Insurance industry: Adjusting to a Post-COVID19 world

In a post-COVID19 world, insurance companies need to carefully consider the changing needs of policyholders. In this article we will be examining how innovation can help drive progress in the insurance industry. We also look at the role of governments, regulators, and actuaries in the road to business recovery.

Introducing Regulatory Sandboxes

Regulatory sandboxes are a recent trend. The idea of a ‘sandbox’ is that creating a temporary environment that fosters innovation without many of the burdensome compliance requirements can lead to better solutions at potentially lower costs. This is an attractive proposition, especially during a period of rapid technological growth that leaves behind waves of turbulent opportunities and threats. Regulation is usually viewed as reactive to these opportunities and seldom creates exceptions to the rules of practice.

Regulators around the world respond

Such has been the early success that this year more than 20 regulators, including those from the UK, Canada and the US opened applications for a global fintech sandbox following a trial in 2019. Notable inclusions in this group are the Abu Dhabi Global Market (ADGM), Central Bank of Bahrain (CBB) and UAE Central Bank, all endorsing the vision of that global cooperation of investing in technological development is no longer just beneficial in meeting the evolving needs of financial services, but that it is essential.

The evolution of insurance needs and the technological innovations

March 2020 defined an inflection point in the evolution of insurance needs. The importance of technology in servicing these needs forced an acceleration in invention and innovation. The effects are continuing to cascade into secondary opportunities for all industries associated with insurance.

Different sectors received different impacts because of the pandemic.

  • The healthcare industry: If telemedicine and telehealth were not preferred choices for receiving treatment pre-pandemic, they have certainly improved their standing in the healthcare sector since. In November 2020 the Dubai Health Authority released a directive aiming to formalise the process for insurers to accept telehealth consultation claims from licensed providers.
  • Wearable technology: According to research by analytics firm GlobalData, the wearable technology market is expected to increase from nearly USD27 billion in 2019 to USD64 billion by 2024. The associated concerns on privacy and the use of personal data are also very real and are a counter-entry to the real benefits provided by wearable. The point is, however, that insurance has the potential to benefit by incentivising wearable tech use and shifting the insurer mindset to one that embraces the changes in habits and practices of businesses and people.
  • Property & Casualty Insurers: According to a recent paper by the Geneva Association the mismatch between economic losses and the risk-taking capacity of insurers who offer Business Interruption (BI) cover is staggering.

With annual BI insurance premiums of about USD30 billion, insurers would have to collect premiums for 150 years in order to absorb the estimated USD4.5 trillion global output loss inflicted by COVID-19 and its handling in 2020. The size of the entire global P&C industry (estimated at USD1.6 trillion) fails to cover the economic damage from the pandemic.

In order to cover the total cost, all P&C insurers worldwide would have to collect premiums across all lines for almost three years, with no money left for covering private homes and vehicles, injured workers and numerous liability exposures. 

P&C insurers have typically applied strict exclusions on pandemic business continuity risk and never intended to cover it. Whilst there has been recent regulatory development in the UK that may force P&C insurers to cover BI claims, we should expect that going forward insurers will tighten policy wording to specifically exclude this level of coverage. Inclusion is likely to be prohibitively expensive.

The role of governments

As a consequence, governments need to involve themselves in closing the pandemic protection gap in P&C. Governments must consider risk pools that are triggered in the event of pandemics and can support businesses who unfortunately cannot look only to the insurance sector for relief. A global co-ordination of efforts in partnership with the private sector has a real potential to cushion the economic blow from the next pandemic. 

The risk transfer requirements of policyholders are not a fixed target. These were and will always be shifting. What has changed is the speed of this shift and the reality that this speed will only increase at a progressive rate. 

The role of actuaries

In rising to meet these challenges the actuarial profession has a central role to play. Earlier this year the Institute and Faculty of Actuaries (IFoA) introduced the IFoA Covid-19 Action Taskforce (ICAT) responsible for leading and coordinating the IFoA’s response to the effects of the pandemic.

Several workstreams and forums were created to being together actuaries working across different fields to discuss and share ideas on areas covering finance, insurance, pensions, risk management, environmental and thought leadership. 

As several actuarial fields once separated pre pandemic start to collide post pandemic it becomes the responsibility of all actuaries to engage in forging new solutions to a world facing unprecedented challenges.

You can download the dedicated white paper here.

If you are trying to adjust to the new normal and you need to get in touch with a consultant, at Lux Actuaries we are always happy to help.

21st Jan 2021, By Shivash Bhagaloo