Over the last several months, most industries have been affected by the coronavirus pandemic in some way. The insurance industry is no exception. As a very traditional industry with a strong focus on face-to-face business, carriers had to make drastic changes or risk being left behind. The pandemic forced some people in the industry to work from home, which meant the end of face-to-face meetings and physical on-site inspections – a core part of the industry. In the beginning of the pandemic, there was a lot of focus on how the insurance industry would adapt to the changing conditions, and now, six months later, we take a look at the status of carriers’ adaptability during COVID-19 times.
We conducted a quick survey about COVID-19 and how carriers have reacted to the changes to business that came with the pandemic. The survey results show that despite insurance being a traditional industry, carriers were able to adapt relatively quickly to the new circumstances. Carriers have implemented more automation and digitization into their operations, and due to this, they didn’t suffer from additional losses or low productivity and their strategies and workforce remained relatively the same.
Who took the survey:
High-level executives from various commercial insurance companies
An overview of the questions and responses:
Carriers may have changed their criteria to maintain the same volume of business and premiums, as they were not accepting business based on the previous criteria and needed to keep revenue up and avoid losing money later. Before COVID-19, some carriers may not have liked that restaurants offered delivery but changed their criteria during COVID-19 in order to continue writing. Carriers also wouldn’t want to accept businesses that do not comply with government regulations relating to COVID-19 (e.g. installing glass shields or implementing mask wearing on the business premises).
The relative risk profile and attractiveness of sectors has continued and will continue to shift as the search and competition for the “shrinking profitable customer base” intensifies. Commercial insurers must reconsider industry sectors that will be attractive in terms of growth, profitability, and risk appetite and adjust their business mix accordingly. From the responses, we can see that carriers are doing just that by being willing to accept less risk because of all the uncertainties, which means that underwriters need to be more careful now.
Given the need to implement pandemic risk into some coverages and therefore refresh premium formulas, carriers might need to adjust their underwriting questions in their models. From the responses, we can see that just under half of survey respondents added more questions. The process often contained several questions before, and now due to the pandemic, even more were added. Carriers want to classify businesses with COVID risks. We can’t say for sure if they know how to price it, but they will take it into consideration for the underwriting process for the following year.
Two-thirds of the respondents said that they experienced at least a slight decrease in the quality of data. The decrease in data quality could be due to businesses not updating carriers regarding changes to the business during the pandemic; for example, a restaurant now offering sidewalk pick-up or delivery services. This decrease in data quality could also be the result of the use of static databases to collect a predefined set of data elements about a business at a particular point in time. Dynamic data sources are able to address nearly any question or insight about any business category. Additionally, they can provide the most up-to-date insights by having the entire process occur in real time, with answers being returned in a matter of seconds. By utilizing dynamic data sources during this time of uncertainty, carriers can monitor their portfolio risk exposure, detect and quantify new risk events in real time, and track the health of their book. This technology enables the carrier to pick up the most up-to-date changes in operations and risk.
The ways of operating a business changed due to COVID-19, including quoting. From the responses, we can see that almost half of the carriers saw an increase in time to quote, which is most likely the result of the added questions and the fact that underwriters now have to look at new criteria, which they wouldn’t have done before.
During these uncertain times, agents are seen as advisors who provide much-needed guidance to worried clients. COVID-19 has changed the way agents are able to communicate; however, due to advances in digital technology, they are able to provide this communication and support through tools such as Skype and Zoom. Just as carriers were able to adapt quickly, so too were agents, and this can be seen by the majority of responses, where carriers saw no change in their work with agents.
Some carriers who are aware of the change in their book shared that they are monitoring the losses that are coming in. If anything, their auto book is more profitable, with reduced frequency but the same amount of severity. Others mentioned that they are aware of changes to their book, and they therefore did an estimation and scenario building. Some shared that they have lost some clients due to COVID-19 as they were unable to pay their premiums, and others mentioned that their fraudulent claims and moral hazard have increased.
During these times, risk assessment is more important than ever. Many businesses either temporarily or permanently closed their doors, and those that are open may have changed their hours of operation. This, in turn, affects the business’s exposure to risk as it is now much smaller. It is important that carriers are aware of these changes in order to ensure the health of their books.
These results show that the majority of carriers are not aware of how COVID-19 has affected their book, which is not a situation they would want to find themselves in. Carriers can use a dynamic data platform to monitor their portfolio risk exposure, detect and quantify new risk events in real time, and track the health of their book. This technology enables carriers to gain a holistic view of their portfolio that can be used to detect new appetite expansion opportunities as well as verify consistency and minimize misaligned risks. Leveraging automated ongoing market analysis, carriers can compare the businesses in their book to others with similar characteristics.
This shows that carriers were able to adapt quickly as it takes time to introduce new coverages. It also shows that some carriers saw COVID-19 as a significant enough factor to introduce new coverages.
Carriers will also face reduced revenues as the demand for various types of insurance coverage (event cancellation, travel, etc.) declines. A well-known example of new coverage is business interruption (BI). There have been many discussions around this coverage and whether it should apply to closures from COVID-19. BI offers coverage for any physical damage caused to a business and usually excludes pandemics, but courts in some states decided that pandemics are to be accounted as a physical loss. In New Jersey, a legislative proposal has been put forward to require that all commercial property policies providing coverage for business interruption or loss of use of property also provide coverage for business interruption resulting from COVID-19. The requirement would apply to losses incurred since the declaration of a state of emergency in New Jersey on March 9, 2020 (subject to policy limits), and for policyholders with fewer than 100 employees.
Financially, insurers will also likely need to adjust their budgets and implementation plans due to a changing strategy to deal with the pandemic. Decreases could be a result of the need to send fewer employees to check sites. Workers’ comp is also greatly affected because premiums are down 30% as payroll has decreased. Increases could be a result of new technologies. No changes to the budget could be the result of great adaptation as they had no need to adjust their original budget in light of the COVID-19 changes.
The digitization of processes forced upon carriers due to the pandemic has driven changes in their data strategy and capabilities. A critical benefit of digitization is in improving the accuracy of loss projections and producing real-time insights about events as they occur. Climate risk is constantly evolving, and past observations are not necessarily representative of the potential damages of today’s risk. Modern tools and platforms open up possibilities to maneuver through the uncertainty and changes happening during a pandemic. Some carriers decided to accelerate the development of virtual property inspections, while others increased utilization. Some changed their strategy to increase security, while others improved agent and customer acceptance.
Those who did mention workforce changes reported that they were due to switching to working from home or personnel turnover. Some employees may have been put on temporary leave if their job cannot be performed at home (e.g. engineers). From the responses, we can see that most carriers did not experience any changes, which shows their quick adaptability to change.
Most respondents saw digital process acceleration due to COVID-19, but some projects were already in place before. Some carriers are planning to offer their products as online services, while others are focusing on straight-through processing, web forms, and automation/artificial intelligence where applicable.
Digitization plays an important role in helping carriers overcome some of the challenges that COVID-19 has introduced. Carriers should focus on introducing new digital capabilities such as advancing remote claims capabilities by accelerating towards remote adjusting and increased drone usage; tailoring to virtual work; and advancing capabilities to enable efficient information exchange, streamlined workflows, quicker turnaround, tailored responses, and reduction of manual entries.
This is very dependent on the segment, but generally new premiums are a reflection of changes in coverage and limits rather than competition among carriers.
Historically, the insurance industry has had very little direct communication with customers or customization. This has started to change due to COVID-19, and we are witnessing more personalized offerings and more segmented communications. Some insurance products will likely start to be sold through a ‘digital-first’ advice approach, where customers engage with an advisor via a video call in the first instance, before the sale moves to other channels to complete. This more direct approach could lead to reduced distribution costs for the carrier and increased access to personalized advice for the customer.
From the responses, we can see that carriers have opened up to quick technological adaptation, and since they were able to make it work for COVID-19, they recognize that there are still many more possibilities. The consumer has also changed. More people have gotten used to buying practically everything online, and the insurance industry will follow suit, even for commercial insurance for small businesses.
This shows that carriers do not view it as their social responsibility to assist businesses that are struggling; they need to look out for their own business. This approach is also dependent on the state, as some have passed laws to make carriers adjust their prices or provide refunds to customers. An example of this is in Wisconsin. The Wisconsin Office of the Commissioner of Insurance asked insurers to offer flexibility to customers who were experiencing economic hardship by offering non-cancellation periods, deferred premium payments, and acceleration or waiver of underwriting requirements.
Did you postpone tech and business projects due to COVID-19?
We can assume that the delay of tech and business projects would depend on how technologically prepared each carrier was before the pandemic hit. In order to deal with the transition, there would have been an increase in digital spend. Prepared carriers would not have to increase their spend on transitioning, and their tech and business projects would be able to carry on as planned. On the other hand, if a carrier needed to focus on creating a system that facilitates working from home or investing in laptops for employees, these efforts may take priority, leading to other projects being postponed for the time being.
While a slim majority of respondents halted on-site inspections, roughly half conducted inspections to some extent. How did carriers get to a property to adjust a claim and conduct important inspections while also practicing social distancing? While drone technology was prevalent before the pandemic, COVID-19 definitely enhanced its use for on-site inspections. Drones allow an on-site inspection to be conducted without even setting foot on the property. There is no need for face-to-face interactions, which is an added bonus due to the restrictions associated with the pandemic. The new reality of COVID-19 has demanded new methods, and most carriers were able to adapt to these changes.
The productivity of carriers during this time depends on how prepared they were before the pandemic hit. Some carriers were more prepared technologically and already had an online system that allowed their employees to transition easily to a work-from-home setup. Other carriers have much older and more traditional systems that either require face-to-face interactions or can only be accessed on site.
We also have to look at the various functions that are performed within the company. An underwriter may have been more productive or had their workload remain the same, transferring easily to working from home. An engineer who can no longer inspect sites or work in person would have decreased productivity. Overall, from the responses gathered, the majority of carriers experienced unchanged or increased productivity, which highlights their ability to adapt quickly during times of extreme change and uncertainty.
Just like in many other industries, those in the insurance industry were forced to work from home when the pandemic hit. Since the industry is relatively traditional, the transition was difficult for some carriers. The major challenge for carriers was the availability of required digital infrastructure in employees’ homes, such as internet connectivity and virtual meeting tools, to ensure business continued as usual. Another challenge to take into consideration is the nature of some of the jobs. Agents and engineers would no longer be able to conduct business in person, whether to meet prospective customers or conduct on-site inspections. While some carriers managed to convert to a work-from-home model, some more easily than others, the responses to our survey show that a vast majority of carriers ultimately made the transition and were able to adapt in a time of uncertainty, maintaining some sort of productivity from home.