March 27, 2020 — INSURERS ARE facing significant operational constraints due to the coronavirus pandemic but there are also opportunities arising, a new report from Aite Group says. 

The Boston-based research and consulting firm says the p&c industry will feel many effects from consumer and government actions that result from the COVID-19 coronavirus. 

One challenge will be a decline in usage- based insurance that will occur as travel restrictions are put in place, workers commute less and commercial establishments are closed. 

Those declines could be offset by policyholders who are using their cars to deliver foods as restaurants move to takeout or delivery, the report says. 

Meanwhile, travel restrictions have forced last-minute travel cancellations. Many of those trips were covered by travel insurance policies — some will have pandemic exclusions, but many policies will leave insurers on the hook for significant payouts. 

And, the report says, as fewer people travel, there will also be fewer requests for travel insurance coverage — leading to travel insurance premium loss. 

Aite Group says insurers will also face the challenge of processing claims while social distancing measures are in place. Carriers will have to figure out a way to adjudicate and process claims with a constrained workforce. 

Pressures on reserves will also create challenges for the p&c industry as investors are fleeing equities for the relative safety of bonds. That has driven bond yields down to near historic lows and put pressure on carriers’ reserves. 

“Some carriers might have to consider capital infusions to ensure minimum levels of liquidity if claims spike,” the report says. 

There are also questions around how business continuity insurance payouts will work. The report says many policies specifically exclude government decrees that prevent workers from going to work and supply chain interruption. However there are situations, such as if a sick worker has infected a piece of machinery, where a claim would be paid. Insurers will have to sort through these questions, the report says. 

Insurers are also likely to face increased legal turmoil as policyholders seek to overcome ambiguity in coverage exclusions related to a pandemic. 

It says insurers also run the risk of alienating policyholders with narrow exclusion interpretations and refusals to pay out for any incurred losses for travel insurance or business interruption insurance. 

Aite’s report also highlights some opportunities that could evolve from the pandemic. First, is the opportunity for policyholder engagement. Insurers should take advantage of the chance to speak to policyholders, it says. 

“Create a line of communication to answer questions, provide coaching, and be transparent about how you are handling things internally and about any expectations.” 

Another opportunity is for future policy sales. Aite says insurers should take the opportunity to show the world what they do for policyholders. 

Aite says insurers should create automated claims payouts for policyholders who have perished as a result of the new coronavirus. It says these claims shouldn’t take much investigation, as long as they are outside the contestability period, and should be paid quickly. 

“The world is in uncharted territory,” it says. “There is no blueprint when it comes to paying claims in the midst of a global pandemic. Specific to any COVID-19 claims, carriers should employ some element of flexibility when it comes to claim payouts, especially for small businesses. 

“This is not to say that carriers should pay out claims when there is a clear-cut reason not to pay, but if there is a grey area, carriers should do what they can to pay something.” 

Insurers should also take the opportunity to develop new products, the report says. Pandemics such as the COVID-19 pandemic don’t fall under any certain insurance coverage and are likely to hit again and again, like the flu. Aite says insurers should consider riders or products specific to these types of pandemics. 

And it says insurers should evaluate and redesign their business continuity plans. Carriers need to learn from this situation and evaluate how they responded, what the customer experience was, and how to improve to be more prepared for future situations. 

(For more independent coverage of Canadian p&c industry news and trends, please choose the ‘Subscribe’ tab on our main page or email mpub@rogers.com for more information).