Understanding the Impact of COVID-19 & the Lockdown on the Insurance Sector

COVID-19 Impacts on Insurance Sector

Apart from the healthcare industry, one of the core sectors that have amplified their importance during the harsh times brought upon by the COVID-19 pandemic is the insurance sector. It has proven itself as a core player in the development and resilience of the economy throughout the US.

With lockdown restrictions implemented all over the country starting from April 9th, insurers have been forced to work remotely[Mac191] . This has forced digitization for some who weren’t necessarily looking forward to it, while others have taken this as an opportunity to innovate systems.

All interactions with consumers have now moved to digital channels, thus having significant impacts on behavior of both, insurers and the insured. This shift has raised many questions, one of the major ones being that could COVID-19 actually be the “catalyst” the sector needed towards the long-term betterment of the system? Or is this just a mere “opportunity”?

And are the impacts short term or long term?

Here, we shall discuss some of the impact of COVID-19 on the insurance sector and how it impacts the quality of life of families involved.

Understanding the Impact on the Insurance Sector of COVID-19 & the Lockdown

Premium Reduction

Insurance companies across the United States have started offering discounts for existing and new customers to mitigate the impact of Coronavirus. Some companies have also started offering partial refunds as the situation becomes direr.

While all this sounds very appealing to customers and their quality of life, it is not a quick-fix scheme. Insurance providers will have difficulty justifying these refunds and discounts once things start to settle – especially if there are claims for even 60% of the people who took those discounts.

Usage-Based Insurance (UBI)

COVID-19 has brought to life one of the time-old problems people have with the insurance sector:

“How will insurance companies ensure that rates given to me are fair?”

By February, or even the start of March, no one was certain that there would even be a lockdown. This is an extreme measure and nothing like our day-to-day asset security or driving hazards. This presents a threat for insurance providers as to how they’ll be able to tackle the increased risk level and what impact it will have in customers’ premiums.

This question has led to the whole insurance sector leaning towards the usage-based insurance (UBI) model. Taking motor vehicle insurance as an example, the insurance package in this model depend on:

  • How much the car is driven (Pay As You Drive (PAYD))
  • Your driving behavior (Pay How You Drive (PHYD))

Increased Demand for Protection

After the SARS (Severe Acute Respiratory Syndrome) outbreak (2003), countries (such as Hong Kong) saw a sharp increase in the number of providers as the demand for business protection increased, and a similar trend is expected post COVID-19.

In fact, the situation develops and despite the virus being out there, economies ‘reopening’ have resulted in a rise in demand for life insurance (an increase of 30%). Online portals and digitization have played an important role in this increase.

Value of New Business (VNB) Pressure

Looking at history, during SARS outbreak, existing policyholders surrendered their unit-linked insurance policy (ULIP), leading to a positive medium-term change in product mix. According to Avinash Sing, a senior analyst,

“Insurance sector would see short-term pressure on VNB due to sluggish business growth post Covid-19. However, overall margin would be broadly stable as high margin protection continues to outgrow savings.”

Conclusion

When looking at the insurance sector under the COVID-19 situation from a bird’s-eye view, a few impacts are evident:

  • Life insurers will see growth in policy sales (short term)
  • New business will see a negative hit
  • COVID-19 has ushered an era of digitization; welcomed by some and thrust unto others
  • Demand for pure protection product will lead to more uncertainties

All that said and done, neither party (the providers nor the families) get the better end of the deal due to COVID-19. Some aspects are in favor of providers while some are in favor of families. At the end of the day, it’s all about perseverance for both parties – and with the wheels of economy starting to slowly turn, there is no telling what uncertainties may rise for the insurance sector and quality of life for families.

If you’d like to learn more on the topic, don’t hesitate to get in touch via email or call today. Or if you have something to add, let us know down in the comments!


 [Mac191]Link to “The Efficiency of Remote Insurance Agents During COVID-19 Lockdown”

Types of Insurance Fraud and How to Look Out for Them

Types of Insurance Scams

Insurance fraud is one of the leading causes of financial instability and stress for families all over the United States. According to the FBI, insurance scams end up costing somewhere between $400 to $700 per annum to the average American family on insurance premiums.

This might not seem alarming, but the figure stacks up. To give perspective to that, consider that after the hurricane Katrina, $80 billion were provided by the government to mitigate damages. Out of this, $6 billion were lost to insurance fraud within 3 months.

“When it comes to insurance fraud prevention, you have to jump into the mind of a conman – beat them at their own game.”

There are numerous types of insurance frauds and here, we’ll go over some of the more common ones and how families can adopt insurance fraud prevention techniques to shield themselves from them.

Types of Insurance Fraud

As mentioned above, insurance scams can take many shapes, forms and names. However, when you look at it from a bird’s eye view, they all fall into four broad categories:

  • People scamming insurance agents for personal gain
  • Insurance agents scamming families
  • People setting up elaborate schemes to make money off someone else’s insurance
  • Selling insurance without a license and refusing payments when demanded

Here are some examples of insurance scams to show you how they can fall into these four categories:

  • Identity theft
  • Employee-agent fraud
  • False claims
  • Misrepresentation of amount payable by agent
  • Faked death
  • Insurance company fraud

Looking Out for & Preventing Insurance Fraud for Families

If you’d like to read up on some very shameful insurance fraud scams, the Insurance Fraud Hall of Shame is a very useful resource, as it can help you prepare for if you ever become victim to something like this.

Here are some examples to consider

  • Identity theft, where identities of addicts were stolen to claim over $175 million in health insurance claim.  
  • A parent continued collecting disability checks after her son died. She had faked the disease as well.
  • A salon owner burned his salon down and claimed $40,000 as insurance. The fire resulted in the deaths of two firefighters.

False Claims

This is one of the most common insurance frauds and can range from car accidents, faked deaths, staged circumstances to much more. Insurance scammers usually attack families by jumping in front of their cars, attempting to claim damages.

People might hit your car with theirs as well, perhaps by break-testing in the middle of the road or driving straight into you with a ‘staged’ witness.

One surefire way to prevent this insurance fraud is to install a dashcam in your car.

As for slip and fall claims, you might have to install cameras on your property. Just make sure you are taking the necessary precautions if doing any construction at your place.

Inflated Claims

With the frequency of natural disasters increasing by the decade, so is the frequency of inflated claims. Take the Katrina example mention above, for instance.

Inflated claims are also particularly popular if someone gets injured because of perhaps the angle of your window (sun shining into their eyes), an animal in your lawn, or even an accident where you actually are at fault.

Here, insurance scammers demand for a sum much higher than what is owed. You can avoid this by remaining vigilant and performing due diligence in regards to the damage incurred.

Insurance Company Fraud

This goes without saying, insurance fraud isn’t exclusive to individuals but is also committed by agents or agencies. These include:

  • Premium diversion
  • Fee churning
  • Underwriting, etc.

To prevent insurance fraud by agents or agencies, it is a good idea to check the licensure and reviews (if available) of the insurance provider before signing up with them. Trustworthy insurance providers are hard to come by and it might take some effort to find them, but once you do, you can rest assured that you’ll be treated right.

Legacy Armour is one such trustworthy insurance provider who doesn’t just offer you and your family good premiums, but also looks out for insurance fraud on your behalf! So get in touch today to learn more about our processes and how we can help you identify and prevent insurance fraud.