The impact of Coronavirus on the insurance industry

 Sarah Kocianski photo
Sarah Kocianski Head of Competitor Strategy
5min read

In the first of two blog posts, Head of Research and co-host of Insurtech Insider, Sarah Kocianski, examines the impact of COVID-19 on the insurance industry.

It’s impossible not to be aware that COVID-19 virus has had a huge impact on pretty much every aspect of everyday life. From grocery shopping to socialising, and working patterns to travelling, wherever you are in the world things are up in the air.

The impact on insurance customers so far

Unsurprisingly, that has had a knock on effect on financial service providers across the board and those in the insurance industry are no exception. In some cases insurers have started taking action to protect their businesses which, while sensible, left many consumers in the lurch as airlines failed to cancel flights and governments issued conflicting advice as to whether people should travel or not. Others in the insurance industry meanwhile are being forced into action to customers’ benefit by governments’ emergency responses to the virus.

At the same time insurers’ reputations, never overwhelmingly positive among customers, are being battered yet further as businesses and consumers find that many basic policies do not cover the impacts of a global pandemic and publicly express their dismay.

This situation is largely due to customers not fully understanding insurance coverage, but that’s partly the fault of the insurers for using legalese and long, complicated terms and conditions.

The long and the short of it is that we’ve ended up in an environment where people buy insurance based on which policy is cheapest and, unsurprisingly, cheap policies rarely cover unexpected or unusual events - like global pandemics.

They are facing increasing help individuals and businesses who suddenly find themselves in dire straits

As insurers try to grapple with an increased volume of claims and customer queries, they are also facing increasing calls in the press and on social media to help individuals and businesses who suddenly find themselves in dire straits. That is exacerbating the situation, resulting in long wait times for responses and even further customer disgruntlement.

The impact on the insurance industry will be unprecedented

Despite a global pandemic being voted the biggest risk to the industry in a poll of insurance executives in 2013, most insurance companies seem to have taken little action in the interim to prepare for it.

Customer perception may be that these firms are large organisations out for themselves, but there are enormous risks to insurance businesses the scale of which we have rarely seen before.

Insurers and reinsurers face huge exposure as major events are cancelled — Munich Re has exposure to the Olympic games in the region of hundreds of millions of Euro to take one example. That would be a big hit for a firm of Munich Re’s size, but for smaller, specialist firms that specialise in event insurance and offer communicable disease cover, the ongoing cancellation of events of all sizes could well see them fail.

It is almost certain that we will see insurance businesses fail and quite possibly in significant numbers.

We could see the collapse of individual life and health insurance companies — ratings agency Fitch has already warned that life insurance companies could be particularly hard hit by the combination of falling stock markets and increasing mortality. Paying out on policies will be a huge hit to insurers, and for reinsurers when added to their other exposure. That could put them in serious jeopardy.

Additionally, giant, global businesses are failing, with airlines looking to be the earliest casualties and hospitality chains likely to swiftly follow. Firms of this size are more likely to have comprehensive cover, so having to pay out on any policies that do include contagious disease cover will further add to the burden faced by the insurance industry.

Add to that the volumes of payouts on existing travel insurance policies being way out of expected bounds — around £275 million is expected to be paid out in COVID19 related claims the majority of which will be for cancellation cover — and the pandemic starts to look incredibly serious for the insurance industry. And as if that wasn’t enough, the investments insurers rely on to give them funds to pay such claims are in freefall.

To sum up, it is almost certain that we will see insurance businesses fail and quite possibly in significant numbers.

In my next blog post I'll examine what the insurance industry needs to do next.

In the meantime, to keep up to date with all things insurance and insurtech - subscribe to Insurtech Insider.

How we can help

Digital is no longer a nice to have. Becoming truly digital means shifting not just what you do but how you do it across your value chain and operating model. We live and breathe the start-up approach. We have a remote-first approach and can deliver in any circumstances.