The impact of COVID-19 on the insurance market will undoubtedly cause a paradigm shift in how the sector operates. It has wreaked havoc on the global economy and fundamentally altered societal norms.
While it is still too early in the transition to describe with clarity what form this ‘new norm’ will take, the developments that will shape it are evident. At a macroeconomic level, the world currently faces significant recessionary pressure, with a slow recovery predicted. Numerous market sectors will struggle to restart and insolvency will be prevalent, while employee cuts will be a necessary evil for the survival of many organizations. Trade tensions have escalated in recent months, while Brexit uncertainty continues.
For the insurance sector, a contracted global marketplace will inevitably bring a decline in GWP due to diminished exposures, while reduced investment returns will place greater pressure on profitable underwriting. Rates will begin or continue to harden across numerous lines – both COVID-19 affected and not – while insurers reassess capacity allocation as the profitability of some lines comes under scrutiny.
The knock-on effect at the buyer level will likely be the introduction of more rigid terms and conditions, with more prescriptive wordings to remove uncertainty and ensure coverage accurately reflects the specific exposure submitted. Higher deductibles are to be expected while the scope of cover may contract. There will also be a greater onus on companies to demonstrate effective risk management practices and mitigation measures to secure cover or complete renewal negotiations at acceptable terms.
Changes will also be apparent on the claim frontline. Class actions emerging out of the complexities of a COVID-19 world will continue. In addition, economic hardship will spark increases in fraudulent activity and claims exaggeration, as witnessed during the 2008 financial crisis. In response, there will be an increased burden of proof applied and stricter causation examination requirements, with insurers keen to ensure insureds have met the risk management requirements stipulated in the original contract terms.
In such a complex and demanding environment, there is a clear risk that the insurance process itself could be disrupted at any stage – from policy inception or renewal through to claim submission and resolution. To ensure this does not happen, and that the efficacy of the insurance product is maintained, all parties to the contract must work collaboratively.
In my view, the loss adjuster will continue to act as the oil that lubricates the cogs of the insurance machinery. Our role as an impartial operator in the insurance process is a unique one and our purpose is to ensure the smooth and efficient management of any claim by playing a proactive role both pre and post loss.
Comprehensive, sophisticated pre-loss scenario planning will become an increasingly important component of how organizations address their exposure profile. Not only will this help clarify the parameters of the risks faced, but will also form an integral part of positive submission or renewal negotiations, with companies able to demonstrate a more sophisticated approach to risk management that can act as a differentiator in insurer discussions.
Customized claims programs that clarify roles, processes and responsibilities that precisely reflect the coverage in place will be central to overcoming the increasing complexity of contract negotiations post loss. Such programs must be supported by clear and frequent communication between carrier, broker, corporate and nominated loss adjuster to ensure that when a loss occurs all parties have a clear understanding of what is required to guarantee a speedy and effective resolution.
There is no doubt transitioning to a new market norm will be challenging. However, as with every successful strategy, considered planning and close collaboration will be critical to making that transition as smooth as possible.
