About 10 months into the global COVID-19 pandemic, insurance leaders are less confident about growing their business and are increasingly concerned about the cratering economy.
While 84% of Canadian CEO’s continue to be confident in seeing growth in their companies there has been a huge drop in the confidence of the Canadian economy. Before the pandemic, 77% of insurer CEOs in a 2019 KPMG survey reported feeling optimistic about the economy. Then in March 2020, COVID-19, was declared a global pandemic which significantly modified business confidence. By year end, the 2020 KPMG survey showed that confidence in the Canadian economy has significantly reduced to 48%, which is the largest shift in the history of the surveys.
But while insurers were losing confidence in growth opportunities and the economy, they did see some opportunities as a result of COVID-19. For example, the pandemic has forced them to accelerate the creation and implementation of seamless digital experiences for customers. Also, more than half (60%) of insurance CEOs said they’ll be considering downsizing their office space, based on their positive experience with staff working remotely. Nearly four in five (76%) of them said the ability to have staff work remotely means they can widen their potential talent pool beyond where their offices are located in order to raise the talent bar of their organization.
KPMG also reported that COVID-19 has changed what insurance company CEOs perceive as their greatest threats. Survey ranking showed the following top five concerns. Climate Change (#1), Return to Territorialism (#2), Disruptive Technology (#3), Talent risk (#4) Cyber security (#5). With the increasing trend of WFH (Work from Home) as the result of the pandemic, companies are quickly shifting their resources toward greater digital enablement, improved cyber protection and hybrid workforces.
While there are continued threats to returning to pre-pandemic business levels, this is an opportune time for insurance leaders to review how their companies will operate post-pandemic. Many companies are engaging in operational reviews with the expectation that the pandemic will be brought under control in 2021 and the economy will begin to recover. However, it will likely be a different operating environment with changed risk levels that will impact company policies and procedures.
Canadian Insurance Mutual Professionals have expertise in strategic and operational reviews for Canadian Insurance companies and would be pleased to provide assistance for the Mutual Insurance community.
To review the 2020 KPMG Insurance Survey in full, click on the attached PDF doc.
As a very difficult 2020 comes to a close, we hope that everyone remains safe for the holidays. With continued business restrictions and lockdowns, there's lots of challenges for 2021.
Canadian Insurance Mutual Professionals (CIMP) wishes you healthy and happy holidays.
CIMP works with other insurance consultants to support the Mutual Community. Our friends at NICExperts also send their holiday wishes – they are all very experienced and wear many different hats!
The coronavirus pandemic has caused mass disruption to the global economy. Over the past 10 months, jurisdictions around the world have been forced to inject unprecedented amounts of fiscal stimulus into their local economies to provide financial relief. This challenge is piggybacking a period of multiple years in which central banks worldwide have been providing accommodative monetary policy, which has led to a prolonged low interest rate environment. This economic outlook is not good news for insurance companies, who typically depend upon a strong economy and healthy interest rates to make returns on underwriting and investment income.
Insurance companies are having to endure this low interest rate environment and at the same time, they’re being hit with additional capital and expense requirements, whether that’s around particular lines of business that have been negatively impacted by the pandemic, or meeting regulatory compliance, or needing to upgrade technology due to COVID-19 and the need for remote capabilities. Many insurers are under significant financial pressure, and the low interest rate environment has created a need for them to analyze their investment portfolios and potentially consider investing in alternative assets.
After the 2008-09 global financial crisis, insurers experienced reduced interest rates and this put pressure on the bottom line with a focus on reducing expenses. Cloud computing and digital software innovation increased. Businesses needed to shed costs and figured out that building their business models digitally in the cloud was a lot more flexible. Now in 2020, further acceleration of digital innovation is happening due to Covid-19 forcing old business models to be reinvented.
Adding to expense costs is the need to protect insurers and their customers data from hacking or being held ransom by cyber criminals. Several insurers have been cyberattacked in 2020 and the smaller the insurer, the less resilient is their cyber protection and cyber insurance coverage. Promutuel Assurance, a Quebec based mutual insurer, was the target of a recent cyberattack that made the company’s critical IT systems unavailable for use during its December year end period.
The Covid Crisis provides an opportunity for the industry to come together and start to get serious about the broken processes, poor customer experiences and lack of access to data analytics that can help make better business decision including investing more in digital software and cyber protection.
The pandemic acts as a catalyst for insurers and brokers to do things differently and reduce ambiguity in multiple areas. Now is the time to ramp up consumer education, especially when it comes to policy wordings for home and auto insurance – two major buys for the majority of Canadians. Brokers have a big role to play in helping consumers be absolutely clear about what they’re buying and what they’re covered for.
Consumer surveys show that many Canadians still prefer human interactions, despite the growing presence of online insurance shopping channels. Most respondents are seeking omni-channel communication with their insurer and/or broker, with the option of face-to-face, phone, email and self-serve platforms.
Coming out of this crisis, the insurance sector could look fundamentally different: much more agile, secure, connected and digitally-enabled. It will be the insurers and brokers that innovate and keep up the pace with this transformation that will be the winners. Those who stick to the old ways are likely to lose market appeal. COVID-19 may be the digital wake-up call the industry needed.
Several Canadian insurers have launched paperless solutions their customers with good adoption rates. Brokers must move quickly to react to customers’ demands for omni-channel options for quoting, binding, billing and paperless policy options, all delivered digitally.
According to customer surveys, Insurance pricing still remains a top consideration but providing customers with excellent service is also a key differentiator. In fact, over 40% of survey respondents said they will place more emphasis on service as a result of COVID-19, especially those in the 30-50 year-old age group. Improving services delivered digitally will assist in not only reducing expenses for insurers but also potentially improve their customer retention and new business growth. Potentially the “silver lining” to this devastating pandemic.
If you remember that song “Who let the Dog out” then maybe it’s time to let the CAT out!
The CAT is a “Commercial Audit and Training program” to assist mutual insurers in improving risk selection, pricing and acceptance through risk reviews and quality control.
Commercial insurance is a more complex but also a more profitable product than personal lines. However, in today’s trying times and hard market, it can be more difficult to select the better risk and price them to be acceptable to the customer, as well as meet the profitability needs of the insurer.
Profitability of commercial insurance is dependent on the training and experience of the underwriters who are responsible for acceptance and pricing of risks on the books or being offered as new accounts.
Not all underwriters, agents and brokers are experienced in hardening markets and how to manage pricing effectively in order to retain profitable business while selecting out more problematic risks.
Mutual Insurers may see the need to enhance the training and experience of their underwriters to effectively write and price adequately various commercial risks found in their community. Commercial training may not have been at the same pace and level as large mutual and stock insurers. In addition, the underwriting protocols and audit functions required to ensure proper risk acceptance and pricing may have less that adequate strength.
Most mutual insurers have premium volumes that are largely through the broker channel and brokers can provide better quality of business to those mutuals that also write commercial lines and can compete with the non-mutual carriers. Consolidation of insurance brokers by several consolidators has reduced the number of brokers available and Mutual insurers that wish to maintain relationships with brokers and the consolidators, need to increase their value added in commercial lines. For competitive reasons, mutuals may wish to consider a CAT program.
“Commercial Insurance Management Professionals” provides CAT programs so you can let your CAT out! Check out further info on the CIMP.ca website under the IO App section.
The President of Economical Insurance suggests that the commercial insurance marketplace in Canada will likely be firming to a hard market over the next couple of years. The hardening market has been heading this way for several years before the coronavirus pandemic exacerbated economic trends that were already well underway.
The pandemic has caused a huge tide of disruption to the global economy with most countries injecting unprecedented amounts of fiscal stimulus with accommodating monetary policy, resulting in very low interest rates.
Insurers rely heavily on underwriting returns and investment income to remain in the black. Pricing models now have to account for this, which results in higher pricing for insurance products, reduction in risk appetite/capacity and possible exit from certain lines of insurance.
Moving forward in a pandemic influenced economic downturn, there may be reduction in premium income due to bankruptcies or reduction in coverages. Insurers need to implement strategic reviews with action plans to address these issues in order to remain financially capable.
Some insurance industry segments may still see these problems difficult to manage and opt for opportunities to merge or sell. M&A (merger and acquisition) activity is increasing as the Covid19 crisis deepens. There is increased brokerage consolidation across Canada with brokerages selling to the various brokerage consolidators.
Insurer consolidation is again gaining interest across the world as larger more profitable insurers look to acquire insurance companies that are in weaker financial situations. Recently, a purchase offer was made to RSA Insurance Group for its world-wide operations. A consortium of Intact Financial and Danish Insurer Tryg, presented a premium offer of purchase. It is widely expected to be accepted by the RSA Group board with expectations of a formal bid at the end of November. If the bid is accepted and the sale goes through, Intact will take over RSA business in Canada and the UK.
This will make Intact the largest insurer in Canada and may force similar consolidation with other insurers. As a result, there may again be reductions in the number of insurers in Canada and less competition causing greater premium increases and reduced options for the insurance buyer.
This may be an opportunity for mutual insurers, who offer alternative insurance purchase options than the stock insurers, to grow their commercial and personal lines business. Mutual insurers have less profit requirements than stock insurers and without any shareholders looking for significant investment returns.
However, some mutuals may need greater capitalization to manage in this low interest, reduced premium environment. With the need for additional operational investments and technology, some mutuals may look to amalgamation in order to better handle the difficult times ahead.
In the face of continuing rate increases and coverage restrictions, commercial insurance buyers are expressing their frustration to the Ontario government. Some commercial insurance buyers are not able to find insurance coverage, particularly in the hospitality and health sectors.
Premier Ford twice warned insurers that it could fact possible regulation if it did not help commercial insurance buyers. Ford and his finance minister, Rod Phillips reached out to the larger insurance companies in conference calls to get action on these issues. Ford had slammed the insurance companies during a press conference last week when he urged them to take action to stop what he called “gouging” by some in the sector.
A group representing Canadian insurance companies say it is launching a team that will help small businesses find affordable coverage as rates rise because of the pandemic. The Insurance Bureau of Canada says the team will start its work next month by focusing on helping the hard-hit hospitality sector in Ontario and evaluate the needs and attempt to find appropriate coverage.
The general insurance industry is currently regulated in personal lines and is concerned with expansion of this regulation into commercial lines. Government involvement in commercial risk selection and pricing is of major concern, as it is a profitable line of business for most insurers.
Some feel that the insurance market is over reacting to the claims potential from hospitality and health sector due to the pandemic. Large premium increases and coverage reductions are not justified considering the exclusions in most policies for pandemic claims. However domestic insurers continue to seek price increases and coverage reductions in an effort to avoid potential unprofitability from this sector.
In opposition to this practice, there remains continued risk appetite and reasonable pricing for this class of business within the international markets such as Lloyds and other insurance syndicates. Brokers who have access to these markets are funneling business to them at the expense of domestic markets.
Hardening insurance markets are now a fact of life in Canada and the world, according to a report from Swiss Re. Even before the COVID-19 crisis, low interest rates were severely undermining the profitability of the insurance industry. Further rate cuts to help shore up the economic recovery are only going to exacerbate the challenges. Without significant price increases the insurance industry will not be well positioned to meet the need for insurance protection.
Premium growth has been negatively impacted by reduction in policies due to reduced business activity from the pandemic. However, commercial insurance prices have been increasing due to lack of availability and increased claims costs. Some insurers have hiked prices dramatically or withdrawn completely for Covid19 threatened businesses.
As a result, we’re seeing less competition among carriers, reduced capacity and lower limits, more stringent underwriting criteria and, most important to the end customer, higher insurance premiums.
Preparing your customers for the hard market
It’s no surprise that customers are often taken aback by drastic premium increases that aren’t in line with inflation. Brokers and agents need to do their best to explain to customers why exactly premiums are going up, describe market conditions, and quell any concerns they may have. More time should be spending more time on renewals and new business and increased efforts to find the most competitive rates for customers.
Many brokers and agents have never seen a hard market and they need to be prepared to manage it better. Brokers, agents and underwriters must invest the time necessary to become as familiar as possible with market conditions and be as informed as possible to really show their value.
Opportunity exists for growth
With rising prices and reduced availability, some insurers see this as an opportunity to selectively write new commercial lines business. Proper risk assessment and higher rating can provide selective profitable accounts when competitors are not able to offer renewals due to wholesale elimination of classes of business or overall enforced price increases not due to claims. Lloyds and other insurance wholesalers are growing new business taken from regular markets who are over selecting and dumping accounts. By applying higher pricing and some stronger underwriting terms, wholesale markets are growing business that could have stayed within the regular market.
There is an opportunity for small local insurers to cherry pick commercial business from the larger national insurers who don’t have the time or desire to review pricing and risk on an individual basis. Brokers are supporting those insurers more than they did in the past and will continue as the pandemic eventually subsides.
Aviva Canada recently commissioned a survey to gauge awareness and sentiment around the impact of COVID-19 on consumers. The research, which targeted 1,500 Canadians aged 18 and older, delivered a number of key findings around employment status, transportation habits, and insurance purchasing behaviours. According to the June survey:
This survey points to an opportunity to ramp up consumer education, especially when it comes to policy wordings for home and auto insurance – two major buys for the majority of Canadians. Brokers and agents, have a big role to play in helping consumers be absolutely clear about what they’re buying and what they’re covered for.
Many Canadians still prefer human interactions, despite the growing presence of online insurance shopping channels. Most respondents are seeking omni-channel communication with their brokers, with the option of face-to-face, phone, email and self-serve platforms.
Coming out of this pandemic, insurers could change as a result - more agile, secure, connected and digitally-enabled Insurers and brokers that innovate and keep up the pace with this transformation will be the winners – whereas those who stick to the old ways are likely to lose market appeal. COVID-19 was the digital wake-up call the industry needed.
Some insurers are offering a paperless solution for commercial insurance brokers with a high adoption rate. With this encouraging response, some insurers are now transitioning to paperless in personal insurance. Brokers must move quickly to react to customers’ demands for omni-channel options for quoting, binding, billing and paperless policy options.
Due to income reductions as a result of COVID19, many customers feel price is the top consideration when it comes to buying insurance, but providing customers with excellent service, is also a key differentiator. Many customers experienced long wait times and delays in receiving premium reductions, which has placed a greater emphasis on higher service levels.
The brokers who are particularly tech-focused are going to see enormous value, not only in terms of their operational efficiencies, but also in their ability to deliver true value-added services to their customers.
Routine, low value-add transactions – like getting insurance cards, getting certificates of insurance, updating policyholder information, and things like that – should all be fully automated and fully digital because there’s no value delivered to the customer by making them call you to sort that out. It’s a waste of time for the broker, and it’s a waste of time for the customer.
If brokers can automate and digitize the lower value interactions that they have with policyholders, then they can focus on delivering more value in the higher impact interactions. Many are starting to tap into the full capabilities of the electronic trading platforms in the market, and they’re using data analytics to become better partners in risk.
One of the factors that continues to drive the consolidation of the broker market, particularly the middle market broker segment, is the benefit of scale when it comes to digital capabilities and investment in technology. There are benefits of scale in terms of capabilities around digital automated transactions, claims analytics and value-added loss related services. There are additional benefits around turning data into an asset and monetizing that data in terms of how you interact with the carriers as well as how you interact with the customers. With all of those things, brokers derive great benefit from scale. Brokers haven’t typically been significant investors in technology, but that’s definitely changing.
Covid19 business interruption claim lawsuits against insurers have exceeded one thousand around the world with more on the way due to the continuing damage to retail, tourism and hospitality businesses.
From those BI insurance cases that have been adjudicated, nearly all have been in favour of the insurers who have persuaded judges to throw out the cases by making the court agree that a property insurance policy cannot be invoked if there is no property damage.
However, there are some court cases that were settled in favour of the insured. In France, a notable BI case has already been resolved, as AXA agreed to cover losses sustained by several hundred restaurants after losing a court case brought by one owner. Recently the Financial Conduct Authority (FCA) in the UK organized a business interruption test case against several major insurance firms. The High Court ruled that the majority of businesses who held business interruption insurance and were forced to close due to the COVID-19 pandemic, are entitled to be compensated by the insurers subject to the limits of the policy.
This test case is considered a landmark victory for up to 370,000 businesses across the UK who were forced to close their premises during the pandemic should now receive an insurance pay out from Hiscox Insurance. The FCA hopes that the insurers accept this ruling and start to pay out rather than embark on a fruitless appeals process that will just cause more suffering for the very policyholders they were meant to protect.
No matter the outcomes of BI lawsuits, the insurance industry faces a broader risk to its reputation and has a strong need to repair customer loyalty following the pandemic’s outbreak. There are growing concerns around the industry’s reputation for providing fair claims payment. In the spotlight for broadly denying BI claims, the industry has been fighting against the image of insurers as companies that take clients’ money, but don’t pay out when it really matters.
With reduction in premiums and increased claims due to the pandemic, the losses to the industry will be significant. To avoid further injury to bottom lines and ensure its image remains intact, the insurance industry may need to change. It may need to increase its efforts with stakeholders, governments and the industries it serves that have been especially hard-hit by the pandemic and to come up with responsible coverage solutions that offer coverage for future pandemic-related losses, as well as risk mitigation guidance that adequately prepares commercial clients for this threat.
Without a show of cooperation and a willingness to offer protection to businesses for this ongoing risk, insurers may have trouble winning back the customer loyalty that has already been frayed by this global crisis.
As if 2020 hasn't caused enough hardship and headaches for employers already, the FBI and U.S. Cybersecurity Infrastructure Security Agency ("CISA") recently issued a joint Cybersecurity Advisory Alert warning employers about the rise in voice phishing, or "vishing," scams targeting remote workers.
With the mass shift to large-scale work-from-home environments, cybercriminals and hacker groups are employing increasingly creative tactics to take advantage of weakened security protocols and overly trusting employees. Before the pandemic and the sudden increase in remote workforces, vishing scams were not uncommon. However, they were largely targeted at vulnerable individuals and/or via personal attacks, such as a phone call seeking bank or credit card account information for a "compromised" account, calls from the "IRS" to verify an individual's Social Security number, or targeted Medicare and Social Security scams.
Since July 2020, vishing scams have evolved into coordinated and sophisticated campaigns aimed at obtaining a company's confidential, proprietary and trade secret information through the company's virtual private network ("VPN") with the help of the company's own employees. VPNs are widely used in the current telework environment and intended to be a secure platform for remote employees to log into their company's network from home. Many companies use VPNs because it not only provides a secure remote connection, but also allows the company to monitor employees' activity on the network and supposedly detect security breaches.
But, it is difficult to detect a security breach when it comes through your employees' own keystrokes. According to the FBI and CISA, these vishing scams follow a common course of action. To start, the cybercrime group identifies a company target and exhaustively researches its workforce. The attackers compile "dossiers" on employee victims based on a "scrape" of their virtual social media presence. From an individual's various social media profiles, the attackers are able to learn the employee's name, location, place of work, position, duration at the company, and sometimes even the employee's home address.
Next, the cybercrime group or hackers register a domain and create phishing webpages duplicating a company's internal VPN login page. These phishing webpages also have the capability to capture two-factor authentication or one-time passwords, mirroring the company's own security protocols.
Then, an attacker contacts an employee on his or her personal cell phone and poses as an internal IT professional or help desk employee with a security concern. The "visher" gains the trust of the employee by leveraging the information compiled on that employee in the research phase and convinces the employee that he or she needs to login into a new VPN link to address a security issue or other IT need.
The attacker sends the unsuspecting employee a link to the fake VPN page, which looks just like the company's own VPN login site. The employee inputs his or her username and password into the domain and clicks the login link. If applicable, the employee also completes the two-factor authentication or one-time password request. Thus, with a single click on the VPN link, the attacker has the employee's entire suite of credentials.
Attackers use this access to mine the company's databases, records and files to obtain information to leverage against the company for ransom or even in other cyberattacks. As a result, the company's confidential, proprietary and trade secret information is up for grabs, leading to substantial ransom costs, forensic fees and costs, employee and customer notice obligations, and potentially significant liability for security breaches.
With teleworking continuing into the foreseeable future, employers must think critically about their security protocols and take steps to prevent employees from unwittingly walking into a vishing (or other phishing) trap. The agencies' Advisory provides organizations with "tips" to protect against these intricate attacks, including:
• Restricting VPN connections to managed devices only, using mechanisms like hardware checks or installed certificates, so user input alone is not enough to access the corporate VPN
• Restricting VPN access hours, where applicable, to mitigate access outside of allowed times
• Employing domain monitoring to track the creation of, or changes to, corporate, brand-name domains
• Actively scanning and monitoring web applications for unauthorized access, modification, and activities
• Employing the principle of least privilege and implementing software restriction policies or other controls; monitoring authorized user accesses and usage
• Potentially deploying a formalized authentication process for employee-to-employee communications made over the public telephone network where a second factor is used to authenticate the phone call before sensitive information can be discussed
Depending on the organization, not all of the Advisory's tips are feasible. But all companies should heed the agencies' warning and continue to critically assess security protocols, VPNs, and network access to protect their confidential, proprietary and trade secret information.
Separately, companies should continue to engage and train employees on proper network usage, security concerns, and when to call a secure IT number. Cybercriminals will continue to take advantage of remote employees. Companies should regularly remind employees to be suspicious of any request for their logins and credentials (or other personal information) and remind employees where to go and whom to contact if they have any security concerns.