Q&A with Patrick Kelahan: COVID-19, Business Continuity and What Comes Next

Digital Transformation, Insurance Industry News & Views - April 21 2020

Patrick Kelahan is a Building Consultant/Forensic Market Strategist for H2M architects + engineers and founder of the Insurance Elephant. He is an Insurtech observer, columnist, and a passionate defender of customer experience in insurance. We caught up with Patrick to ask a few questions about how the coronavirus pandemic is impacting P&C insurance companies and Insurtechs, and what comes next for the industry “AC” (After COVID).

Patrick, on a recent Daily Update webinar with Dr. Robin Kiera, you discussed how P&C insurers are under growing pressure to pay business interruption insurance claims resulting from the COVID-19 pandemic. You stressed that if insurers don’t find a creative solution on their own, regulators will attempt to enforce one on the industry. What kinds of out-of-the-box thinking are you seeing from insurers in response to the coronavirus crisis?

Sadly, there has not been a lot of unique thinking or actions from insurers regarding COVID-19 prompted business interruptions. The whole concept is complex, and each carrier has different exposures to, and customers affected by, what could be related economic losses from the outbreak. The very complexity of the issue might prompt carriers to step in with some FAQs or communications, even if to address a need for expressed empathy – these are customers the carrier wants to retain, aren’t they?

Some carriers have limited communication to antiseptic letters written to satisfy regulator requests, and those letters typically are ‘defense mechanisms’ that reiterate policy language as coverage bludgeons. Other carriers have taken action in collateral ways, such as Chubb contributing $10 million to a global pandemic relief fund.

It seems the theory of, “If we don’t comment, we won’t prejudice ourselves” remains most common.

Zurich Insurance can be singled out for their efforts in building an Online Resource Hub that highlights and provides a breadth of information and guidance re: the US CARES Act, property protection, policyholder precautions, cyber security, and examples of what staff are doing to support their local communities and policyholders.

Carriers could easily take action to support their clients’ questions about what to do next, leverage broker/agency networks for outreach, offer to provide data the insureds might need, e.g. workers’ comp data to support PPP loans, etc.

Empathy costs little and builds to retention. An absence of response creates a vacuum into which regulation and legislation may flow.

Right now, P/C carriers and brokers’ business continuity plans are being put to the test – and it’s uncertain how long this will last. Do you think carriers and brokers are ready for this to be the new normal for the next several months, or even years?

A good example of what this question references is the basic of basics – will premium flow continue as planned with businesses shuttered and in danger of failure? 

Carriers that are more business monoline are surely the most nervous – if a business is closed for months, what need has it for any more than basic cover, or significant reduction of cover? Commercial auto carriers would be expected to follow in the footsteps of personal line carriers and begin to rebate premiums. 

Consider workers comp carriers who, on one hand, will have less frequency of claims (how long to retain staff), but on the other hand what of COVID-19 workplace claim frequency and severity spikes if businesses are allowed to re-start before viral safety is confirmed?

What businesses would plan to expand cover, or even renew if activity is uncertain?

What will be the availability of new business in an economy that is significantly contracting?

The essential zero-sum game that commercial insurance is needs clever players, and not all agents/brokers are thinking that way. All companies need cyber cover at this point whether business continues, grows, or stays put. Will there be carriers that work to fill that need completely and economically?

Are carriers and brokers ready? They weren’t when government closed business down. Are they ready a month later? Some will be – the ones that are taking the big lemon, adding some sugar and water, and making business lemonade.

If you look behind the curtain at the insurance back office, there is still an incredible amount of paper pushing and manual processes. The majority of carriers are dealing with some degree of paper-based business processes that are proving difficult to adapt to virtualization. Do you think the business continuity challenges that carriers are facing will accelerate digital transformation initiatives?

Here’s my thinking – carriers will encounter immediate barriers to ops due to manual methods and processes that have developed by design and by habit. Staff will find workarounds because that’s what staff does – they find ways to get things done.

There will be communication of problems up the food chain, and the communication will get some thought. But taking significant action in digital transformation in the absence of outright production failure will be little different than “BC” (Before COVID).

Contrast a carrier that can produce claim outcomes by tweaking this or that with a state agency that provides unemployment benefits. The latter crashes, Google is brought in, a new system is devised BECAUSE IT HAS TO BE. 

An insurance claim office can migrate to greater virtual methods or adapt manual workarounds without losing significant cycle time or gain severity. In fact, claim frequency will decrease, making transformation less vital.

On its face, COVID-19 can be an impetus for accelerated change and some carriers will take action and take competitive advantage “AC” (After COVID).

The pandemic will inevitably force carriers and brokers to rethink their IT and operations priorities. What impact will this have on Insurtech investments? What areas of innovation will continue, and which Insurtech projects are most likely to help hasten a broker or carrier’s recovery post-Covid-19?

Plug-and-play innovation that tech firms adapt to the unique challenges that COVID-19 has exposed, and that they make easily adaptable to carriers’ needs to function in remote operating environments might be the easiest to see as successes. Virtual communication tools that are customer-friendly, stable, secure and provide an immutable, digital record are a good example. 

The big-picture: platform, policy admin systems, or claim admin systems might have the least traction after COVID – too big a meal to consume for the carriers after a period of relative fasting. What can help a carrier re-integrate to before-COVID systems and adapt "BC" ops to ready options for continuity plans? That’s an opportunity area. Innovations that integrate cyber protection into every operation – transparently and in a non-disruptive integration – will be opportunities. Tech that helps identify and leverage staff skills to build remote work flexibility are dark horse opportunities. Remote work can have a tendency to build individual skills silos.

You’ve been a passionate advocate for improving the customer experience in insurance. In a time like this, what do customers need most from their insurers, and are insurance companies prepared to provide it? What’s at stake if they don’t?

Customers need reassurance in times like this – not assumptions of what might be covered or not, but the knowledge that their risk management partners are thinking of their needs. Customers need access to knowledge resources, organizational resources, and advisory resources. Carriers and brokers can be the organizations that are resource backstops, the entities that reach out and say, “We know you are uncertain of what will come next; we are uncertain too. Let’s keep communicating so we all can learn and adapt.” 

So far, most carriers are maintaining seemingly fearful, defensive postures, reacting only under adversity. Brokers/agents are closer to the customer and can be more responsive, but many agents are in new territory and are uncertain as to what steps to take. Carrier and agency national organizations need to be collective guides for their constituencies, but that is a slow development other than, again, defensive actions.

What is at stake is the property of physics – nature (and regulators) abhor an information vacuum and the space will be filled in a manner that may not be to the carriers’ advantage. Sadly, macro action by regulators or legislatures may not be in the customers’ best interest either if outcomes weaken or damage the industry at large.

And policyholder dissatisfaction can be an attraction to the plaintiffs’ bar, and a volume of individual or class litigation will ensue. Again, sadly, litigation seldom provides prompt reimbursement of claims for insureds. 

The insurance industry has been around for a very long time and has faced many crises in its history, most recently 9/11 and the 2008 financial crisis. Are there lessons from the past that can help us predict how insurance companies will come through this unprecedented event? 

There is typically a rush to pass legislation to address similar future events, e.g., TRIA, and other terrorism cover, or financial regulation to backstop institutions’ actions. 

COVID-19 is a very unique occurrence and has had huge effects from supply chain disruption through health problems and business closures. Any future economic response is suggested to not follow past practices, even though they may be an easier route. Insurance carriers will prevail after COVID solely due to inertia and low claim exposure (unless for some reason the business interruption coverage issue stands, and carriers must cover the $trillion + losses). 

As for insurance economies (tied to the general economies), there is a need for carriers to be full and active participants in establishing a future systemic risk response fund that is a collaborative of carriers, reinsurers, the capital market, and government – like the Ten Cs Project espouses.

Patrick Kelahan

Patrick Kelahan is a Building Consultant / Forensic Market Strategist for H2M architects + engineers and founder of the Insurance Elephant. He is an Insurtech observer, columnist, and a passionate defender of customer experience in insurance.






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