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April 23, 2020

Insurance is a business of trust - of making promises and keeping them when the time comes. The COVID-19 pandemic is the time for insurers to prove their value to customers, communities, and the economies that support their operations.

Tracing the propagation of the COVID-19 virus - from China and South East Asia, through Europe, North America, and rest of the world - all nations are in different stages of battle with the crisis. This gives insurers an opportunity to evaluate the crisis in each of these countries using different metrics. Using the learnings from those that have moved to the advanced stages, the insurers can identify situations, and prepare a response for others climbing to that stage.

As the crisis unravels insurers need to look at plans in the medium term - remaining part of the financial year, once the pandemic subsides - and in the longer term - over the next two years.

Impact on the Insurance Value Chain

All functions of the insurance value chain have been impacted by the COVID-19 pandemic. The only differences can perhaps be found in the scale and in timelines - immediate (during the pandemic), near term (as the pandemic subsides, but economic slowdown continues) and long term (as the economy rebounds). The primary needs include process changes in the claims function and replacing site visits with electronic inputs from customers. In the scenario that the pandemic continues unabated beyond spring, the Sales & Marketing, Underwriting and Actuarial functions will also need to address the impact of remote working, social distancing, and intra-city movement restrictions. The sales teams require enablers for remote meeting with customers, digital forms for new business, while Underwriting teams need to perform remote assessments and Actuarial teams need to factor in pandemic and its related risks in product pricing. While the immediate direct impact of COVID-19 on P&C Insurance claims is obvious, insurers will need to focus on actively managing their investment portfolios.

COVID-19 Impact on Property & Casualty Insurance products

The impact on insurance products vary according to the coverage they offer – health products will likely bear a direct impact. While P&C products covering business interruptions as a result of lockdowns, or industries like travel and hospitality facing economic recession induced by the pandemic will witness different degrees of impact.

While pandemic cover is typically explicitly excluded in certain policies, and treated under ‘force majeure’ in certain others, instances of governments and regulatory authorities issuing advisory to insurers to consider the COVID-19 related claims compassionately have started to trickle in. This will add complexity into the claims process and will also be an unplanned drain on reserves.

Impact on overall claims

We believe, the initial impact will be witnessed in travel insurance products - with national border closures, airlines grounding entire fleets, and lockdowns restricting surface travel by trains and by road. Next in line will be the business owners and business interruption products that have claims initiated, since lockdowns literally mandate that these business establishments remain closed during that period. On the positive side, insurers can expect a decline in claims for machinery breakdowns. Additionally, growing unemployment will see a proportional rise in unemployment claims. On the other hand, personal and commercial auto products will see a drop in claims.

Overall impact of COVID-19 on Property & Casualty Insurance products

As remote working becomes norm, insurers can expect changes in worker compensation products to include aspects like remote workspaces, ergonomics and work-life balance for employees.  The economic slowdown will also result in reduced homeowner policies, but higher renter policies. Similar harsh market conditions are expected for products for Auto, Travel and Small Businesses till the economy rebounds as customers will look to avoid discretionary spending and focus on essentials.

Recommended Insurer Responses

Going forward insurers need to address the following on priority, for the immediate term, as the pandemic unfolds:   

1. Proactively engage with customers, communicating clearly on the coverage available in the policies, the ways the regulatory and state guidelines - issued sporadically on differential treatment of COVID-19 pandemic scenario - impacts them, and avenues to reach out with customized information and support. A corollary is to enhance the call center to take up increased call volumes, and staff appropriately trained to handle calls.

2. Ensure the entire Claims function is propped to perform on full capacity and efficiency. Challenges posed by social distancing and lockdowns need to be overcome by replacing physical visits, documents, wet signatures with remote, non-touch ways of processing, balancing customer crisis communication and introducing process innovations for the immediate term.

3. Efficiently utilize technology and solutions available within the enterprise, strengthen and extend these to address wider challenges, and maximize value from the unplanned expenses incurred.

K Ramamoorthy heads the BFSI Insurance Domain Practice at TCS. In this role, he is responsible for thought leadership on Insurance business and technology, involved in solutions addressing insurer challenges in digital transformation, business functions re-imagination, operational efficiency and legacy debt management. Over the 25+ years at TCS, he has worked with insurers across North America, Europe, Asia and Africa in consulting and program delivery capacity.



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