Who hasn’t asked at some point, “How will this pandemic affect me and my family? How will it affect our lives? Our jobs, education, graduation, birthdays, anniversaries, vacations, social lives…?” And then: “Our finances? Savings? Retirement?” To ultimately wonder, “Are we sufficiently prepared to get through this? Do we have the protection we may need?”
Insurance is fundamentally about protection. And while it cannot protect students from finishing their studies from home, without a proper graduation, insurance can protect against many of the financial impacts caused by the pandemic: travel insurance, health insurance, business interruption insurance, workers’ compensation (WC), paid sick leave, life insurance, hospital indemnity, and disability, to name a few, are all types of policies that may provide relevant protection.
In some cases, to have adequate protection, certain terms needed to be revised; for example the use of personal cars for commercial delivery, use of personal residences for WFH (work from home), or location of work for WC. Given the overall impacts to the economy, many carriers have also adjusted the payment terms around timing of payment, late fees and cancellation for non-payment even partial return of premium for reduced use (e.g. auto premiums).
Unsurprisingly, one of the outcomes of COVID-19 has been an enormous increase in customers contacting their insurer.
With the in-person channel removed, and while some degree of patience has been needed as insurers learned to cope with volumes, companies sought to leverage the online channel, updated FAQs and conducted proactive outbound communication (mainly email) to reserve the phone for urgent claims. For most insurers, service standards thus remained at an acceptable level.
Have insurers done enough? KPMG's Six Pillars of Customer Experience - derived from ten years of primary research across 3,000 brands in 26 countries - identify the key universal principles that underpin successful customer relationships.1 These are:
Integrity: doing the right thing, being seen to act fairly and in the customer's best interests
Resolution: responding to needs and finding solutions
Expectations: setting, managing and meeting expectations
Time and Effort: making it easy for customers to access information and get essentials
Personalization: understanding the customer's individual circumstances
Empathy: showing that you care, choosing the right emotional response.
The two Pillars that are most important to specifically address in these uncertain times are Integrity and Empathy.
How well customers feel their insurers have supported them through COVID-19 cannot be known; in the absence of any comprehensive independent research as yet. The COVID-19 surge aside, by the nature of insurance, routine customer contact is less frequent than in other areas of financial services or sectors such as retail or consumer goods, so the industry already has a relationship deficit to overcome. On average, insurers simply aren’t as close to their customers as organizations in other sectors which, by definition, have more frequent touchpoints or interactions.
However, COVID-19 might just prove to be the catalyst for innovation in insurance, unlocking greater levels of customer experience and personalization that has long been overdue.
Insurers have significantly increased their communication with customers - and shown a commendable degree of proactive customer-driven support. There have been examples in numerous countries of insurers offering rebates on motor insurance given decreased levels of driving.2 In Australia, as well as some other countries, private health insurers have been offering premium holidays and other benefits given that customers can't draw on their products which cover them for elective surgery and ancillary services like dental care.3 In the UK, meanwhile, some insurers have offered free motor cover and enhanced home cover for National Health Service (NHS) workers, as well as extending business cover to provide coverage for employees working from home.4
While these are all positive actions, they also point to a problem: some insurance products have begun to feel out of step with the reality confronting customers, and thus with their needs. Do I have the cover I need and do I need the cover I have? Many individuals have faced the huge stress and anxiety of sudden, severe income disruption, with an urgent need to reduce their outgoings. This has led them to question their insurance holdings. Is it fair to be paying the same level of motor insurance if your car usage has drastically reduced? What good is your health cover if it only pays for surgery at a time when routine operations have been suspended? Is travel insurance worth buying if disruptions like pandemics aren’t included?
At the same time, other products are likely to feel more valuable to customers than ever. We can expect to see a spike in sales of disability and life insurance going forward, as well as maybe hospital indemnity, critical illness and/or business disruption policies with broader cover. Equally, income protection and other savings and retirement products that offer income certainty such as annuities and 'whole of life' products are likely to become much more in demand. Home cover may also become more valued than before given the amount of time people have been spending there and may continue to do if working from home remains more widespread.
A recent survey of 2,500 insurance customers between China, Honk Kong (SAR), Singapore and Australia, commissioned by global market research company, Ipsos, confirmed some of our speculations. A quick summary:
As a result of the situation surrounding COVID-19, there is a unique opportunity for insurers to rethink and innovate as they adjust and respond.
First, there may be a need for new products. There has already been some fascinating early stage thinking in some insurers about products that would be payable in the case of pandemics or epidemics. The concept would be that there is a small lump sum payout to help a customer meet any kind of increased or new expenditure for certain defined events. For example, pandemics could be included, with a payout being triggered once a certain number of cases have been registered in the customer’s state or region. In addition, products that are more similar to critical illness or riders on existing policies, which pay upon being diagnosed, could emerge as increasingly more popular around the world.
Second, there could be an increase in the appetite for usage based insurance (UBI) products – where the premiums payable are based on the extent to which a certain activity is performed. The simplest example is for motor insurance where, through telematics and data analysis, a customer would be charged according to the actual number of miles they drive rather than paying fixed premiums over time. The main barriers to take up of UBI have always been data privacy and security concerns. But given the experience of so many motorists during lockdowns, there may be something of a shift in which the car moves from being seen as a fixed asset in an individual’s life to more of a variable one, further supported by the rise in the popularity of shared or on demand mobility services – meaning that a UBI model could become very attractive at least to some.
A counter argument to this is that, in the wake of COVID-19, consumer willingness to take public transport will drop, meaning that personal car travel becomes even more ingrained than before. We will have to see how this pans out in the fullness of time.
As the impacts of the COVID-19 situation continue, individuals all over the world are dealing with their financial situation on a personal level day-to-day, but they are also contemplating the implications going forward. You can hear it when people discuss what has happened to the market values associated with their personal retirement savings.
This financial anxiety was also evident in the Ipsos customer survey which showed that “27 percent of respondents were 'anxious' and 'overwhelmed' about their finances at this time while around 40 percent in all markets surveyed said they were "stretched but coping."6
This survey highlighted several other areas that had financial undertones including:
While this survey covered only the Asia-Pacific region, it is not too much of a stretch to extrapolate these findings to other countries as an indicator of customer sentiment as well.
Perhaps the most significant changes will be in the way that insurance products are sold, serviced and the usage of customer data. These changes will lead to much greater levels of personalization and so change the customer experience and value proposition.
Insurance has long struggled with the fact that it is not as personalized as other products. The offerings are relatively standardized and customers only buy their cover infrequently, sometimes indirectly through an agent or broker. For many customers, it is a grudge purchase. They don’t particularly want to spend their money on insurance, but know they ought to (and in some cases, such as in Australia with private health insurance, they have to or will be punitively taxed).
There are signs that, through the COVID-19 situation, this will begin to change. Insurers are recognizing that they need to bring more value to their customers, with more personalized offerings and communications on a more segmented basis. One of the notable features of the situation has been the great boom in online communication between people, including via video. It’s anticipated that some insurance products will likely start to be sold through a ‘digital first’ advice approach – where customers engage with an advisor via a video call in the first instance, before the sale moves to other channels to complete. This could lead to much better value for money through reduced distribution costs for the insurer and increased access to personalized advice for the customer.
As we have noted, there is likely to be much higher demand than in the past for certain types of insurance. Insurers need to review their channel strategy approaches in order to serve this demand. This means greater investment in integrating their channels and creating digital pathways on an end-to-end basis. Customers are likely to become less tolerant of frictions and hand-offs in the process to third parties.
Lastly, the digital opportunity for insurers extends beyond the customer and broker interactions at the point of sale. COVID-19 has further highlighted the need for insurers to streamline, improve and digitize operations and claims functions. Insurers are more than ever recognizing the linkage between customer experience and the digital strategy, transformation approach and operational improvement.
Historically, one of the key obstacles to creating greater personalization has been consumer reluctance to give insurance companies the personal data needed. But there are signs that this too will change post COVID-19.
For example, take the Australian government’s COVID-19 tracking app, COVIDSafe.8 An incredible 2 million Australians signed up for this in the first 48 hours after it was launched.9 For a nation that has traditionally been sceptical of governments and privacy issues, this is remarkable. It indicates that, through the COVID-19 crisis, people are more worried about their health than their privacy.
If this can be built upon, then it suggests that we could enter a new era where consumers are more willing to work collaboratively with service providers to obtain the products and services they need. Through a more symbiotic relationship on data exchange between customers and insurers, more individualized and targeted products could be created. Insurers will be better able to unbundle products, breaking them down into different components of risk, and only pricing individuals or businesses for the components relevant to them. The customer will get more personalized cover and the insurer will be able to price it more accurately.
Better digitization and use of data will be key to this transformation – and in insurers’ distribution channels, digitization will also be a key theme. While the direct-to-consumer (DTC) market varies greatly by country and by region, insurers have already started to explore or re-open conversations around pursuing a more omnichannel approach in recognition of the shifting willingness of customers to transact more on-line for their insurance needs.
Turning toward the broker community, the lack of digital enablement has become more apparent during the COVID-19 situation. In several counties, it has become clear that many broker businesses are simply not equipped to work digitally or remotely – especially at scale (e.g. renewals).
New business proposals (RFPs) have fallen away and many commercial renewals have simply been rolled over as the pragmatic solution rather than going through a new competitive pricing process. Even the quoting and submissions process, currently an expensive process for insurers, could be more streamlined; better digitization of the data exchange could help make the process more cost effective for all parties involved.
In Asia, agents generally work through face-to-face meetings with customers – and these were halted in their tracks by the virus. In some countries, the inactivity of agents and brokers has been such that insurers have had to look at making very low interest loans to help them keep going or give advances on commission.
The situation in Asia has not been helped by the fact that wet signatures are still required in some countries. A growing pipeline of new business has developed in Hong Kong (SAR) and China, but this cannot be activated until the signatures are obtained.
It’s likely there will be a concerted push by insurers in these jurisdictions to persuade regulators to allow digital signatures. This could open the way towards new modes of working, with a general move to digital capabilities including digital underwriting to enable more straight-through processing, as well as for claims and fraud detection.
At the same time, there could be some restructuring of the broker market through M&A activity in countries such as the UK. Some insurers have begun scanning the market for potential opportunities with some distressed firms with very low levels of working capital. Insurers know that distribution is key to success, with wealth products in particular, and so are keeping a close eye on opportunities to bolster their networks. However, there will need to be a good strategic and operational fit. In the wake of COVID-19, insurers will be focused on what a ‘minimum viable distribution footprint’ looks like – balancing reach with cost efficiency.
The critical priority, however, will be to increase the digital capabilities of broker and agent networks and integrate them with an insurer’s own digital environment. This is key because, in commercial lines especially, most customers interact with an insurer through a broker rather than directly. If insurers are going to focus so heavily on digitization and personalization for customers, they can’t afford for there to be a disconnect between the agent and broker worlds. The customer experience must be consistent with the insurer’s value proposition all the way through, no matter how it is accessed.
All of this then creates an opportunity to work even more closely with regulatory bodies. This is particularly true in Australia as it pertains to insurers being able to quickly capitalize on the consumer demand for innovation, digitization and new products. There is a need for insurers to work with regulators to ensure that regulations are helping not hindering this unprecedented opportunity to drive change in an industry that has traditionally been very slow to adopt in these areas. Recently, the ASIC/APRA (Australian Securities and Investments Commission10/ Australian Prudential Regulation Authority11) released letters to General and Life insurers reinforcing the importance of doing the right thing in order to meet community expectations. Coincidentally, this aligns perfectly with the two key pillars, mentioned before, of Integrity and Empathy. The FCA (Financial Conduct Authority) in the UK has gone so far as to issue industry guidance in this area as well.12
There are other regulators who have already or may be issuing similar commentaries or guidance; all of which can be viewed as an opportunity for the industry and regulators to work together.
Like so many other aspects of insurance companies' business that has been discussed elsewhere in this articles series, Implications of COVID-19 for insurers, the situation is likely to be the catalyst for some far-reaching customer relationship changes. How carriers interact with their customers, and how broker networks integrate with that, could begin to look quite different, quite soon.
In the future looking back, it will perhaps seem remarkable how COVID-19 changed so much that seemed so deep-seated, with a speed that no one could have imagined.
Graham Boffey, Partner, Insurance, KPMG in the UK
Deno Fischer, Partner, Customer Solutions Advisory practice, KPMG in the US
Matthew McCorry, Partner, Insurance Advisory Lead, KPMG in the US
Darren Pigg, Partner, Insurance, Customer and Analytics practice, KPMG China
Tim Thomas, Partner, Insurance & Wealth Strategy practice, KPMG Australia