How COVID-19 is impacting the insurance industry

By Martin Sarjeant, SVP Product Management – Insurance, FIS

The rapid outbreak of COVID-19 has put every industry in a state of shock. We’ve seen towns and cities shut down, schools close and businesses struggle to stay afloat.

The crisis has also put significant pressure on the insurance industry. Stock markets and bond yields have fallen, and insurers expect payouts for some policies to increase as a result of the pandemic.

On top of this, existing IFRS 17 and US GAAP LDTI programs continue. But amid all the disruption, insurers must pivot their focus to processing claims, understanding the impact of COVID-19 and taking care of their customers and employees – all while maintaining business continuity.

As we’ve found from talking with insurers, a challenge that all firms faced initially as they navigated through this crisis was employee access to critical systems and applications while working remotely. Like many businesses, insurers were not set up to work entirely outside the office and now employees — from actuaries and underwriters to claims managers — are working offsite, most likely from home.

While not much could be predicted with this pandemic, one thing that hadn’t really been considered before is a situation where everyone is using more data on their internet connections, and all at the same time. There has been an unprecedented reliance on local home internet services, which have held up remarkably well, all things considered.

However, it’s been a particular challenge to access the systems that process and payout claims. Can employees get access to the systems they need? Are there firewalls that need to be considered? And often when they can get access, they are generally going through VPNs, which weren’t sized for the kind of load now being placed on them. So, prioritising business-critical systems, such as policy administration, financial, claims and risk management systems, has been key.

The crisis could also be a driver to look at moving more systems and applications to the cloud. With more people working remotely, a cloud-based operating model offers many advantages and greater flexibility and agility.

In response to COVID-19, we’re seeing insurers take some actions to ease the financial burden on policyholders during this time. Health funds have given a commitment that any funds resulting from the cancellation of elective surgery and some allied health services will be returned to members and we’re seeing car insurers issue premium returns from players like Suncorp and Youi to policyholders, as claims for motor insurance reduce to almost zero during the lockdown.

Insurers are being more flexible, treating customers fairly and ensuring that they are there for customers.

But the COVID-19 outbreak is also forcing insurers to think differently about the valuation of their policies and investments. And while the industry is well-capitalised and insurers may be starting from a position of strength, the falls in stock markets and bond yields together with higher levels of expected claims for sickness and mortality will reduce many firms’ solvency ratios.

As insurers determine the effect COVID-19 will have on their industry, they must specifically address the growth and profitability prospects of their portfolios, as well as the products they sell in the future. In all of these cases, actuarial risk modeling platforms will play a key role in formulating the right response.

As stock markets have fallen, it’s important to remember that insurance companies back their underwriting commitments with significant holdings in investment assets. A sophisticated actuarial risk modeling platform can help firms not only make the right regulatory calculations but also – and perhaps more importantly – navigate through the crisis, while providing critical tools for data and process management.

While business continuity is critical, having the right solutions to adapt, manage, rebound and rebuild is just as important.