Insurance and Risk in a Post-COVID-19 economy

By: Carl Moodley, Chief Underwriting & Claims Officer; Stuart Forbes, Chief Risk and Compliance Officer and Eugene Olivier, Chief Information Officer of GENRIC insurance Company    

Carl Moodley, Chief Underwriting & Claims Officer, GENRIC Insurance Company

Nothing will be the same in the world post-COVID 19.  As our economy slowly starts to reopen following a crippling lockdown, the realisation that consumer behaviour and the drivers of consumption patterns have been radically altered is laid bare.  The financial and health impacts of Covid-19 and the lockdown are patently obvious.  What is opaque, however, is how the changes to daily work and living routines are going to manifest in our societies and business environments for the long term.  There will be a butterfly effect across every single industry sector and societal structure, and in this regard, insurance and risk are two areas likely to see significant evolution and change.

  • Business Interruption claims have rapidly escalated and there are more to come, but this is also likely to be a significant bone of contention for both policy holders and insurers.  Most insurers made policy changes to standard commercial insurance cover after the 2002-2003 SARS outbreak to exclude for losses caused by viruses or bacteria, realising that they could not provide cover for such a broad and far-reaching event. BI policies typically pay out only if physical damage occurs to an organisation’s assets or operations, so it is likely that coronavirus-related claims won’t be covered on many policies.  However, there is already a rising tide of litigation against insurers in the UK and US over whether business interruption policies cover pandemic-related closures, and the trend will likely follow in South Africa. Finding innovative ways to cover such Black Swan events is going to be front and fore in for the insurance and reinsurance sectors as well as Governments, and likely to be essential as pandemic risks are likely to prevail into the future.
  • Following on the class actions related to Covid-19 claims in the US and UK, Directors & Officers (D&O) liability insurance is an already stressed class of insurance that could be further impacted by the pandemic.  Insurers anticipate a wave of D&O claims related to a failure of fiduciary duty in the handling of the Covid-19 pandemic and its impact in business and stakeholders, and especially related to claims of anti-competitive behaviour such as price gouging, especially on essential items such as personal protective equipment and sanitisers.  As liquidations, business rescue applications and mergers and acquisitions follow from the economic fallout of the pandemic, expect D&O litigation and claims to increase.
  • Event cancellations are going to impact insurers in a dramatic way, certainly for those large event policyholders who have cover for epidemics/pandemics. The largest event cancellation to date has been the Olympic Games Tokyo 2020 and with cover in place for abandonment and postponement, insurers are facing a US$3 billion claim.
Eugene Olivier, Chief Information Officer, GENRIC insurance Company
  • Trade credit insurance which covers business for debts that cannot be paid by their customers or debtors will see high claims volumes and quantum, and the impact of how and when these debt defaults occur is likely to be felt for the long term.  Some industry sectors are more acutely impacted than others, and there is real concern for the carnage occurring in the SME sector, and business closures occurring as a result of supply chain constraints. 
  • Impacted insurance classes are likely to see much tougher renewal requirements going forward, greater restrictions in terms of scope of cover and pandemic-related exclusions, reduced reinsurance capacity and appetite and much steeper premium increases as reinsurance rates harden. Certain lines of business insurance will see greater risk aversion from insurers and reinsurers, and some lines may be incredibly difficult to get coverage for at an affordable premium and within a feasible risk management strategy.  
  • On the upside, certain lines of business have seen a significant decline in claims and positive underwriting results. Millions of people staying at home and less vehicles on the road mean significantly lowered risks due to accidents, crime and catastrophic fires. Where previously the property and casualty lines of business had been under tremendous pressure, insurers are likely to see some reprieve and improved performance in these areas, which is likely to cross-subsidise other areas experiencing high claims volumes.  Motor and building insurance is likely to see some stabilisation which will hopefully translate into lower premium increases, if any, come renewal time.  
  • Healthcare insurance is top of mind – the pandemic has amplified the need for healthcare insurance as consumers realise the implications of a health crisis on finances, especially where one has co-morbidities. For many South Africans, the parlous state of public healthcare facilities is unpalatable, so securing their continued access to private healthcare is a priority.  GENRIC has seen significant pick-up in enquiries related to health insurance such as its Sirago gap cover, as well as affordable alternatives to medical scheme benefits such as its Wesmart health insurance solutions.  Where consumers are buying down on their existing medical scheme benefits due to financial distress, they are taking up gap cover insurance to protect them against potential medical scheme financial shortfalls on specialist and in-hospital treatment. Where clients have had no access to private healthcare before, enquiries for health insurance which provides access to some private healthcare at least at primary care level have increased sharply. The pandemic will motivate people to reconsider not only their health insurance covers, but also the likes of critical illness and life cover.
  • Niche insurance products will grow – consumers are increasingly turning to niche insurance solutions that offer highly defined risk benefits to protect them from financial distress. One such line is GENRIC’s Mechanical Warranty insurance.  Policy retention has remained high despite the tough economic environment, and this is attributed to the important lifeline these policies provide for owners of older vehicles that fall outside of service and warranty plans on new vehicles.  There are an increasing number of older vehicles on the road, and consumers are delaying new car purchases as they look to pay off and consolidate their debt.  For relatively low monthly premiums, mechanical warranty insurance protects policyholders from the unexpected and high financial cost of over 30 mechanical component failures, from the engine to transmission and gearbox to electrical components, cambelt, propshaft and more.  Niche insurance products are expected to grow as consumers increasingly look to only keep that which they need and which performs at claims time.   
Stuart Forbes, Chief Risk and Compliance Officer, GENRIC Insurance Company
  • Consumers turn to digital platforms for engagement – the lockdown has thrown the spotlight on the need for more effective digital platforms for engagement between consumers and insurers.  More consumers are using online platforms such as social media, chatbots and website forms to make enquiries as well as to log claims and complaints.  The move to digital platforms as an enquiry and service channel has been sharply accelerated and amplified by the lockdown.
  • Digital Transition of service channels for insurers and brokers has been given impetus by Covid-19 – from automated underwriting, policy fulfilment, claims handling and internal workflow management, GENRIC has already been well advanced in this process, and is likely to see much faster transition given the impetus from the lockdown experience.  GENRIC was already piloting programmes on certain portfolios prior to the lockdown such as Fresh Desk which align and tracks internal workflows and processes, as well as unifies and manages all support-related communications from multiple channels on a single platform. Genasys was also deployed, providing an underwriting platform and online portals that were fully compatible with existing systems and processes using an open API. In developing GENRIC’s digital transition strategy, we are conscious of the need to incorporate our brokers and clients into this journey to ensure a seamless experience across the insurer-broker-client relationship. For many smaller brokers who don’t have the capital required for major digital investments, insurers will be pivotal in providing the tools and platforms that enable their brokers, who are their key distribution channel, to keep pace, transform with them and meet customer demands.           

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