on investment returns to generate a profit.
The economic damage caused by the COVID-19 pandemic has dealt two strong blows to the industry. The economic and stock market decline associated with the pandemic has dampened investment returns for insurers across the board bringing with it profitability challenges. Secondly, as the economy continues to suffer and businesses remain closed, we’re seeing clients begin to reduce coverage and even close down altogether. While these shutdowns may not have an immediate impact, a decline in overall premiums will hurt.
Employment & Continuity Challenges
The most immediate concern for the insurance industry is to protect the health and safety of their employees and partners while maintaining business continuity. With COVID-19 pushing everyone into work from home arrangements, insurers and brokers have been forced to adapt their business processes, workplace culture, and technology to accommodate this new reality.
Much like the commercial policyholders they serve, the insurance industry has had to review their business continuity and crisis management plans to continue operations with minimum disruption to clients. Some of the more savvy insurer partners we work with have established cross-functional emergency decision-making teams to coordinate their response, set safety protocols, and adapt quickly as the situation evolved.
One particularly challenging task is figuring out how to enable staff: actuaries, underwriters, claims managers, and brokers to work off site, access the necessary files, and conduct business while maintaining information security. In response, companies are adopting VPN’s, issuing computers to staff, ramping up training, and introducing new cyber security protocols and collaboration tools.
Most crises in living memory involved purely economic (ie. the financial crisis of 2007-2008) or purely health-related issues (ie. the HIV/AIDS pandemic). This current crisis is unique in the sense it involves both issues.
With businesses shut down and people getting sick, insurers and brokers are getting an influx of business interruption and health insurance claims. While an influx of claims is challenging in the best of times, this is doubly true while trying to manage a business continuity crisis simultaneously.
Another key challenge faced by the insurance industry is accommodating claims adjusters who often need to travel (locally and in some cases internationally) to do their jobs. With the travel restrictions and risks of travelling, this is a challenge with no clear solution. For example, if a claims adjuster has to go onsite to examine a claim, what can be done to ensure the health and safety of both the adjuster and clients?
Trusted Union’s Response
As brokers, we’re dealing with many of the same disruptions, risk management, and logistical challenges faced by the broader insurance industry. Luckily, over the past year, we have been ahead of insurance industry trends and invested in advancing our digital capabilities which has allowed us to transition without much interruption of client service.
Because of our digital transformation initiative over the past year, we are well-positioned to serve our clients throughout this period and even as this outbreak passes.