The Covid-19 crisis has profoundly affected the insurance world.

Physical distancing and other lockdown measures have already shifted activities once considered critical to conduct in person to online. This change will affect insurance distribution both in the short term as social distancing becomes the new normal, and in the longer term as our relationship with technology rapidly evolves. 

One immediate and obvious effect of Covid-19 on the insurance industry has come from people working from home. 

Dr Michael Naylor, a senior lecturer in finance and insurance with Massey University’s School of Economics and Finance, said business – including insurers –  has been forced to get used to the idea of staff working remotely and measuring their productivity by their output rather than their physical presence. 

“While remote working has been talked about since about 2005, managers have been very reluctant to undertake the experiments required to evaluate its practicality but now they have,” said Naylor.

 “Even though working from home full-time will only suit a sub-section of staff, managers are now for more comfortable with the concept of monitoring staff, and conducting meetings, remotely and while this change has significant implications for insurers as a business.”

For Insurance Council of New Zealand chief executive Tim Grafton, one of the great successes from the Covid-19 crisis was how seamlessly the insurance sector switched to remote working arrangements without a degradation in customer service.  

“Like other sectors, we can expect remote working arrangements to be used increasingly in future,” Grafton said.  

“Just as underwriters have responded to the new normal, distributors like brokers will also be making their own decisions as to how to best service their customers.”

Now, insurers are focused on the next set of challenges, including how to reimagine distribution in a more remote world.

“The more important change to come from the Covid-19 pandemic has been an acceleration towards the digitalization of all information,” said Dr Massey.

Indeed, customers in New Zealand are already seeing the effects of  what a rapid shift to digital distribution means. 

In July insurance giant IAG announced it will close all 53 of its AMI stores and its remaining State store, with the loss of 65 branch manager jobs.

IAG customer and consumer general manager, Kevin Hughes, said 350 jobs would be transferred to customer service and other departments.

The Australian insurer said Covid-19 was a factor in the decision to close the branches.

“Covid-19 has accelerated many trends within the insurance industry and in the broader operating environment,” Mr Hughes said.

The company had also acted on the feedback from its customers and how they interacted with the brand, he said.

"We've seen a decline in visits to our retail stores as customers increasingly look to engage with us over the phone, via email and through our online platforms – so we will be strengthening our digital channels to meet changing customer needs,"  Mr Hughes said.

The decision to close the stores had not been made lightly, he said, noting that the "the specialist Customer Care Team we temporarily established as part of the response to Covid-19 will also be made a permanent service and will support our vulnerable customers, as well as those who may be facing financial hardship."

It is highly likely that store closures will become more commonplace as the Covid-19 pandemic wears on, said Naylor. 

“During the crisis customers have become used to being unable to physically connect with many companies via stores and are more at home with internet access,” he said. 

“This has accelerated an existing trend, leading to a significant shift in how people shop.

“This may lead to most insurer stores closing, but if handled correctly should not harm customer experience.”

Mel Gorham, chief executive of the Insurance Brokers Association of New Zealand (IBANZ), told Covernote more insurance companies may follow suit and close their physical stores.

“It’s certainly possible as customers' needs and demands evolve,” she said.

“The lockdown generally proved that concerns over our sector’s ability to conduct business and connect with client routinely and remotely were manageable. And unlike business continuity scenarios, the lockdown included our clients and so provided a far more meaningful test of resilience, response and planning.”

The physical closure of stores was not without its drawbacks, Ms Gorham acknowledged, and she said care had to be taken to make sure all clients were looked after in the race towards digital-only.

“There will be a sector of New Zealand for which digital remains an issue, due to any number of barriers, including vulnerabilities and unreliable internet,” Gorham said. 

“Whilst not having a physical location to visit may not be an issue for many, a digital-only approach will not be a complete solution and viable alternatives will be required to ensure clients are not isolated or overlooked.” 

It was important to note that dependency on digital services needed “careful attention” through business continuity planning, said Ms Gorham, so that timely access continues. 

“This is especially important for when clients need it most – during individual claims and catastrophes,” she said. 

“Solutions such as pop-up stores, proximity locations and increased phone communications will need to be tested for ongoing stability, adapting as people’s needs and expectations change.”

The ICNZ said it would not comment specifically on the closures as it was an operational matter for IAG. 

Speaking generally, Grafton said a quickened shift towards digital-only makes sense, likening it to the way a move to online banking dealt with the lunchtime queues at banks.

“It’s been apparent for many years across the financial sector that in increasing number of transactions can be conducted online in a way that is convenient, efficient and at least cost to customer,” he said.

“Today all insurance companies offer online platforms for purchasing and making claims, with the ability to talk to someone available if desired.” 

It would be hard to imagine what, if anything, would trigger a resurgence in demand to go into a store to make a transaction, Grafton said. 

“Whether that will result in (further) store closures will be a judgement for individual insurers to make, but there are relatively few stores today,” he said. 

Mr Grafton echoed Ms Gorham’s concerns that that care must be taken to make sure “digitally vulnerable” customers are not left behind.

“In a post-Covid world we would expect and hope that distribution shifts to channels that work best for the customer,” Grafton said.

Grafton said, Covid or no Covid, we were in a digital-rich world that was constantly innovating in response to consumer needs. “And that’s the outcome we want to see,” he said

But vulnerable customers needed to be supported too, said Grafton, using the example that free phone lines remain a standard offering to assist people where physical contact is not available.

Just as the role physical stores play in the distribution of insurance is now being examined through a post-Covid-19 lens, so too is the role of insurance brokers.

Digital communication is playing a more significant role as a substitute for face-to-face contact, said Gorham, with many brokers needing to consider efficiencies.

“Lost time or opportunity through travel impacts availability, service and cost,” said Gorham. 

“Consideration will have to be given to when conversations are best had in person to strike the right balance. A conservative approach with limited travel seems to be being adopted by many brokers given ongoing concerns with protecting the health of employees as the threat of Covid-19 remains.”

If New Zealand follows overseas trends, another flow-on effect of the pandemic may be growing Kiwi customer demand for self-service tools to aid with the ease of digital delivery of insurance products. 

 That could happen, said Grafton, adding that it was important to keep in mind that at the heart of everything that drives change should be the customer. 

“For some companies, their business model may be built around face-to-face advice and they would no doubt see that as not just meeting customer needs but also a competitive strategy,” Grafton said. 

“Inevitably, there will be those who prefer self-service, but many people will still want advice and guidance, so will need to speak with a broker. 

“Almost all the business insurance offered in New Zealand is intermediated and I wouldn’t expect that to change, though the way in which intermediaries interact with their customers will inevitably change.”

 But in their rush towards digitalization, New Zealand insurers are making two profound mistakes, said Naylor. 

One is that they are setting up their primary customer contact as a call centre rather than the website, he said. 

The second, he said, is that they are reducing staff as administrative activities are computerized, rather than reallocating those staff to roles which analyse the river of client data to create greater customer insights and increase value added sales. 

“These two are connected, as unless client and agent information is collected in a digital format per transaction, costs cannot be reduced enough to allow mass-customization to take place, and it cannot be analysed by AI systems,” said Naylor.

Research shows that customers in general do not like call centres, said Dr Naylor, as wait times are high and information needs to be repeated and cost tasks could be handled by websites, apps, or chatbots. 

“While some NZ insurers are making genuine trials with new ideas, their internal software still tends to be out-of-date and doesn’t integrate all aspects of the customer experience.” 

Still, Naylor is of the firm belief that the Covid-19 pandemic has accelerated the industry’s inevitable shift to the adoption of new technologies, lest they risk flatlining.

You only have to look at the 2020 the US stock market, he said, which has seen the value of tech-driven companies rise steeply at the expense of companies with no strong technology base, thus providing AI-based firms with a large capital cost advantage.

“The fastest transforming sector will be auto-insurance, as driver-assist software sharply reduces premiums, and companies like Tesla get closer to full auto-driving,” Naylor said.

“And it’s important to note that based on the rich stream of sensor and video data from its cars, Tesla Insurance is offering significantly reduced premiums.” 

An interesting impact of the Covid-19 crisis was a significant increase of customer interest in drive-as-you-use insurance due to customer irritation at paying for insurance while the car sat unused, said Naylor. 

“While this product is still small, it will grow fast as customers get used to the idea and cars increasingly come equipped with the sensors and net links which enable an insurer to remotely download driving data to reconstruct events prior to a crash,” he said.

A similar shift is happening in house insurance, said Naylor, where investment in the collection and analysis of data relating to sub-soil conditions and house structure is moving insurers towards highly stratified premiums. 

“Household products with net-linked clips mean that products can be traced after a theft, and sensors linked to water pipes or power lines, alert customers to leaks or fire danger,” said Naylor.

Another important enabler in distribution is data. Insurance
companies typically have massive amounts of data locked away in filing cabinets and legacy systems, the value of such data effectively trapped, Naylor said.

“This is especially the case in the health insurance sector, because in New Zealand most health data is still not collected in a digital format
and is not integrated across medical health providers, hospitals and insurers into a national database that insurers can mine for insights,”
said Naylor. 

And while the health insurance sector was changing overseas, similar change here may be slower as significant investment and effort is required, Naylor said.

“Though the effort here could lead to revolutionary insights about the links between nutrition, activity, and health outcomes,” he said.

But with all the talk of technology saving the industry in a post-Covid world, can there still be room for brokers?

Yes, said Gorham, who said that brokers are needed now more than ever before. 

“With the uncertainty currently facing the world, many of us have never had a greater dependency on receiving sound and timely advice to help ensure we spend our money wisely,” Gorham said.  

 “Brokers provide advice across a range of products and insurers and they fill an important role helping clients understand risks; what is insurable, and what isn’t. 

“This knowledge can make a significant difference in these challenging times.”

September 2020

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