Insurance is a highly complex business involving multiple processes to administer existing policies, price new business, sell new business, renew policies, address customer inquiries, and process claims. Adding to this complexity is the highly intricate interplay between insurers themselves and their external networks; e.g., brokers and agents.
It is no surprise, therefore, that the COVID-19 situation poses a wide-ranging series of challenges for insurers to maintain their operations as normal ways of working become severely disrupted.
So, how are insurers faring, what are the critical flashpoints - and what longer-term changes to operations may we see in the future as a result?
Shift to remote working
Across all of the insurers that we have been speaking with, one aspect immediately stands out: a mass shift to remote working. This is true across many different industries, of course. In most countries, anything approaching 90 percent of staff are now working from home, with only a fraction of staff on-site for critical jobs that cannot be done remotely. In countries such as China where the virus peaked first, a number of staff have begun returning to the office but most likely on an alternating A and B team patterns.
The feedback we've been receiving is that there were some bumps at the start but that it is now largely working well. Insurers have sufficient hardware - laptops and mobile devices - and remote connectivity systems are standing up. Like everybody else, there is extensive use of video conferencing facilities.
In many ways, the situation has hugely accelerated a trend (and an aspiration) that already existed. Many insurers have been looking at ways of increasing their operational digital footprint and connectivity, with a lower reliance on physical co-locations of people. That they have put this in place in only 2-3 weeks instead of 2-3 years is a huge achievement in itself in a timescale that most could not have imagined.
This rapid overhaul means that certain principles and checks are more important than ever. Clear, effective and frequent communication from leadership is essential so that staff are informed and understand the priorities as the situation develops or changes. Engagement is critical too - from line managers arranging a 'virtual coffee' with their teams to catch up, keep team spirit high and listen to any concerns, to more frequent 'checkpoint' calls on specific areas of work to understand issues affecting performance and gauge progress against deliverables.
Dealing with channel overload
One of the biggest challenges is that all of this is happening at the same time as a huge spike in customer contacts. Whether it's about travel insurance, critical illness, health cover, business interruption, or another issue, customers are deluging insurers with queries over what they may or may not be covered for or to actually make a claim. In the UK, for example, one insurer has shared with us that they have seen a staggering 1000 percent increase in customer inquiries, claims and complaints relating to their travel insurance. Service and call centers associated with retirement products are also getting significant inquiries ranging from understanding their account balance changes to options for withdrawal as customers are facing increasing financial hardship.
However, other products such as motor have become much quieter - with a 20 percent or more drop in motor claims over the last few weeks.
These issues necessitate a number of reactions. Firstly, insurers are needing to insist that customers contact them by phone with only the most urgent of inquiries; everything else needs to be routed online. It also means that insurers need to look at their internal resources and how they are configured - potentially moving as many people into claims as possible, even if that is not their usual job. They need to adjust their specialist teams too - such as transferring staff out of areas like motor claims and into hotspots like travel. This more agile way of working, some are calling 'volume shifting' could be one of the new ways of working coming out of this situation.
Digitized is optimized
Certainly, those insurers with more advanced digital underwriting, claims, and administrative processes are in a much stronger position than others, even if processing time is slower now than in normal conditions. Those who do not have these capabilities or who rely on cruder technology workflows are likely to be struggling more. There is a risk of losing customers to more digitally-enabled competitors moving forward, particularly in personal lines where many customers' patience with non-digitized processes these days is low.
Alongside the explosion in customer contacts, insurers have a related worry that their own staff numbers may drop if more employees fall sick with the virus (or are less productive working due to caring responsibilities). There have been estimates that in badly affected countries, available workforces could shrink by 30-40 percent in a worst-case scenario. Some insurers are actively investigating contingencies, such as in Germany where certain carriers are talking to third party service providers about assisting them with claims queries and handling if needed.
To ease the pressure and to provide optimum levels of customer support, many insurers are facilitating the claims process by waiving certain requirements and simplifying the paperwork needed. However, it remains a challenge to deal with complex and/or high value claims where evaluating the physical evidence and obtaining expert reports in-person is frequently a key part of the process. There are no simple answers here in an unfolding situation - but we may see increasing use of drone or imaging technology to assist loss adjusters who are unable to conduct site visits.
There is also a broader policy perspective that comes into play: instances of country regulations impeding digital working. For example, in Hong Kong physical signatures (often called “wet” signatures) rather than e-signatures are still required for most agreements, and this is by law. In the US, over a dozen states do not allow virtual notaries. Insurers can relax their own internal procedures to cater for extraordinary times, but they can't change national or federal laws or regulation. This just makes a difficult situation even harder.
Fraud risk mounting
All of these factors raise another prevalent issue: mitigating against the potential for fraud. We are already hearing of a growth in fraudulent claim attempts, for example around travel claims where customers, having been turned away by their travel agent or airline for cancelled travel, come to their insurer and fabricate an illness or other condition to try to secure compensation.
The fraud risk is by no means confined to customer claims, however. The remote working that is currently so widespread is likely to prompt a rise in hacking attempts by bad actors seeking to exploit vulnerabilities for various purposes - to obtain customer data, siphon off financial information, or disrupt services. Employees should be given clear guidelines over remote connectivity protocols and best practice, including around file-sharing and data distribution. It is vital to ensure that cyber and forensic teams work daily, minute by minute if needed, with IT teams as systems stresses increase, monitoring for any issues and scanning for unusual activity.
Offshore centers - weak links in the chain?
Another key issue that is rapidly coming into focus is the risk that some insurers are exposed to in their use of offshore service centers. There are at least five main locations commonly used across the industry for aspects of administrative processes such as back office underwriting, claims processing and policy administration: India, Philippines, Eastern Europe, Republic of Ireland and China.
Cracks in the system are already beginning to show. India has gone into a complete lockdown that is set to last for several weeks. Many employees in shared service centers simply don't have the equipment or connectivity needed to work from home yet. In addition, questions could also be raised about the security around data-sharing. Overall, the activities performed by the centers have therefore been very severely disrupted in some instances. Insurers need to find urgent workarounds and solutions for this, to minimize the breakdown. They also need to urgently assess the likelihood of other offshore locations going into lockdown, the likely timescales for this, and the extent to which their activities would be disabled as a result.
Keeping the distribution channels working
Another key operational area is insurers' interactions with brokers and intermediaries. Some brokers that lack IT infrastructure are having more difficulty providing administrative services - in the US, for example, we have heard of instances of unstaffed call centers not forwarding calls to Customer Service Representatives at home to provide support or issue Certificates of Insurance. Obtaining renewal information - including information around exposures - is challenging. Insurers need to look for ways of reducing the amount of information needed from brokers for renewals, for example by applying data assumptions and maximizing the use of publicly available information. Insurers should review the ways in which their operations support teams can work with brokers to help keep business flowing.
Brokers - and sometimes customers directly - have also begun to ask insurers in the US to review the rate basis for their cover and to potentially make downward rapid adjustments. For example, a hotel whose cover is based on the number of occupied rooms may now ask for it to be based on revenue, given the dramatic drop-off in occupancy. This applies to many sectors significantly affected by the situation, such as hospitality, travel, manufacturing and logistics. Insurers may need actuarial consulting support to cope with the operational challenge of quickly adjusting pricing models in a fast-changing market.
Numerous countries still sell business primarily through tied agents for all or some of their products. This business is largely sold face-to-face, even if there is some technology enablement. These agents will likely be facing a liquidity crunch in the coming months as new business slows due to their inability to visit with their clients. The severity depends on the length of curfews but for now at least, April and May are likely to be tough for them in the US and Europe. We've seen insurers change compensation rules, give credit or advance payments to their agents and support them in obtaining government assistance as they want to secure distribution capacity for the future.
Social responsibility is on the rise
China was early in terms of being impacted by this virus and we see insurers stepping up to help their policyholders in new and different ways. For example, some are providing more flexibility in grace periods for premium payments, waivers for certain parts of their claims processing to expedite payments, reducing the needs for multiple documents, etc. We see this trend in other insurers all over the world. All of this will require operational processes to adjust and adapt with the times at a pace that was likely not imagined before COVID-19.
The insurance industry has arguably lagged other industries in terms of its digital journey. All of this has led to an acceleration of customer expectations from a digital perspective which is challenging insurers from a readiness standpoint. The Digital Insurer (TDI) recently released a paper discussing this phenomenon as the “digital tipping point1”.
Ten key changes we could see…
Looking forward, this situation is likely to result in a number of long-lasting shifts:
- Remote working will become much more widespread, with insurers investing more in connectivity networks, collaboration tools, virtual team protocols, and reviewing the amount of real estate they actually need; moving to the Cloud will further support remote working quality and application providers are investing to expand the range of functions (for communication, sharing documents, admin tasks) to further optimize home working.
- Digitized systems and processes, cloud-based services, automation including the use of robotics and AI - these will likely accelerate and become standard tools for all insurers; move to full automation, the lack of end-to-end automation currently restricts full online customer and staff experience and will be a key driver to further invest in digital technologies for all steps in the processes.
- Capacity plays will be made - as efficiencies are realized rapidly due to the current state of affairs, insurers will see opportunities to shift capacity and create a more agile volume-shifting workforce in the future.
- Platforms becoming more mainstream especially within the health prevention market. This has enabled telehealth to grow rapidly and health insurers are changing with the times to accommodate these innovations; platforms are also growing to enable more remote working and ease of facilitation, this trend is absolutely here to stay.
- Regulation vs digitization will come into focus - where rules and regulations conflict with the digital agenda in different jurisdictions around the world, there will be expedited focus on finding practical, modern world solutions and pressure for regulations and laws to change.
- Offshore service center strategy will be reviewed - to mitigate against concentration risk, insurers may look at spreading their operations across a higher number of locations and perhaps bringing more work back onshore as well.
- Scenario planning becomes more complex - recognizing that even developing the baseline may be challenging, careful scenario planning around potential challenges like IT failure, additional staff reductions, further spikes in demand and second waves are all considerations for careful planning and developing mitigation strategies.
- Exposure management reimagined - understanding potential exposures will help insurers get ahead and plan for what claims come in to provide a better service to their customers and allow payments to flow more quickly; equally this can help insurers with their value proposition to customers, brokers and agents, and other external stakeholders.
- Broker and distribution models may be reviewed in some markets, especially in the SME (small and medium enterprise) and mid-market segments - with more contact now taking place directly with customers as brokers struggle, some insurers may decide to do more business with customers directly themselves in the future, perhaps through digital channels, which in turn could impact how customized these products are in the future.
- Business continuity and resiliency planning will become a critical focus - this is something that regulators will press insurers on in any case. There will be multiple lessons to be drawn and a deeper penetration of plans in areas like offshore centers.
So far, the sector is holding up well but, understandably, pain points are showing. How much worse these become will depend both on the efficacy of the actions insurers take to address them and on the severity of the pandemic from here.
Whatever the unknowns, the insurance sector is working at pace and with huge commitment to give their employees, customers, distribution channels, external stakeholders and societies the support and service they need.
Claudia Fell, Head of Strategy Consulting Insurance, KPMG in Germany
Mark Longworth, Global Insurance Advisory Lead, KPMG International and Head of Insurance Consulting, KPMG in the UK
Matthew McCorry, Insurance Advisory Lead, KPMG in the US
Lee-Han Tjioe, Digital Insurance Partner, KPMG China
1Phipps, S. (n.d.). TDI PoV: Industry Warning - digital tipping point is approaching insurers faster than expected.