Ready and resilient: Insurance strategy for a COVID-19 world

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With the arrival of the COVID-19 pandemic, insurance companies found themselves in the center of the storm. In a matter of hours and days (not weeks), many carriers had to make their entire operations remote. At the same time, they were fielding calls about changing coverage; answering questions about business interruption policies; and continuing to pay claims for life, health and disability insurance.

Insurance companies are designed for this. Risk analysis and crisis planning are at the core of their business. With policyholders—individuals and businesses—suffering as a result of the crisis, regulators and legislators expect insurance companies to live up to their responsibilities. Those that don’t will likely face enormous reputational consequences. Getting it wrong is not an option.

So far, insurance companies have weathered the crisis exceptionally well, largely due to investments they’d already made in networks, applications, laptops and more. The crisis did expose a number of gaps and vulnerabilities, and it reinforced the need for additional technology investments. But, overall, industry leaders can feel secure in the knowledge that the battle is being managed and the near-term path forward, while precarious, is one they know how to navigate.

The big question now facing leading carriers is this: How do we adapt our business strategies to accommodate a new way of working? In our conversations with insurance clients, three topics come up frequently as the industry looks to the future:

  • The need to accelerate digital transformation
  • How to bolster the balance sheet
  • How to get employees back to the office

How COVID-19 could drive permanent changes in insurance consumer behavior

As carriers move from their initial response to a longer-term strategy, we recommend they adjust their approach based on shifts in consumer behavior. PwC’s June COVID-19 Consumer Insurance and Retirement Pulse Survey uncovered the potential influence of COVID-19 on service preferences, loyalty to carriers, and attitudes toward auto, homeowner, life, dental and vision coverage, as well as retirement.

Major findings:

  • 15% of survey takers say they are likely to purchase life insurance due to the impact of COVID-19.
  • 37% fear that the pandemic may bring future financial impact on their retirement plan.

The need to accelerate digital transformation in insurance

Insurance companies were nimble in deploying remote technology in response to the crisis. But many have delayed investments in additional technology (for example, customer data analytics and technology to integrate mobile apps, websites and call centers) due, in part, to concerns over employee resistance. It’s now evident that an incremental approach to technology adoption won’t be sufficient to help insurance firms thrive in an industry that’s rapidly moving toward virtual operations.

Preparing for a virtual future

The current crisis has accelerated the trend toward automation and digitization, both of which were previously fueled by changing demographics, customer expectations and competitive pressures. The current situation has forced many insurers to rely on virtual conferences and meetings. Many are now realizing that telework is working quite well in most circumstances. As a result, we anticipate that remote work may remain the norm at many firms. In fact, virtual interactions may open up new opportunities for servicing, selling and building customer relationships. We anticipate that conversations with customers that are supported by technology will lead to greater efficiency, more informed decisions, and better outcomes for both buyers and sellers.

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Accelerating toward digital

Before the crisis, many insurance companies were already pursuing a digital transformation roadmap. Now they’re trying to accelerate the process, compressing implementation from 10 years to two, in order to move ahead of competitors and deliver sustainable profits.

Before the crisis, many insurance companies were already pursuing a digital transformation roadmap. Now they’re trying to accelerate the process, compressing implementation from 10 years to two, in order to move ahead of competitors and deliver sustainable profits.

In the years ahead, we expect leading carriers to leverage technology to reduce costs, improve data analysis, streamline claims and underwriting, bolster customer service and drive efficiency. Companies may transition to digital documents, leverage AI, and implement other “bionic” capabilities to help employees make better-informed decisions and focus on higher-value work. US carriers can learn valuable lessons from their Asian counterparts as they look to drive digital innovation.

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Evolving the operating model

The pandemic has revealed gaps and vulnerabilities in operations, and that’s likely to speed the evolution of insurer operating models that focus increasingly on digital technology. We anticipate greater adoption of online and omnichannel distribution, more robust analytical capabilities for improving products and underwriting, and growing involvement with InsurTech and new partnerships to refine core customer services. We believe carriers of all stripes should also 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.

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Helping the workforce adapt

We know that “return to the office” won’t mean returning to work as it was before. Some jobs will change, and not all employees will feel comfortable with the new, more digital ways of working. Insurers should help their existing workforce adapt, by providing relevant technology training for their teams. This includes employees involved in delivery, as well as those who handle service and operations. Recruiting additional tech-savvy employees may also be key to the success of any digital transformation.

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How to bolster insurance company balance sheets

While carriers routinely monitor capital and liquidity, their main focus now is establishing that their balance sheets are strong. Some companies may seek to acquire new businesses to bolster the balance sheet, and many may find that valuations could become quite reasonable in the near term. Others may want to identify non-core assets that could be divested, and some will need to divest properties in order to fund the acquisitions they seek.

Whatever their strategies, company leaders are asking the same questions: What should my business look like in the future? How can we best position ourselves for success in the new ways of working?

Reviewing assets and liabilities

To address these questions, insurance companies should first take a close look at their assets and liabilities. Among other things, they’ll have to determine whether they have sufficient high-quality liquid assets and have properly valued their liabilities. At the same time, margin pressure has some companies considering higher-risk investments in search of performance. Taken together, companies will need to reassess asset/liability management (ALM) strategies to balance yield with risk-based capital (RBC) requirements.

Carriers should also assess their cost structures and return on assets, especially in non-core businesses and product portfolios. That includes evaluating the performance of business units, divisions and portfolios, and then posing hard questions: Which businesses are weak and should be shed? Which businesses are performing well and should be scaled? In the midst of an uncertain environment, now is a good time for insurance companies to focus on generating returns on their own businesses.

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Examining real estate

We think now is also the time for insurance companies to review their investments in real estate, including both the office space they lease and the buildings they own. Most companies are considering using less office space as they shift more toward a work-from-home model. This will be partially offset by the need for more space per employee to ensure physical distancing for onsite workers. Still, the net cost of office space could decline.

For companies that own commercial property, we may see reduced occupancy rates economy-wide, as companies shift toward work-from-home strategies they implemented during the crisis. This could result in a substantial excess of office capacity and transform the commercial real estate landscape.

Because this is a particular concern for life insurance companies, which traditionally have invested heavily in commercial real estate, we suggest that carriers pay particular attention to their real estate portfolios.

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Hot topic: Business interruption insurance

Business interruption insurance has gained a high profile as the crisis has evolved. With business interruption at the center of P&C losses, there will be pressure on carriers to cover claims. As of mid-July, eight states had proposed legislation that would require insurance companies to cover business losses caused by COVID-19. If we start to see lawsuits related to business interruption insurance, policies which don’t specifically exclude “virus”-related damages could take center stage.

Many in the insurance industry would prefer the federal government to back an insurance plan that would support businesses that suffered BI losses due to COVID-19. This is what happened after Sept 2001 with terrorism insurance. While the idea of federal pandemic insurance has gained some momentum, we’re not likely to see much progress in the near future, given the substantial effort required.

Stay tuned.

Insurers returning to the office

Insurance companies are starting to think about workforce models that combine a new mix of remote and on-site employees. For many, this will require at least two phases: one that includes some employees returning to the office soon, and a longer-term version that is more comprehensive.

If, when, and how to return to the office

The sweeping scale of a return-to-work program (which may take 18 months or more to complete) offers insurers an opportunity to revisit priorities, plans and strategies. At the heart of any program are three questions that carriers should explore: if, when and how should employees return to the office?

  • If employees go back to the office: Before deciding whether to bring workers back to the office, companies should determine if employees want to return, and how successful a work-from-home model is likely to be. This will vary across job types, and we’re likely to see hybrid models, with employees working at home much of the time, but visiting the office weekly or monthly as needed.
  • When employees return to the office: In making this decision, carriers should follow government guidelines, prioritize the return of employees whose work requires them to be on-site and be prepared for another shutdown. Worksite shutdowns may be necessary because of a local worksite infection or if we experience a second wave of the pandemic resulting in government-mandated stay-at-home orders.
  • How workers can return safely: Before bringing workers back to the office, carriers should understand their employees’ work/life needs (such as childcare commitments if schools aren’t open), risk tolerance and safety concerns about exposure during the commute or while on-site. Reconfiguring office space to meet social distancing requirements will help to provide safety. So will testing, tracking and sanitation.

There are many other issues to address, such as critical issues of liability should a returning employee contract COVID-19. But answering the questions of if, when and how employees can return to the office will allow leaders to consider the technology and operational infrastructure needed to support a new workforce model.

Investing in the future of insurance

The insurance industry is facing enormous challenges as a result of COVID-19. It’s time for carriers to develop new business strategies, prioritize investments, rethink what industry verticals and customer segments to target, and develop products, services and pricing strategies for prioritized segments. Doing so can help drive revenue.

We believe the right strategy for carriers, if they believe their roadmaps are directionally correct, is to invest in the future—in the digital capabilities, talent and other strategic resources needed for long-term success. Companies that invest now in their capabilities and strengthen the bond with their customers have the potential to emerge from the crisis ahead of their competitors.

Contact us

Matt Adams

Insurance Practice Leader, PwC US

Ellen Walsh

Insurance Advisory Leader, PwC US

Marie Carr

Global Growth Strategy, US Financial Services Practice, PwC US

Bruce Brodie

Managing Director, Insurance Strategy, PwC US

Jim Quick

Insurance Life Advisory Partner, PwC US

Scott McMillen

Insurance P&C Advisory Partner, PwC US

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