03/16/20

Coronavirus and its Impact on Insurers

By: Eric Fairchild, Senior Principal

Insurers are feeling the impacts from the coronavirus (COVID-19) both from investors and consumers, especially as financial markets around the globe take a tumble. The virus has spawned new lawsuits, like a couple suing Princess cruise lines over its alleged precautions on board to avoid the infection, canceled industry events including the LOMA Customer Experience conference, and has even shut down sports leagues, locked down cities and the entire country of Italy. In a matter of months, coronavirus has taught us to rethink how we work and live, sparking changes across every sector.

In-person meetings go virtual

As consumers look to stay within the confines of their homes and with many businesses mandating remote working, insurers must rely on collaboration tools to conduct business. A Willis Towers Watson survey of North American companies reveals that many insurers are taking precautions to limit exposure, including canceling travel to select countries (63%) including domestic travel in many cases, and encouraging or mandating virtual meetings (55%). Insurers that haven’t yet fully embraced digital transformation and offered virtual counterparts and collaboration capabilities to their in-person services will be most impacted. Agents and employees should be well-equipped to tackle these business activities digitally (including adequate digital security and tools for remote connectivity), while still offering engaging customer experience.

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Certain insurers will see a spike in claims

Some insurers will likely be impacted by coronavirus through a spike in claims and other direct costs according to Moody’s. Healthcare insurers will have increased claim costs to cover those who need treatment or are unable to work, and some insurers like Cigna and CVS/Aetna are taking on additional costs as they waive co-pays and cost shares or change other policies to support their members through the crisis. Those in the travel and event insurance space will see higher claims and activity overall as many conferences, events, and travel plans have been altered around the world. For global life insurers, an increase in mortality levels would need to rise significantly to trigger a substantial rise in claims; however, life insurers will need to manage some degree of uncertainty regarding the ultimate level of deaths.

All insurers (and all businesses) will feel the impact

Broad impacts of the crisis will have a particular impact on the insurance industry. There has been unprecedented market volatility of late, creating wild swings in the stock market, bond returns, and other key financials. Every insurance company’s investment management division is working overtime to ensure short- and long-term policies are appropriate; and every company that supports group or individual customers from a retirement perspective are doubling down on communications, advice, and support.

The US Federal Reserve’s reaction to cut interest rates by 0.5% (mirrored last week by the Bank of England) and then again to 0% this past weekend has contributed to the market volatility; the array of solutions that the Fed and the government are bringing to bear have not mollified investors yet. Annuities carriers and advisors are particularly hard hit – interest rates have been historically low for many years now; the benchmark 10-year treasure is now below 0.75%, directly impacting pricing and returns. In recent weekly dozens of companies implemented rate reductions, some even multiple times in a day, to try and keep up – some are even stopping new sales of annuities or riders altogether. Companies will continue to de-risk by implementing rate reductions on caps, lowering premium bonuses, and adjusting agent commission and compensation, harkening back to the days of the 2008 financial crisis. Financial advisors need to remind their customers that the annuities differentiator is the lifetime income guarantee and that annuities continue to outperform bank products. Much of the recent aggressive messaging relative to high possible gains via adding indexing or other vehicles to annuities need to be reconsidered or at least tempered until things stabilize in the marketplace.

Many leaders will lose sight of business strategy, and instead, focus on business continuity

According to a LIMRA study on the impact of the coronavirus, of those surveyed, 94% cite they have a business continuity preparedness plan. While not having to scramble to assemble a pandemic response is a positive, business leaders have shifted their focus to maintaining some semblance of a typical workday—even if virtual—while coronavirus is present. This means that significant initiatives—digital transformation, analytics and data programs, and artificial intelligence/machine learning activities—will take a back seat until business as usual returns.

While no one could have predicted the exact timing or impact of coronavirus, insurers that have a preparedness plan in place and that have led the charge in digital transformation in recent years will be lightyears ahead of other insurers. One thing is for sure—this virus has shaken up the world and we’ve only just begun to see the impact; what’s ahead long-term is uncertain. The need to “plan for the next event” instead of “plan for the last event” has never been clearer as it is today.

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