Do you feel like you are trapped in a similar scenario to the one in the movie Groundhog Day these days? We certainly do! Although the outbreak of the Covid-19 pandemic is old news at this point, the media still almost solely reports on the trajectory of the Coronavirus disease and its multiple facets and impacts. At times, this may feel a bit paralyzing and daunting. However, we believe that knowledge is key to rise above all hardships.
In the next couple of months, we will unquestionably have to come to grips with the repercussions of the Covid-19 pandemic. Hence, it is of utmost importance to brace ourselves today by acquiring all the accessible information on the pandemic development, its impact on the economy, the insurance sector and of course tigerlab.
Recent economic tribulations due to Covid-19
As most of you are probably well informed on the recent happenings in concert with the coronavirus, we merely included a brief chronology of events we deem as cardinal (see timeline).
However, in this article, the economic impact which accompanies the crisis will be of greater significance.When the Covid-19 outbreak occurred in the province of Hubei, the Chinese economy started to contract for the first time since the 1970s. In spite of this, the rest of the world seemed rather unaffected. Not until several more countries, particularly in Europe, went into a lockdown, did a grave majority of the population of said countries actively understand what a disruption of business activities meant. Stores, event centers, sports venues, community areas and restaurants had to close or were solely open for takeout or delivery. Tourism and travel were almost completely stalled across the world due to travel restrictions and entry bans in more than 100 countries. This means a capacity reduction for the aviation industry by a whopping 90%.
Economists predict that as a result of the EU 30-day travel ban alone, up to 48 200 flights with 10.2 million seats will be affected. Subsequently, major sport events such as several world championships in a myriad of different sports as well as the Olympic Games in Tokyo also got rescheduled to 2021. Naturally, these circumstances go hand in glove with skyrocketing unemployment rates in a host of countries. If these occurrences did not startle you yet, the worst stock market crash since 1987 on March 12, 2020 makes it quite clear to everybody that the world and most notably the economy is losing its balance.
The insurance industry in times of the Coronavirus
The economic sector which is most vital to us – the insurance industry – will also be hit quite severely due to a plethora of restrictions and cancellations. Already in 2013, a poll of insurance executives voted a global pandemic to be the biggest risk for the industry itself. Since then the world has become even more interconnected, supply chains are extremely complex, travel is easier than ever before and maladies can spread all around the world in a matter of days. However, little to no preparation could be witnessed for the reason that a global pandemic remained a dystopia until January 2020. Even if insurance companies prepared for an eventual pandemic, it often was in the form of excluding coverage for communicable diseases. This was especially true after epidemics such as SARS in 2003 and Ebola in 2013.
Nevertheless, a bevy of event insurances are facing huge exposure as major events get cancelled (e.g. Munich Re is responsible for covering the Olympic Games). Also smaller, specialist firms for event insurance or communicable disease cover could go bust by the sheer amount of claims. Concurrently, existing travel insurances are way out of their expected bounds (e.g. cancellation cover). Commercial lines gross written premium (GWP) will take a hit, especially for insurers operating in the hospitality industries. And last but not least, the foreseeable decline of interest rates will most notably perturb life insurance and annuity sectors due to rate-sensitive products and investments.
Solely, companies which offer, for instance, auto insurance might experience a downward trend in claims as kilometers dip due to existing lockdowns. All in all, the situation has become very volatile.
tigerlab’s encounter with SARS-CoV-2
We, as tigerlab, have not remained unaffected by the current situation either. A multitude of our customers have already raised concerns and we are constantly working on finding a feasible solution for everybody.
As a few examples of some precautionary measures, our clients have decided to take actions, which have a bearing on sales, distribution, and capacity. Some product lines have been more affected than others, but ultimately, this global pandemic has truly been a shake-up for everyone. Our clients do have the advantage of making major changes to their system in a matter of hours, which obviously gives the underwriters and capacity providers confidence that in an emergency, very quick action can and has been taken. Preventing new business from being bound, with the use of referrals, new rating or documentation wording, or even having the ability to make large changes to any of their distribution channels or B2C customer journeys and underwriting, are critical to make real time change accurately, fast and efficiently.
Depending on the distribution of the products, we have seen that the more traditional face-to-face products have shown a significant decrease in sales. However, the online or aggregator models are mainly affected due to customer spending power seeing a sharp decrease. This may be prescribed to personal circumstances and the uncertainty of the next few months.
Our clients all over the globe have seen challenges arising from very different sources. From those at the start of their journey, seeing a much slower or delayed process in the license applications, due to the capacity providers figuring out how to operate a complex process from home; to motor insurance seeing their clients not using their cars at all. Travel insurance is obviously facing an uphill battle, with new policies being very hard to find or buy for consumers. Aside from that, event insurance is also being confronted with a large number of claims due to the government lockdown suddenly creating a vast number of cancellations of venues.
Throughout all of this, we are nonetheless determined to stand our ground. Since March 18, 2020 all of tigerlab’s employees are working remotely due to the partial lockdown in Malaysia. We keep in close contact via different communication channels, team updates every day and servel online meetings throughout the week to discuss problems or ideas. Additionally, our CEO updates us regularly on the company’s situation, the situation in Malaysia and how we will proceed during the next couple of days (a forecast for more than a week in advance is simply not viable at the moment as the conditions might change very abruptly). As already mentioned, we also intercommunicate with all of our customers to try to come up with solutions for all sorts of inquiries.
These are very trying times for tigerlab too. However, we use breaks in between projects (due to Covid-19 related push backs or delays) to further improve our software, such as standardizing the personal lines segment to have a super fast roll-out time. Apart from that, reorganizing our support channel to speed up turnaround times and change requests is a core task right now. Additionally, we are also looking to integrate and improve the usability of some of our new features which were long in the pipeline. This will help us to be prepared for, and leverage our competitive edge after the crisis.
General economic outlook
We obviously do not know when this crisis will end or what specific repercussions result from it for tigerlab and the whole economy. Anyhow, it seems far from exaggerated to expect a sharp fall in consumers and business spending until the end of the second quarter in 2020, or even throughout the rest of the year, in conjunction with corporate layoffs and bankruptcies. This can be seen as a result of large-scale quarantines, travel restrictions and social-distancing.
Depending on when different countries will be able to loosen their restrictions again, a genuine recovery might not be on the cards until the fourth quarter or even the beginning of 2021. These speculations are tightly intertwined with the efficiency of fiscal and monetary policies in breaking the downward spiral into a recession during the next months.
Speaking in numbers, the economic growth (which was predicted to be at 2.9% in November 2019 for the year of 2020) will merely be between 1.5% and 2.4%. If the crisis becomes even longer and more intense, with growing case numbers also in the second and third quarters of 2020, we have to expect an economic growth of only 0.5%.
This much is certain: Even if the outbreak can be diminished as much as possible, it does not mean that a recession or losses are averted equally around the world and across industries. Businesses which rely on services will certainly be hit harder than anybody else.
In terms of working conditions, the Covid-19 pandemic may also have a long-term impact on home-office. It could by all means jeopardize globalization and supersede business travel and international conferencing. One will also look more closely at exposed vulnerabilities such as the heavy reliance on China when it comes to supply chains and products. Here one might take steps to better distribute and diversify supply chains to better safeguard against major crises.
Prospects for the insurance sector
Conversely, the coronavirus outbreak will highlight opportunities afforded by technology within the insurance sector. The demand for self-service digital interaction capabilities will increase significantly, both from a sales and a service perspective. For customers, this includes online notifications, same-day responses, 24/7 access to their policy files or claims progress and world-class call center technologies. This crisis will undoubtedly trigger a watershed moment that will result in a more aggressive digital transformation across the industry as well as a reinforcement of the digital conversions value. The insurance industry, which is historically notorious for its relatively long decision cycles, now faces the challenge of adapting a more agile approach to cope with an unprecedented dynamic business environment.
If you feel like your insurance business might need help to digitize its processes and sales journeys in order to be better prepared for what the future holds, tigerlab would be happy to assist you in finding just the right solution for you and your business.