The future arrived suddenly for the insurance industry. Almost immediately, carriers had to turn to virtual communications and operations. The COVID-19 pandemic also drove overnight changes in where and how work is performed, and how managers and employees interact. We discussed how insurance carriers are adapting their business strategies as a result of COVID-19 in our series on becoming ready and resilient. As cities locked down and so many businesses closed their doors, the pandemic also impacted the insurance industry. Life and group carriers as well as property and casualty companies stepped up to new challenges as they coped with a radically changed environment.
Before the pandemic, industry executives employed a more deliberate, careful strategy that allowed tech capabilities to evolve through incremental innovations rather than sudden breakthroughs. The emergence of COVID-19 forced an industry slow to embrace change to figure out new ways of working in a matter of weeks, implementing major shifts in technology deployment and usage, agile problem solving and more.
The pandemic also reshaped consumer expectations, bringing virtual interactions into almost every aspect of life. Policyholders, already accustomed to dealing remotely with banks and retailers, now expect the same from their insurance providers as well. We believe the impact will be lasting and profound, and that to survive in the long term, carriers will have to refocus their investments and radically alter their customer service models.
The strength of insurance company balance sheets is at risk if mortality significantly shifts, if liability is assigned where coverage was not intended, and by disruptions to financial assets and real estate. Regulatory scrutiny and the looming threat of downgrades by rating agencies could drive weaker players out of the market.
Given the uncertainty about the long-term impact of COVID-19, many life insurers have had to underwrite without the traditional blood tests or limit their appetite for larger risks. And this comes at a time when there continues to be a demand for life insurance; because of the pandemic, 15% of the customers in our COVID-19 Consumer Insurance and Retirement Pulse Survey from June 2020 said they anticipate buying life insurance.
With unemployment at historic highs, group insurance revenue is declining, putting pressure on profitability. Meanwhile, operational and service transactions have increased, driven by COVID-19 disability claims and payouts for Family and Medical Leave Act (FMLA) policies. A potential spike in COVID-19 cases as local economies reopen and fall approaches could add to the pressure that carriers face.
While stay-at-home orders dramatically cut traffic accident rates, many auto insurers are returning portions of policyholder premiums in a “fair deal” to reflect the decrease in exposure. Housing starts are at a standstill, further depressing revenue and profits in the P&C sector. Declining payrolls are shrinking workers’ compensation premiums, even as a spike in claims is likely due to business interruptions.
Certain industries are feeling the impact of the pandemic more than others (such as airlines, oil and gas, and entertainment/hospitality), and so are their P&C carriers. Lines that follow the economy’s trajectory are seeing reduced premiums, so the pressure to keep expenses in check is strong. (To be fair, it’s not so bad because, in comparison to other industries — where when revenue drops, virtually all costs-of-goods-sold” remain — in insurance, when premiums drop so do commissions and losses, mitigating the pressure that one might expect on expenses.)
As job losses mount, individual consumers may rethink their P&C needs and cut their coverage. In our June 2020 survey, we found that 32% of respondents plan to shop around for different insurance providers specifically to save money. In the commercial P&C space, we may see increased demand, especially from small- and medium-size enterprises (SMEs) as they reassess risk and recognize the need for additional coverage, including business interruption insurance. This could drive price increases across the board.
With the increasing need for more people to work remotely, shop remotely and socialize remotely, we have become accustomed to digital interactions and virtual communications in our daily lives. Customers now expect to transact normal-course business digitally. To address these challenges and prepare for a very different future, we believe carriers of all stripes should rethink their customer service models — how they interact with current and prospective customers, including distributors, employers and consumers. These models include processes, channels and even the culture that defines the customer experience. Historically, carriers built traditional models where services were defined. Then they executed to that service level and measured performance. However, you can no longer plot out exactly what you need to do because the future state is unknown. Traditional service models don’t provide enough scale to keep up with changing customer needs. Insurers should rethink their service models and plan to adjust to a moving target, both in the short and long term.
In the short term, we recommend that you:
Carriers are reprioritizing the implementation of their long-term ambitions and aligning people and resources with projects that focus on the customer. In the longer term, we recommend that you:
“There’s also a bright side to remote working becoming the predominant model. Carriers will be able to expand their geographical access to talent.”
Life, group and P&C carriers are learning quickly how to operate in a challenging, unfamiliar environment. In the coming years, you’ll want to refine the service models deployed in the weeks and months after COVID-19 emerged.
The flexible, digital service models that will dominate the future of the insurance industry will yield some unexpected rewards in the form of better work-life balance, less time spent commuting, lower costs and greater efficiency. Already, some carriers have gained a fresh appreciation of how digital technology and improved workflows can bolster productivity and enhance the customer experience. Carriers that become more consumer-centric are expected to emerge from the crisis more agile, competitive and sustainable.
“To build an effective culture, think about continuous optimization in a fast-changing world. That requires building agility into roles, organization design, and control structures, so the organization can readjust quickly as the environment changes.”
Managing Director, Insurance Strategy, PwC US
Global Growth Strategy, US Financial Services Practice, PwC US