How the coronavirus outbreak is transforming the insurance industryAdriatic Journal 20 April 2021
During the pandemic the insurance industry has had to adapt a significant part of its business approach almost overnight.
Author: Jan Tomše
The onset of COVID-19 pandemic has brought many new challenges to many business sectors, including the insurance industry. As governments across the globe imposed national lockdowns and movement restrictions, insurers have been forced to adapt to the new situation while at the same time maintain business continuity—often by the smart use of digital tools—while still taking all the required precautions to minimise customers’ and employees’ exposure to the virus. The Adriatic region is no exception. The impact of the pandemic on the industry in the region was felt in multiple ways—from employee and business continuity issues, to client service considerations to the financial outlook. The very basic principle of the insurance has its foundations in trust and avoidance of damaging reputational risk during challenging times. In circumstances such as pandemic insurers need an even higher level of fair respondence to their customers’ needs. This means they offer flexibility especially to those most adversely affected by COVID-19 or the lockdowns. However, the insurers are not only being challenged by their customers’ rapidly changing needs and demands, but also by their very own ones. Reviewing and updating their crisis management plans as well as taking steps to continue operations with a minimum of disruption to clients may be found at the very top of their business transformation strategies. They are also carefully deliberating the potential impact of the coronavirus on their short-term and long-term financial outlooks. Claims’ costs will likely be specific to the types of business that insurers write and their policy wordings. The big-picture concern remains how the outbreak might affect the economic environment—specifically, prospects for growth and profitability in insurers’ underwriting and investment portfolios. Insurers in the region and globally would likely be affected by a sharp slowdown in economic activity, which would undermine growth and perhaps even contract insurable exposures.
Solid capitalization is vital
Crises, however, also reveal new opportunities, and making the most of them after the pandemic will be crucial for a fast economic recovery. Pilgram believes the opportunities in the countries of the region will be in attracting foreign investments in high added-value production and services. They will have to consider “a number of measures ranging from a stimulating tax environment, labour legislation that enables hybrid working models as well extensive investments in innovation, research and start-up environment”, he suggests, adding that the pace of the changes will define which of the economies will have the biggest success.
And the winners …
The upper hand in the Adriatic region will have those who adapt their business models to the new postcovid normal, while also overcoming structural barriers to competitiveness and innovation. The companies should primarily prioritize restructuring their operations and logistics chains to make these more resilient to future shocks. They should also further accelerate digitalization throughout value generation chains also by increasing the efficiency of investment and operational costs. Furthermore, new products and services will need to be developed in order to respond to the rapid changes in client demands. Unfortunately, regulatory obstacles in the region make it difficult to set up investment mechanisms to support companies, such as private equity and debt instruments, venture capital, crowdfunding platforms, or business angel groups. For the companies, it is becoming inevitable to adapt to post-coronavirus reality and to compete domestically and internationally by acquiring the needed support for soft investments. These should include areas such as improving investment readiness, upgrading processes, managerial innovation, export readiness, acquiring licenses, and adopting digital solutions. These would enable the insurance sector to overcome the pandemic crisis and play out its important role of regional shock absorber helping the economy getting back on track.