In the second of our article series by the Deloitte Insurance Services team, we’re looking at the impact of COVID-19 on insurtech and more broadly, insurance innovation. Catch up on the first article here.
COVID-19 underwriting losses across the insurance and reinsurance industry have been estimated at roughly US $107 billion. Like other industries, insurers are looking at innovation and IT transformation and considering whether it is a ‘nice to have’ or a key part of the post COVID-19 response.
Early indications are that business insurers are much more cautious than their retail counterparts, having felt a larger negative impact from the pandemic. For instance, a recent survey by US firm Strategy Meets Action showed that only 5% of retail insurer respondents are retrenching or pausing their overall technology plans and investments compared to 25% of business insurer respondents. This finding is supported by anecdotal evidence such as AIG’s March 20 decision to close its young insurtech unit Blackboard U.S. Holdings Inc. to new business and taking a US $210 million charge related to the decision.
Like everyone, insurtech business models are being tested under the COVID-19 environment. Some notable success stories include Three in the US and Naked in South Africa.
Three is a US-based, digital-first insurer that provides business pack insurance using a three-page policy. That’s even with size 11 font and standard margins! Despite its brevity, the policy is still sufficient to exclude COVID-19 in line with business interruption coverage provided by most insurers. Meanwhile, some insurers in Australia are trying to understand why their business interruption policies refer to the repealed Quarantine Act 1908 and what the implications are for their legal liability.
Similarly, insurers in New Zealand and Australia are grappling with whether to refund motor insurance premiums following changes in risk profile from the COVID-19 lockdown. Over in South Africa, Naked, a digital-first insurer, already had a solution in place called CoverPause. CoverPause has enabled users to turn off road accident cover while still being covered for the likes of flooding, fire and theft – i.e. issues that can happen while their car is standing still. CoverPause customers typically save 45% of their comprehensive premium on the days they aren’t driving, and over the lockdown period, the discount has risen to 90%.
Pre COVID-19, most insurers were already aware their legacy systems have been dragging out product cycle times, resulting in a lack of innovation. In response, we have seen a wave of IT transformation projects across the industry.
In New Zealand, there are a number of insurers part way through their IT transformation. We expect most, if not all these insurers will to continue to move forward with their overall technology plans and investments. As such, we expect to see a range of benefits emerging, including insurance product innovation. Given the cost pressures arising from COVID-19, there will be an increased focus on realising those benefits.
In our next spotlight on the insurance industry’s upcoming challenges, we look at how insurers can ensure their financial resilience after economic uncertainty.
The content of this article is accurate as at 2 June 2020, the time of publication. If you wish to understand the potential implications of current events for your business or organisation, please get in touch. Alternatively, our COVID-19 webpages provide information about our services and provide contacts for relevant experts who can help you navigate this quickly evolving situation.