Insurers, Insurtechs and Covid-19: immediate and long-term challenges and opportunities arising from the crisis

Insurers, Insurtechs and Covid-19: immediate and long-term challenges and opportunities arising from the crisis

As the Covid-19 crisis continues to have a significant impact on individuals, society, business, and the wider economy across the globe, insurers are also being impacted across all sectors of their industry.

For traditional and digital players, the Covid-19 pandemic has meant challenge and further disruption but as our understanding of the pandemic deepens and new data comes to light, new opportunities are emerging notably for insurtechs with the ability to drive innovation and the will to adopt a different approach.

The immediate impact of COVID on insurers and insurtechs

Insurers have had to react quickly to the crisis, working to ensure customer and business continuity and responding as employers, capital managers, and claims payers.

In the UK, the Association of British Insurers (ABI) has indicated that their insurer members expect to pay out circa £1.2 billion in compensation following the coronavirus pandemic, £900m (75%) of which is linked to business interruption alone.

But despite increased strain placed on the industry, the news hasn’t all been bad. Since mid-March and lockdown, many insurers - whether their business is in motor and travel insurance, health or business, and supply chain - have inevitably witnessed an overall reduction in claims and payouts. This can mainly be attributed to fewer incidents and accidents during the lockdown and European governments reacting quickly, implementing special measures to support businesses during the lockdown, and taking full charge of health issues.

As concerns the impact on insurtechs, investment reached an all-time high in 2019 with over $ 6.37 billion being invested in the sector worldwide and accounting for 33.9% alone of total global Insurtech investment recorded to date.

According to a recent report by Willis Towers Watson, investment figures in the first quarter of Q1 2020 continued at a high level before slowing down as lockdown hit so that figures were down 48% compared to the previous quarter. For Insurtechs that lack capital is looking to raise money and/or whose models are slow to profit, the next few months will no doubt be challenging.

The crisis also inevitably impacted day-to-day activity leading to a significant reduction in the number of new Insurtech clients and contracts. This said we can hope that for some sectors a return to “normality” will be faster than anticipated.

Two of Breega’s insurtechs who offer temporary motor and travel insurance and mobile phone insurance both reported a dramatic drop in activity during this period as all travel ceased and people were visibly less worried about losing or damaging their phone while staying at home. The end of lockdown however has thankfully seen consumers relishing their new-found freedom and ability to travel. Indeed for Cuvva who provides temporary car and travel insurance, June was one of their best months on record in terms of contract growth. It’s still very early days, however, and only time will tell if the trend is set to continue.

Looking at the long term: crisis as an opportunity

Alongside the more-or-less immediate effects of Covid-19 on insurers, we are also witnessing what will be a long-term impact on the insurance industry in terms of digital progress and changing consumer habits, all of which is good news for insurtechs!

The advent of Covid-19 has fuelled certain trends that have been developing in the insurance industry over the past decade. These include increasingly digitized offerings and services, the growth of customer-centric platforms, the streamlined binding and issuance of insurance policies, and online self-directed insurance purchases. Documents are being sent quickly and easily through digital distribution channels and “paperless” claim processing is slowly becoming the norm. 

Covid-19 and lockdown have helped speed up the introduction of new mobile apps and other online platforms to meet consumer needs and those who previously would only have bought insurance on the high street, are now starting to buy into online solutions. Even once the crisis has fully passed, customers will likely continue to expect faster and more efficient insurance processes that digital platforms offer. Insurtechs who have the ability to further enhance these platforms and tailor products to individual customer needs will no doubt benefit.

Crisis as a catalyst for deep change

As well as acting as a catalyst for progress in the way insurance is delivered and consumed, the recent pandemic also raises important questions on risk calculation, current actuarial techniques and modeling methods and how adapted they are to modeling certain types of “new” risk brought about by a changing global environment.

Many of the insurance market changes that occurred over the last two decades can be traced to Hurricanes Andrew (1992) and Katrina (2005), the costliest natural disasters in U.S. history in terms of insurance payouts. Since then, the increasing occurrence of hurricanes and tornadoes has led insurers to continually reassess their exposure to natural catastrophes.

Vastly improved data mining methods have allowed actuaries and insurers a greater understanding of the physical structure of hurricanes and tornadoes. This has led to the creation of newer, more complete catastrophe models that can also help insurers plan for other eventualities that are common in the wake of storms, such as shortages of supplies and basic services. Greater loss scenarios mean fewer surprises.

In the same way that the effects of climate change are now being factored into today’s models, the recent pandemic means that insurers have to take a new look at their risk assessment models and assess how adapted they are to a world in which pandemics, encouraged by globalization, easy travel and a developing worldwide population are potentially a part of everyday life.

Responding to the challenge with data and innovation

Each new major event or “catalyst” brings with it its own specific challenges for insurers.  When an event is both recent and global, there is little data and insurance actors are naturally reacting to events rather than anticipating.

However, as the full impact of Covid-19 and lockdown becomes known and data made available, new opportunities, notably for insurtechs, will emerge as insurers look to learn from recent events and remodel their industry, relying on the techies to help them do so.

1/ Insurers will be focusing on prevention, rather than payouts.

Insurers will start focusing on prevention and Insurtechs with their capacity to use AI, IoT, home sensors and telemetrics will no doubt have a big role to play in helping to predict and avoid accidents and fraud, therefore, reducing the number of claims.

2/ Data mining and aggregation will become even more important.

Creating newer and more reliable models requires access to more complete data. Insurtechs have a role to play here in providing the technology to collect and aggregate the business and operational data needed to build and train more efficient predictive models.

3/ Customer care and reestablishing trust will be key.

Consumers today will be concentrating on customer care and comprehensive and transparent insurance rather than price.

Cue the front-office insurtechs. They will no doubt see an increase in collaboration requests from encumbrance looking to increase client trust and loyalty with digitized consumer-friendly services, greater interactivity, and seamless claims request processes. 

Looking ahead, we’re unable as yet to see the overall effects of the recent crisis on the insurance sector as a whole. However, one thing remains sure: the industry and its actors are being profoundly shaken up. As finance professionals, we remain alert to the impacts of Covid-19 on the global economy. But as investors, we are none-the-less feeling a little optimistic and excited as trends intensify, new opportunities arise, and insurers at last hurry to transform their sector and provide us with the insurance models of the future.