COVID-19: Three Scenarios for Insurers—Celent Report

Celent explores three possible scenarios as an opportunity to explore the effects of the Coronavirus crisis on the insurance industry and encourage agile planning in response to a changing environment.  

(British Brigadier during the Siege of Tobruk, 1941. Image source: Library of Congress.)

When the official government response to the COVID-19 crisis came, insurers’ response was rapid—and predictable. The immediate imperative was to observe a quarantine-like distancing of individuals. This had obvious implications for operations and technology most related to the managerial and technology infrastructure issues associated with work-from-home (WFH) mandates. But once insurers have made an adjustment to continue serving policyholders and distribution partners with a remote workforce, they must think about what the longer-term effects of the Corona virus on society and the economy will for their companies. To address this next stage, research and analyst firm Celent (Boston) has published the report, “COVID-19: Three Scenarios for Insurers.” The study is based in part on ongoing interaction with its research panel, a body of well over 300 carrier executives at about 320 companies.

Karlyn Carnahan, Head, The Americas, Property Casualty, Celent.

“Making sure the organization is ready for WFH has taken the bulk of insurers’ attention in the immediate reaction to COVID-19—making sure people are equipped, that VPNs have been set up and that the infrastructure can handle new loads,” comments Karlyn Carnahan, Head of The Americas, Property Casualty, Celent, and author of the study. “The most immediate need is to continue business for policyholders, agents so that as they suffer the impact of this crisis, the insurance carriers themselves don’t create a further impact.”

However, as the effects of the pandemic advance, insurers will need to prepare for longer-term impacts, Carnahan says. “Executives have to take broader perspective and ask what comes next,” she says. “Not just day to day but charging course for the future to continue to provide the best possible outcomes for their policyholders, agents, partners and associates.”

The challenge for executives trying to chart a course is to make decisions reprioritize resources in a volatile, rapidly changing environment. “The insurance industry typically has relatively long decision cycles, and we generally take a long time to make a thoughtful decisions,” Carnahan elaborates. “Our projects tend to be relatively long-term—when we get something done within three months it’s all over the news. So to have change that came as quickly as the COVID-19 crisis requires an agile response.

This doesn’t come naturally to insurers, bound by regulation and culture to be deliberate in their decision making. “In the insurance industry, you can’t generally make a change in the entire company just standing around water cooler, so this is new skill: making good decisions quickly when you’re used to having a lot more information and a lot more time,” Carnahan observes.

The Mildest Scenario is Severe

Emphasizing the severity of the challenges that lie ahead, Celent’s report explores three scenarios of which the mildest is “Train Wreck.” In this scenario, where public health measures are successful and the virus peters out within a couple of months, there are still severe consequences. These include the death of thousands, mostly elderly and health-compromised; the closing of small business, the skyrocketing of unemployment, and a significant drop in revenue for a variety of businesses.

Among the consequences to the insurance industry, commercial lines gross written premium (GWP) takes a hit, especially for insurers operating in the hospitality industries. A surge in workers’ compensation claims should be expected, and medical professional insurers are hit because of an increased likelihood of medical malpractice.

(Click to enlarge.)

In two more severe scenarios—“Fiery Train Wreck” and “Fiery Train Wreck with a Toxic Cloud”— the immediate human cost is much greater, and the protracted dormancy of the economy intensifies the follow-on effects on claims, and on the number of businesses and individuals who can afford premiums or may not need as much insurance because they have largely ceased to drive or to work or to do business.

For the curious reader, the third scenario assumes the virus continues unabated into 2021, with no vaccination available, hospitals overwhelmed, mortality comparable to the Spanish Flu of 1918, the economy crashes, and a secondary catastrophic event occurs, such as high-magnitude earthquake, drought in crop-producing countries or large-scale war.

Carnahan stresses that Celent is not predicting any of the scenarios—though some of the forecasts have already manifested themselves, such as a massive spike in unemployment. In fact, there is a practical infinity of potential forecasts, and the few chosen are to provide a basis for beginning to think and plan based on possibilities and their implications for insurers. Among the ways entertaining different scenarios can help is that they yield some of the same results and implied reactions across different scenarios. “You can find the actions that are beneficial across multiple scenarios, which can help you to prioritize where to take action,” Carnahan notes.

Hints of Future Technology Use

The study concludes with observations about how technology is being brought to bear to deal with COVID-19 challenges. To share a few:

  • 3-D printing of all sorts of useful parts of medical devices seems to be a growing trend;
  • AI and computer vision are helping with some onerous tasks like reading X-rays and other images for identifying COVID-19 tissue damage to help classify patient disease stage; and
  • Knowledge graphs and geospatial temporal visualization are helping to track information in real time, while detailed mapping technology and aerial imagery are creating containment strategies as well as providing monitoring and surveillance for enforcement of stay-at-home and shelter-in-place ordinances.

Celent’s interaction with its research panel members has already yielded some interesting insights into the possible direction of technology management in the post-COVID-19 era. Carnahan notes that insurers generally have successfully scaled their remote work capabilities and that they typically have the same sorts of “essential” personnel that must still come to their facilities. “These tend to be people working on mail, collecting money, printing checks or running computer hardware,” she says. “What I find interesting is that all of these can be outsourced.”

“if you move to the cloud, you don’t need to manage infrastructure; if you outsource billing and payments, you don’t need anybody to print checks, etc.—and there are vendors offering these services,” she says. “We have all of these ‘essential’ employees whose activities are not strategic.”

COVID-19, the Economy, the P&C Industry, and Technology Spending

Anthony R. O’Donnell // Anthony O'Donnell is Executive Editor of Insurance Innovation Reporter. For nearly two decades, he has been an observer and commentator on the use of information technology in the insurance industry, following industry trends and writing about the use of IT across all sectors of the insurance industry. He can be reached at [email protected] or (503) 936-2803.

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