The COVID-19 pandemic has changed work environments, recreational activities, social lives, and travel possibilities. This pandemic has also heavily impacted the insurance industry.
UW draws from the expertise of diverse professionals and academics for accurate information.
Professor Tony Wirjanto is a curator of Insurance and Asset Management for the World Economic Forum, as well as a professor for both the School of Accounting and Finance and the Department of Statistics and Actuarial Science at UW.
In an interview with university staff, Wirjanto explained the true impact of the COVID-19 pandemic on the insurance industry.
To begin with, the insurance industry in Canada was projected to have a compound annual growth rate of 4.1% for 2020-2024, but the pandemic brought that down to 1.7%.
Professor Wirjanto has further highlighted three specific issues the COVID-19 pandemic has caused in the insurance industry:
Due to a rise in health insurance claims as a direct result of COVID-19, insurers are having to provide grace periods on premiums, extend coverage periods for policyholders, and relax underwriting required to ensure that new policies are being issued.
Much like many other industries, the insurance industry is struggling to continue ‘business as usual’ because there are major obstacles to smoothly transitioning the workforce and critical industry functions to a virtual business environment.
Eroding Capital Reserves
The pandemic has created a capital and liquidity problem. In terms of assets, fewer clients are willing to invest money in a policy and brokers are struggling to come up with new proposals. In terms of liabilities, the exponential increase of claims has caused an immense outflow of capital. In terms of investment, the low-interest-rate environment does not promise appealing returns in an unstable market.
So what does this mean for consumers?
Wirjanto explains that insurance companies are making an active effort to reassess their policy coverage and the types of items that are covered. For example, whether a travel or health insurance policy is useful if it does not cover health issues caused by COVID-19. The insurance industry is aware that in light of the pandemic, consumers are increasingly in need of products like disability and life insurance, hospital indemnity, critical illness and business disruption policies with broader coverage than usual.
Similarly, the government is also making efforts to support the insurance industry through this difficult time. One way the government is doing this is by providing a type of trade credit insurance that provides coverage for insurance companies against payment defaults demanded by commercial customers. Additional government measures aim to address pandemic-related business interruption losses since those do not have insurance coverage in private insurance markets.