The COVID-19 pandemic has significantly changed the risk landscape for insurers, prompting a quick shift to digital channels. Simultaneously, the pandemic also brought about uncertainties in product lines such as business interruption insurance, event cancellation, travel and trade credit.
Risk prevalence has not only amplified but also has become more complex due to overlapping consequences. The global health crisis has led to a sharp increase in cyber risks, as work-from-home models were quickly implemented, increasing the vulnerability to cyber threats. Cyber insurance has become a popular topic amongst insurance and risk management professionals. So far, insurers have remained largely resilient, but this sector is seeing a greater call for systemic risk solutions.
From a management perspective, the pandemic also tested the resilience of business continuity plans (BCPs) of insurers. BCPs, which usually focus on catastrophe events such as hurricanes or acts of terrorism, have been stretched to their limits. Hence, insurers are now faced with the challenge to reassess and strengthen their business operations.
From a life and health insurance perspective, the pandemic has resulted in an increased mortality rate and looming economic downturn, which might lead to higher lapse rates. This is causing increased financial stress on insurers. The evolving situation leads to a need for new risk assessment models, with the integration of more real-time data and disease modelling methodologies.
As we adjust to the 'new normal', the insurance industry will continue to assess and adapt to these changing risk profiles. While basic risk management fundamentals – identifying, assessing, mitigating, and monitoring risks – remain the same, the focus and priorities have changed dramatically. The move towards more expansive and flexible risk management and insurance solutions is evident, and the transformation in the risk landscape is sure to continue well into the future.
How COVID-19 Impacted Risk Management in the Insurance Industry
