Months into the global COVID-19 crisis, it is evident that the insurance industry failed to step up to the plate with actions that could have helped the community cope with the new situation. In a time where both individuals and businesses need support -- more than ever -- one would have hoped to see a more coordinated response or a strategic act from such a powerful industry. Instead, the pandemic and the response to it have highlighted significant gaps in industry offerings that are yet to be resolved.
As soon as the pandemic started, a lot of the major legacy insurance companies simply stopped selling policies for certain kinds of coverage, and some of them still aren't selling them. In an attempt to manage the expectation of their customers, they put up disclaimers on their websites about not covering COVID-19-related losses. We have gotten used to seeing these disclaimers during natural catastrophes to deter fraud, but the outcome for consumers is still grim, at a time when they need protection and support.
Even now, there is still a large amount of uncertainty and posturing between the insurance industry and regulators about who should have been covered by existing policies that may or may not have explicitly excluded pandemic-related losses. As a result, many customers who were affected by COVID-19 and already held insurance policies -- like travel insurance, which explicitly has blanket exclusions for pandemics -- remained unclear as to whether they will be paid.
In the past decade, we have seen huge growth in the number of gig economy contract workers, but they generally aren’t treated as employees, meaning that they do not have sufficient benefits or insurance for loss of income. It has become evident in this period that almost 40% of the U.S. workforce don't have the support they need.
Herein lies a valuable opportunity: to adapt and provide better fundamental support to businesses and their workers, which in many cases have proved to be essential during these difficult times.
See also: Strategic Planning in the COVID-19 Era
The good news is that there is a huge opportunity for insurers to harness technology to create products and means of getting these products into the hands of people who need them, which will put insurers in a better position to support communities when the unexpected happens again.
First and foremost, we need new products: customized, robust and agile solutions that provide actual protection during times of need. The cookie-cutter products that traditional insurers have been offering have not proved to be beneficial. Simply bundling-in pandemic coverage to every single insurance policy is not the answer, as it would raise policy prices for a lot of consumers. This is where product innovation can really make a difference. For example, general availability for "loss of income protection” for gig economy workers would have taken some of the burden off the government, while also helping the community stay resilient. Adaptable and responsive insurance coverage options for these people or the small business community could ensure they maintain the appropriate level of insurance as their income or businesses fluctuate. The exclusions for a pandemic in insurance policies are fairly broad, so there’s clearly a need for explicit pandemic coverages -- either as embedded coverages, or sold separately. And of course, parametric products of some type should be developed and made available to kick in when different types of events happen.
As the economy starts to reopen, some businesses can only operate at a 30% capacity. Will they be able to claim for their losses under existing insurance policies? Will they have access to coverage for a liability resulting from an infection that happens inside a small business? For small and medium-sized businesses (SMBs), all of these situations could mean going bankrupt. Innovative products don't have to be all-encompassing as far as losses are concerned. Relatively affordable insurance products that provide a basic level of financial support to businesses to navigate difficulties -- even if it’s just to enable them to keep the lights on for a while -- have a demand in the market right now.
Second, we need to change the way in which insurance products get distributed. As an industry, we need to help people get the right coverage when they need it. Generally speaking, one of the drivers of underinsurance in the community is the fact that insurance is complicated to understand and purchase. In most scenarios, people have to go out and search for protection, and most just opt out of that task. Others don't understand what they are buying, don't get the appropriate coverage or are simply underinsured. Giving consumers the opportunity to get covered, if they want to, is important. Making protection available and offering it in the right circumstances, as a product or add-on at the point of purchase, is a big opportunity for the industry.
The role of technology is to use data that exists from platforms like payrolls systems or e-commerce websites to better understand the level of risk and offer customers the right level of insurance at the right time. Reducing friction on the front end ensures that the level of insurance is adequate and will drive down the volume of underinsurance in communities, which provides a lot more resilience in the event that a pandemic happens again.
See also: 4 Post-COVID-19 Trends for Insurers
It will be a long time before the insurance industry has a feel for the scope and the scale of the losses that have and will be incurred by businesses, individuals and insurers as a result of COVID-19. The pandemic will have a big impact on coverage and pricing, and it still remains to be seen if the industry will get together to support the community by making insurance available to those who are affected.
We should all join hands and step up to ensure our communities are protected. We need to use the power of technology to really innovate with new insurance products and distribution methods that guarantee people are properly protected and safe when things go wrong.