Insurance-COVID-19

How Insurance Companies Can Survive the Impact of COVID-19

Insurers are measured by their effectiveness in handling claims during catastrophes, crises and disruptions. This means the implications are profound to insurance companies when life and or businesses gets disrupted. In the case of COVID-19, unless businesses have purchased pandemic insurance, insurers are declining payments for business disruption since properties were not damaged. Some states also are considering legislation that would mandate insurers to cover COVID-19-related losses under their business interruption policies.

Many insurance companies are seeing an increase in claims related to workers’ compensation, supplemental income, health, life, travel, trade credit and certain specialty and commercial lines due to the pandemic. Of course, the economic downturn, low interest rates and a declining capital markets negatively impact insurers’ investment income as well. On the positive side, insurers are seeing a decline in auto claims and a growing interest in new life and health (worksite) insurance products.

Due to these unprecedented circumstances, insurance firms must optimize costs, automate and modernize as a part of their fight to sustain business and increase shareholder and policyholder value.

Optimize Costs: Cost optimization initiatives, which can be classified into short, medium- and long-term opportunities, will touch every element of an insurance company. In the short term (4 – 10 weeks horizon), look for quick hits by negotiating a discount from suppliers and reviewing existing contracts, usage and billing by software and network companies. In the medium term (3 – 6 months horizon), implement a governance tool like GovernX® to manage all spend contracts and third-party risks. Not only do you need the increase in efficiency and visibility, you need to eliminate the unnecessary labor-intensive operations that go along with managing contracts now. Also, consider renegotiating supplier contracts. Finally, in the long-term, reevaluate service, software and network providers, eliminate over-reliance on offshore resources and consider right-shoring while you work to automate and modernize your legacy systems. A new sourcing strategy might include a mixture of 20 percent onshore, 20 percent automation, 30 percent nearshore and 30 percent offshore.

Automate: Consider automation in two parts: short and long-term. In the short-term, use existing technology to build use cases to automate the current business model to the extent possible. As part of the exercise, take into consideration a support model that combines onshore and offshore operations with a large percentage of employees working remotely. In the long-term, review opportunities for digital automation by going beyond previously established use cases and reimagining business models of the future. Transforming existing business models before applying digitization will help you meet the needs of next-generation users, customers, business partners and help you prepare for the next potential crisis.

Modernize: Most modernization to date has been for front-end systems of engagement. It is time to consider modernizing back-end legacy systems or systems of record. Modernizing legacy systems will enable insurance firms to create product innovations, including flexible premium and usage-based products, get to market faster and push “just in time” products. Impediments to legacy system modernization are customizations that have been built over years or embedded product rules, especially when they are unknown or when talent and technology is inadequate to decipher them. To mitigate this risk, create strategies by taking into consideration your products, distribution channel, customer base, culture and organizational readiness for change. Strategies for funding modernization can include looking at cost optimization options for your current business.

COVID-19 is forcing insurance companies to move business and technology operations to a work-from-home model at a lightning pace. After some sort of normalcy returns, it will become imperative for insurers to rethink their business models as well as their underlying operating models and systems by focusing on these three areas: cost optimization, automation and modernization. Reevaluating global sourcing models to redistribute work between onsite, onshore and offshore will be an important part of building a sustainable long-term solution.

ISG specializes in helping insurance companies formulate strategies for cost optimization, digital automation and modernization. We’ve helped clients optimize half a trillion dollars of spend by implementing short, medium- and long-term cost optimization programs. Contact us to find out how we can help you.

About the author

Nanda Rajgopal is a Director in the Americas Insurance practice. In this role, Nanda is responsible for working directly with clients to address their business challenges and delivery and sales teams to ensure client expectations are met with highest quality deliverables. Nanda has over 25 years of experience in business consulting, information technology and client relationship management. In the last 15 years, he has focused on insurance solutions that included digital transformation, data and cognitive science, managed services and global sourcing. Nanda brings a rich array of acumen, thought leadership and passion in building “Trusted Advisory” relationships.