The last year has seen the world go through a period of turmoil because of the COVID-19 pandemic that has left humans and businesses staring at a new normal and an extended period of uncertainty. As the world grappled with the pandemic, many insurers saw an increase in insurance claims, mainly for life, health, workers’ compensation, additional income and trade credit.
The economic slowdown and low-interest rates also impacted investment income. Due to the workplace transition to work from home arrangement, insurers are seeing a decrease in auto claims and an increased interest in life and health insurance products.
What should insurance companies do to lessen the brunt of COVID-19, sustain the business and contribute to shareholder value? Let us examine in detail.
Flexible low-cost operations is a model that works in good times and especially well when times are uncertain. This model is of vital importance in highly competitive businesses where cost efficiency provides an edge over peer groups. Insurance companies should aim at the automation of manual tasks and streamline all business processes from the front end to the back end. Implementation of cost optimization requires strong leadership that is not averse to take unpopular decisions. Optimum allocation of available resources is the first step. The first step is to identify areas across the company where cost savings can be done. For example, by reducing discretionary variable expenses like travel, entertainment, usage-based maintenance, office supplies, temporary labour, etc.; as well as by reducing non-essential labour-intensive operations and renegotiating supplier contracts. An effective cost optimization exercise can help insurers to free up capital that can be invested in digital technology or simply protect the bottom line in uncertain times.
The pandemic has highlighted the need for more technological interventions in the insurance industry as the industry is already behind the curve. This is a golden opportunity to reimagine the existing business models and design something that is future-ready and can serve businesses in the long term. Digitization can provide insurers with a sound base to introduce digital transformation. Insurers need to develop products and services that are suited for the new normal since the pandemic has changed the way customers, employees and the society operate.
COVID-19 has forced businesses to incorporate the work from a home model and insurance companies are no exception. Once the pandemic subsides, insurers will need to reimagine their business models and focus on the areas of cost optimization, automation and modernization. They will have to re-evaluate the needs of the customers and design products that will meet new customer expectations. Insurance companies need to also innovate and create flexible premium and usage-based products, understand the market pulse and deliver just-in-time products. To do this, insurers need to take into account the existing products, distribution channels, customer base, culture and the readiness of the organization to transform. It has been observed that several insurtech companies have begun product innovations based on artificial intelligence that takes into account the specific needs of the target segment.
The world has embraced the new normal and entered the digital age, where customers look for tailored experiences and simple, uncomplicated products with no hidden catches. Transparency is the name of the game since information is now literally available at the fingertips.
While selling through digital channels, products need to be simple enough for customers to understand the benefits and choose ones that suit them best. The tricky part in insurance is that some products are so complex that they would need human interaction to understand in more detail. The solution would be to simplify the product or improve the selling software so that it can answer customer queries and resolve their doubts before they come onboard. Digital business processes are expected to be simple and direct.
The USP of using a digital channel is to have a great customer experience which essentially means that the steps should be simple and easily doable with minimum information. When insurers start offering such products to targeted customers, it will be a win-win solution for all the stakeholders.
Customers are increasingly seeking a cool and convenient experience where the product is tailored to their requirements. Artificial Intelligence can fulfil this need quite easily but insurers need to either modify their legacy systems or replace them to align with new-age technology. With the COVID-19 pandemic, the contactless business has seen a good pickup in demand as people are forced to stay at home. This change in consumer behaviour has hastened the need for insurers to up the ante and get the digital transformation process rolling.
Improving Operational Agility
The COVID-19 pandemic has paved the way to a new lifestyle. It changed the way humans live, behave, transact, work and do business. Overnight, businesses are forced to make a momentous decision of asking their employees to work from home. Nobody was prepared for this kind of crisis but businesses were surprised by the resilience and commitment displayed by employees. Productivity gains accrued during this period as organizations demonstrated their ability and flexibility to function under extraordinary circumstances. This has led businesses to rethink their existing business practices and adapt to the new normal. This will redefine the way businesses think and help them behave more dynamically to maximize the gains that this can generate.
Managers must learn to allocate resources faster, the workforce must learn to be more agile in developing new capabilities and adapting to the ever-evolving business landscape. This requires a change in the organization culture and a concerted effort to train and retain employees. Insurance companies may choose to raise the investments in cloud-based infrastructure which offers the flexibility, scalability and cost-efficiency that insurance companies need to make remote working sustainable in the long term. The COVID-19 pandemic has revealed that operational agility and efficiency already exist in organizations. It is just a matter of making it a sustainable value proposition.
That said, COVID-19 became the much-needed wake up call for the insurance sector. Insurers need to make hard decisions on how business must be realigned to adapt to the new normal. It is long overdue and at the end of the pandemic it is expected that we will witness a more robust industry that is in tune with the dynamic world landscape.