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Life offices face several challenges in the wake of Covid

Although COVID-19 has created greater awareness of the need for life insurance, consumer spending power has reduced significantly. Add to this the increase in death and funeral claims as well as the impact of digitisation, and it can certainly be argued that the insurance industry is facing some serious hurdles.

In April 2020, Deloitte highlighted claims and claims processing as an impact as larger volume of claims in certain areas was expected as well as the need for the claims to be processed efficiently and securely amid crisis circumstances. This prediction was in line with the subsequent rise in claims for death and funeral benefits. These trends reflect the acceleration of the pandemic with a current death toll of just over 44 000.

“SA’s life insurance industry is likely to suffer a “mega-blow” from Covid-19 that will be twice as bad as the impact of the 2008 global financial crisis. While the rest of the insurance sector will be less badly affected, it will take four years before it recovers to pre-pandemic levels,” according to a report by McKinsey. “As cash-strapped customers cancel insurance policies or fail to renew them, the drop in new business and retention is leading to lost revenue and shrinking customer numbers, as well as an underinsured population, which is at risk should the worst happen.”

According to McKinsey, new life insurance business could fall by 25% while renewal premiums may drop 12% as consumer spending remains under pressure. This is, of course, also very bad news for advisers in this market.

McKinsey predicts that the medium- to long-term prospects for the insurance sector as a whole will be shaped by underlying trends that have accelerated in recent months. A survey conducted in July 2020, revealed a sharp shift in consumer attitudes and behaviour: 45 percent of respondents expect to engage in fewer physical in-branch or face-to-face interactions, and 42 percent expect to make greater use of mobile and online channels, even after the crisis.

“In the life-insurance segment particularly, dampened demand means referrals are down and intermediaries can’t prospect new clients as easily. Videoconferencing tools don’t allow for the same relationship building as face-to-face interactions do, and brokers and agents are adjusting to new digital tools and online sales brochures,” according to McKinsey.

So how can the insurance industry set itself up to get through these leaner times and absorb the uncertainty, but also thrive beyond them? McKinsey’s sector analyst proposes several moves, amongst other things:

1. Prioritize a digital-first approach for customers and intermediaries
Insurance executives have been acutely aware of the need to digitize both customer journeys and intermediary interactions for some time. The cost involved and lack of a clear transformation journey linked to business value have hindered progress. Now, however, leading players are moving decisively on their direct digital-sales channels while also boosting agent productivity through better digital tooling and customer self-service.
2. Adopt advanced analytics-based decision making
Increased digital adoption by customers and intermediaries means more data. Most insurers, however, aren’t doing enough to harness this data through advanced analytics, even though the benefits cut across all areas of the business – from lead generation and underwriting to customer service, risk management, and claims handling.
3. Reinvent the operating model for speed and cost
Companies may need to consider agile ways of working built around smaller, cross-functional teams with delegated maximal decision-making power. This is even more crucial during times of uncertainty, when there’s an urgent need to respond to volatility and rapid change
4. Strengthen cyber resilience and operational-risk defences
The unprecedented shift to remote working since the start of the COVID-19 pandemic has increased the risk of cyberattacks, as hackers look to exploit security vulnerabilities.

“The COVID-19 pandemic and its associated recession haven’t changed the game but rather have brought forward (and created greater urgency around) the digitally-enabled future that we were already anticipating and that fintech disruptors have been creating. With customers more ready and willing to say goodbye to old ways of interacting and transacting, there is little point in developing return plans based on the old normal. Insurers should focus instead on developing new organizational abilities to operate within uncertainty, including being ready to change and pivot direction at pace, while also setting long-term plans based on structural shifts,” McKinsey concluded.

Click here to download the McKinsey report.

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