A recent briefing in The Economist argued that the COVID-19 pandemic will accelerate three existing worldwide trends in business: deglobalization, digitalization, and consolidation. All three trends were well underway before the current crisis. Trade spats and supply chain disruptions were leading businesses to consider diversifying their supply chains or bringing production home, demand for online service availability was driving digitalization, and greater economic power and profits were accruing for companies making up an increasingly smaller share of the global economy.
The world’s reaction to COVID-19 will accelerate all three trends, which will have direct and indirect impacts on insurers.
Deglobalization
At first glance, the effects of deglobalization on insurance may seem minimal, but they will be felt in some areas. As growth in global trade declines or even reverses, marine cargo insurance may see reduced premium volumes. More production at home may mean higher inland marine premium volumes.
Likewise, insurers focusing on covering industrial plants may benefit from increased manufacturing here at home. At the same time, that increase in domestic manufacturing may well lead to higher costs for manufactured goods—and to a rise in replacement claim costs.
Digitalization
Digitalization has been one of the top concerns for insurers in the past few years, and that is unlikely to change in The After Time when the world emerges from its COVID-induced lockdown. Insurers, like any organization that can conduct a significant proportion of its business online, have had to implement working from home measures rapidly. Most of Novarica’s clients report a high degree of success in this transition.
Not everyone will continue to work from home all the time after the crisis; the desire for direct human contact remains. Nevertheless, the crisis has shown that a lot more remote working is possible, and we will almost certainly see a higher proportion of employees doing a large amount of their work from home than before the crisis.
Accelerated digitalization will also impact customer interactions and distribution channels. Now that people who can work online are, those same people are likely to ask why their insurance can’t work online, too. As more insurance is bought and sold digitally, larger insurers will find it easier to go direct, further disrupting distribution channels. A greater digital presence will also mean greater reach for larger insurance carriers and differentiation challenges for smaller regional insurers.
Consolidation
The final trend, consolidation, is perhaps the most powerful and challenging. Deep-pocketed firms will find surviving the crisis easier. Large insurers are more likely to have the financial resources to survive and adapt to both the crisis and the changed landscape thereafter. They are not the only ones, however: efficient and nimble insurers with a strong digital footprint can also do well in The After Time.
This crisis is challenging individuals, businesses, and governments throughout the world to learn new ways of living and working. Those best able to adapt quickly to the new, more digital, reality will find life after the crisis easiest.
Novarica insurer client and Council member Virtual Town Hall meetings are currently scheduled every Tuesday at 1pm ET through the end of June. Novarica vendor client Virtual Town Hall meetings are currently scheduled the first Wednesday of every month through the end of the year.
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