In our previous article – Insurers Hit from all Direction by the COVID-19 – we saw how the ongoing pandemic is engaging insurers on multiple fronts including as employers, claim payers and investment managers.

This follow up article addresses the 8 Impact Areas of COVID-19 upon insurance operations.

1. 1. Increased Government & Regulatory Oversight
2. 2. Cross-Accumulation exposure/risks.
3. 3. Cyber Security Threats and Fraud
4. 4. Service Level Agreement (SLA) failure threat
5. 5. Increased Litigation and Reputation Risks
6. 6. Remote Working
7. 7. Increased Inquiries and Claims
8. 8. Solvency & Liquidation risks

1. Increased Government & Regulatory Oversight

In response to the ongoing COVID-19 crisis, government bodies and insurance regulators have had to impose special constraints and requirements on insurance companies. One such directive was by the Insurance Regulatory Association (IRA) of Kenya requiring insurance firms to offer medical cover to policy holders found to be infected with the coronavirus.

Similarly, the Kenyan government like many across the globe in their economic relief efforts have reduced the rate of the value-added tax and corporate tax. Central banks have also lowered interest rates which while helping boost the relevant economies.

As this pandemic progresses, there might be more government directives and regulatory requirements coming down for the insurers to adopt. The impact on insurers will be varied including; the impact on tax reporting and compliance requirements that need to be factored into their operations. Life insurers especially those with significant annuity business will feel the extra strain as their assets and liabilities are affected.

2. Cross-Accumulation exposure/risks.

With COVID-19’s far-reaching impact, the chances of risk accumulation across lines of business are very high. In recent times, risks have become more interconnected due the increase in catastrophic events, the advancement in technology, the growth of new business models and new risks like cyber risk and a growing abundance of information.

Tracking cross-accumulated exposures/risks will be a nightmare for many health, life and non-life insurers with such scenarios as a business filing several claims including business interruption, worker’s compensation, general liability and even accident and health claims due to the pandemic.

This will be exacerbated with the current COVID-19 pandemic with the aftershocks guaranteed to be felt well after this crisis has passed.

3. Cyber Security Threats and Fraud

The risk of fraudulent claims will increase as more businesses and people fall into hardship due to the rise in unemployment. Cyber Security is also a major concern as hackers take advantage of the crisis and launch attacks and scam users online.

Employees accessing core systems remotely also increase the risk to their privacy and the security of their employer. Experts recommend putting in place Virtual Private Networks (VPNs) to enable employees securely access the company’s IT resources remotely and help stem the tide of intrusions.

Unfortunately, VPNs are also attracting suspicion as some are found not to be as secure as there marketing suggests. Insurers are advised to be careful when selecting VPN providers, do thorough due diligence, be wary of the “FREE’ tag and above all make sure to choose a service that has capabilities that meet their unique needs.

4. Service Level Agreement (SLA) failure threat

Third-party providers including IT vendors, independent agents, administrators, custodians, distributors are critical to the operations of insurance companies. COVID-19 might threaten the ability of some of this service providers to meet their obligations or perform as required under their Service Level Agreements (SLAs).

Because this is beyond the insurers and service provider’s control, it would be a great time to review SLAs, assess risks and seek to limit the impact of non- or delayed-performance by the suppliers. Insurers will also need to review their own performance to ensure they are also living up to their end of the agreement including paying suppliers on time to ensure standards are kept high.

Beyond SLAs insurers need to make sure each of their service providers have a coherent business continuity plan to enable them continue providing the necessary service required by the insurer. The insurer might need to provide certain tools and resources including technology to help facilitate collaboration and information sharing.