Where we are today
The impact of COVID-19 has been wide ranging. Malta’s Gross Domestic Product (GDP) and Gross Value Added (GVA) fell by 7% and 5.8% in volume terms during 2020, with ‘financial and insurance activities’ driving 3.9% of the decline in GVA.
Discussions within the insurance community have been wide ranging with an initial focus on claims emerging on products that carried direct exposure, such as business interruption cover and travel claims. On the other hand certain classes, such as motor, experienced reduced claims volumes as lockdown measures resulted in much lighter traffic. From an investment perspective, both life and non-life insurers experienced significant volatility on their material investment portfolios and, while the shocks experienced in the first six months of 2020 largely subsided, investment performance and yields have been adversely impacted and consequently this had a consequential effect on balance sheets and solvency ratios.
The pandemic is also having a continued impact on insurance demand with lines such as travel insurance, for instance, being severely impacted. On the other hand, from a supply perspective, both direct underwriters and reinsurers have sought to either exclude or price in COVID-19 related risks upon renewal of cover.
As with all challenges, this can be a catalyst for positive change and a driver for the industry to reassess and reshape. Insurers need to address legacy issues such as harbouring a predominantly ‘in-person’ go to market strategy with a new sense of urgency and position themselves to meet future challenges with greater resilience and agility.
What are we learning?
Twenty-twenty has taught us that change can occur at near lightning speed and that necessity can truly be the mother of invention.
From an organisational perspective, at almost a moment’s notice, the industry had to transition from a predominantly face-to-face way of carrying out daily business activities to one that was more digital. Front and back office services alike had to be adapted in ways that allowed services to be delivered effectively remotely. Many service organisations spent the first weeks procuring and deploying hardware and software to staff that enabled them to access office servers from home. Early technology adopters who had already digitised elements of their proposition clearly benefited from this foresight and investment.
Operationally, policyholders and insurers alike scrutinised their policy wordings in order to determine what obligations, if any, insurers had towards the growing cost of the pandemic. General insurers found that they were exposed to material business interruption claims while life insurers came face to face with the risk of worsened mortality coupled with bleak outlooks on investment yields which are critical to the long term nature of the business. The local regulator also issued communications aimed at: protecting consumers by inter alia cautioning the industry against retrospective changes to policy wording; encouraging business continuity; and promoting financial soundness by, for example, echoing EIOPA’s statement on dividend distribution and variable remuneration.
How do we respond?
While the pandemic remains front of mind, insurers continue to face other challenges in the form of regulation and accounting change (IFRS 17) and wider stakeholder expectations around their ESG (Environmental, Social and Governance) strategies.
As governments mobilise to vaccinate large swathes of the population the focus is slowly changing to what a post-vaccinated world will look like. Insures will need to repair, rethink and reconfigure, asking themselves how they can:
- realign cost structure and sharpen productivity;
- supercharge digital transformation to create a digital enterprise while reassessing cyber defenses;
- carve out new revenue streams and go to market strategies that are fit for the future;
- support their workforce in the new world; and
- strengthen capital efficiency.
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