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.