The role of insurance in a post-COVID world

Digitalization

The pandemic has hastened and amplified digitalization, as consumers rapidly switched from in-person to virtual interactions in the realms of work, education, shopping and entertainment.

However, increased reliance on technology has led to increased cybersecurity risks and has added the failure of IT infrastructure and networks to the list of top concerns for corporate risk experts.

As Francisco Marco, chairman of MAPFRE Global Risks, explained at the seminars, “the pandemic has increased the use of digital channels exponentially. This is very attractive to cybercriminals, who are specifically targeting users that are less accustomed to frequent use of technology. Cyber risks are a very particular case where indemnification will rarely be enough to remedy the damage caused.”

Growing role of the public sector

Governments have assumed an unprecedentedly active and paramount role during the COVID-19 crisis. The spectrum of interventions ranges from emergency loans and even guarantees to businesses, to capital injections into private firms and comprehensive furlough schemes. As a result, public borrowing has soared.

The OECD estimates that the debt-to-GDP ratio will reach its highest level in at least 40 to 50 years.

At some stage, however, public debt will need to return to sustainable levels. This will inevitably involve higher taxes, austerity measures, or government policies designed to keep interest rates at ultra-low levels to minimize the cost of debt. Such policies, the Geneva Association report concludes, “are tantamount to an invisible tax on savers and could undermine the sustainability of pension systems and the relevance of life insurance-based savings products.”

Focus on sustainability

Many governments are committed to “building back better,” i.e. deploying recovery and stimulus funds to promote resilience and sustainability. The OECD suggests that governments align their economic recovery goals with science-based carbon emissions reduction targets, improvements to supply chains and investment in renewable energy.

It also highlights the importance of well-being, inclusiveness, and accessibility to decisions related to the allocation of funds. Insurers can contribute significantly to achieving these objectives, not only as major institutional investors but also through “impact underwriting” through underwriting risks in the areas of renewable energy, alternative mobility and a more sustainable lifestyle.

Remote working

An increasing number of companies are exploring changes in relation to the amount of work employees can now perform remotely. This transition has implications for companies’ risk exposure. In this regard, one area that stands out is cyber insurance, which is gaining in importance as companies and their dispersed networks operating on home systems grow more vulnerable to hacks. 

Going forward, companies embracing a remote workforce may have less exposure to property damage but, as the pandemic has highlighted, will need to pay more attention to business interruption losses.

As Kai-Uwe Schanz, Head of Research and Foresight at the Geneva Association and author of the report, puts it: “Opportunities abound for insurance companies in the post-pandemic world. Individual and corporate awareness of risks to life, health, and income is greater than ever. More generally, at the social level, a transition toward sustainability will make it easier for insurers to convey their corporate purpose: to build resilience and promote sustainable development. At the same time, expectations in terms of the role of insurance have risen. After the pandemic, insurers must accelerate their efforts in relation to reducing the many protection gaps exposed by COVID-19.”