Impact of COVID-19 on the Insurance Industry

The novel coronavirus aka COVID-19 was initially reported as an emerging viral pathogen in December 2019, in the city of Wuhan, China. Later, the virus strengthened its grip and start spreading across the entire globe which led to the creation of a serious health issue.

Finally, after observing and analyzing the entire scenario the World health organization (WHO) declared the novel coronavirus as a pandemic considering the possibility that it is most likely to affect a large number of populations than expected initially.

In order to prevent the spread of the deadly pathogen most of the countries declared a state of lockdown, which permitted only essential services to continue, and everything else was shut down. European countries namely Italy, France, Germany, Spain, and the UK were some of the most harshly affected countries by the pandemic. In the later months, the United States witnessed a sudden rise in the number of COVID-19 cases and surpasses all other countries being the hardest-hit country.

The novel coronavirus has not just impacted mankind in terms of health and lives but also adversely affected trades, businesses, and economies worldwide. After the imposition of lockdown, most of the thriving industries and line-ups of businesses that were not counted as essential were put to a halt to contain the spread of this virus. This temporary halt has affected millions of people across the world resulting in a state of global economic disbalance.

The insurance sector is also hard hit by the pandemic considering which the UAE insurance authority has issued a circular (2020 of no.3). The circular clearly describes the set of precautions and measures insurance providers are supposed to take during the current outbreak. In this article we analyze and understand how the novel coronavirus has affected the insurance sector in the UAE.

An overview of the Impact of COVID-19 on Insurance Sector

The first and foremost concern that arises immediately out of the COVID-19 outbreak is the continuity of business operations along with protection employees and partners. The insurance market in total has approximately lost 48% of its market share since the outbreak began, car and home insurance being the most affected line of business. Health and life insurance have also witnessed a slow fall in numbers affecting insurance providers adversely.

The overall cost of testing and treating COVID-19 patients will have an extensive impact on life and health insurance providers that are already affected by the pandemic. As the insurance providers are struggling with shrinking market shares and profit levels there is a very high probability that the payable premiums will be increased in the next year to cover the losses incurred.

The different major elements of life insurance products will be affected in different ways due to the ongoing pandemic, let us take a quick look:

Premiums

The primary source of income for insurance providers in the premium, as a result of the COVID-19 outbreak life and annuity businesses will witness a rise in the premiums in the short term which is most likely to balance in the long run. Unlike the life and annuity line ups the real estate and casualty line ups will witness more dynamic impacts. The premiums in the short term are most likely to reduce in the short term which will continue in the long run. The aftermath of the COVID-19 outbreak will reduce the economic activities worldwide which will eventually lead to a reduction in the premiums.

Investment

Looking upon the obtainable returns from the investment sectors there will be sudden dip due to a high degree of volatility of disbalance in the global markets. According to the current prediction the rate of interests will reduce substantially which might create a troublesome situation for investors not just in the UAE, but all across the globe.

Claims

Based on the current health situation in the UAE and worldwide the number of lives, term and disability claims will rise exponentially, and the number of deaths might surpass all pandemics in the past. More will be the number of deceased people, higher will be the number of claims and therefore insurance providers will end up paying the death benefit which in turn will affect their overall revenue.

The major reason behind the downfall in the profit rates of insurance providers is that the number of claims being filed is rising as a result of which insurers are providing the coverage to the undersigned. On the other hand, the market is going through a state of depression due to which the number of new customers that purchase life insurance/ other insurance products has reduced. This disbalance in the number of claims processed against the number of new customers has resulted in heavy financial losses to insurance providers in the UAE.

Combating the Wrath of Coronavirus on Insurance Industry

The impact of the pandemic is quite significant not just on the insurance industry but on various other sectors and line ups of business. The strategy to mitigate the damage done by the COVID-19 outbreak is subjective and depends upon how long it is likely to last and what will be the economic, societal, and health-based repercussions of the entire situation.

Insurance providers across the UAE should proactively build models to minimize the impact of COVID-19 economically as well as socially. However, keeping the severity of the situation in the center the primary focus of insurers should be ensuring the continuity of their businesses. Business owners should identify the critically functional elements of their business operations and arrange them in the ascending order of their revenue generation.

Insurance companies should lay emphasis on their overall customer satisfaction, revenue impact along with government guidelines and regulations in order to reach a conclusion that which line up of business should be prioritized. However, insurance firms should not compromise with the safety and security of their employees during the course of remote working practices.

Issues that are specific to the Middle East

• Various insurance plans in the middle east cover business insurance and these policies are only claimable when a certain event has occurred. Typically, business insurance is purchased by business owners to protect their businesses from fire, theft, burglary, earthquake, etc. The current situation has put a halt at all business activities due to an imposed state of lockdown and not due to any natural calamity. Therefore, insurance providers will not cover losses incurred by the policyholders.

• A wide variety of health insurance providers in the middle east do not cover endemics and pandemics in their plan which in turn will affect, patients with health insurance who have been diagnosed with the disease. From the customer’s point of view, it is vital to be aware of all the exclusions within the health insurance policy to avoid any inconvenience later.

• Travel insurance policies that were purchased after the spread of the novel coronavirus which later was declared a pandemic by the WHO would be classified as ‘known event’. In such a case the plan may not cover expenses incurred as a result of contracting the novel coronavirus. Therefore, policyholders should thoroughly go through the fine print of the policy.

In a Nutshell

The government of the UAE is working hard in accordance with the private sector to minimize the effects and repercussions of the pandemic. Financial institutions and insurance providers should provide leverage on life and health insurance premiums at the moment to help the common public cope with the stressful phase.

People willing to buy insurance products be it life, term, health or motor insurance can make use of web aggregators like Policybazaar UAE to compare different providers and products and choose the one that suits their budget as well as their needs.

The only way out to prevent the spread of this deadly pathogen is social distancing. Washing your hands multiple times with alcohol-based sanitizer or handwash prevents the spread. People should avoid going out of their houses unless necessary. The trail of life is uncertain and therefore the best remedy is to be well prepared by purchasing the right health and life insurance plans to safeguard yourself and your family’s future.

Disclaimer: The views, suggestions and opinions expressed here are the sole responsibility of the experts. No Forbes India journalist was involved in the writing and production of this article.