May 04, 2020 | Professional Services
The spread of the COVID-19 pandemic across the world has placed a huge strain on the insurance industry, as it is primarily responsible for payouts for treatment and testing costs to hospitals and laboratories. The industry is finding it difficult to operate with stability and expected efficiency. Governments are stepping forward by providing financial aid to the insurance sector and are helping the sector in disbursing medical expenses. Many insurance companies have also stepped up and removed co-pay to reduce the financial burden on patients with COVID-19.
Unemployment Adds Fuel to the Fire
The rise in unemployment further exacerbates the situation as unemployed personal loose corporate health benefits. This is especially true for the USA, which is seeing close to 6.6 million people claiming unemployment benefits. The insurance sector, especially the health insurance sector, will bear the brunt of claims during a pandemic outbreak. Countries such as the U.S. and Spain are trying to support insurance providers by covering the cost associated with testing and medical services.
The Impacts of COVID-19 on Insurance
The health and hospitalization sector will witness increased claims worldwide along with a rise in lawsuits due to clarity around definitions of coverage and terms of the settlement. The health insurance sector may suffer losses in the near future. However, insurers can sustain these times and will be rewarded by higher growth in the future due to increased awareness on the importance of health insurance. Meanwhile, the higher number of deaths due to COVID-19 may not have a major impact on the life insurance business. However, life insurance providers may face reduced returns due to rate cuts announced by central banks
Companies may see higher claims for worker compensation for health workers due to increased risk. Reduced activity in factories working with reduced capacity will see a fall in on-the-job accidents and an aligned reduction in claims. However, reduced economic activity and increasing unemployment could lead to reduced insurance premiums. As companies around the world move to remote work as an alternative to physical presence in the office, there will be increased exposure to cyber risks. The need to ensure data privacy for companies will result in higher claims. This also increases the adoption of cyber risk insurance by companies who have employees working remotely.
Insuring a Post-COVID-19 World
Companies' response toward employee benefits have been varied. Companies such as Starbucks have gone ahead and enhanced their benefits offered by including mental health benefits such as telephonic counseling to aid with the stress associated with lockdown and home quarantine.
As insurers bear a high financial cost for the health care system, this might result in an increase in insurance premiums in the coming years. However, more people are becoming aware of the benefits and necessity of health insurance, so there will be an uptake in people buying policies. A similar scenario is true for insurance related to cybersecurity risk, as companies witness increased cyber-attacks with more employees working from home via vulnerable networking infrastructure.