The Covid 19 pandemic has surely impacted plenty of industries ranging from travel, transportation to even manufacturing. We would now like to discuss the impact of this pandemic on the insurance sector. In uncertain times there is an old proverb that cash is king and fortunately the insurance sector has never had any shortage of cash. The business model is based on the concept of premium upfront and hence the insurance companies can never be short of cash. However, this pandemic is something completely contrasting to anything, which you may have seen before.
Therefore, we decided to speak to experts and get an insurance industry overview on the current pandemic and business in this virus hit world. The insurance sector globally had not been able to come out unscathed and an example can be taken of the UAE insurance authority already issuing circulars on the measures, which the insurance companies are supposed to take. The US insurance market has also been impacted and the growth of insurance sector has certainly come to a halt. The specific areas, which are already feeling the heat, are car insurance and home insurance. The health and life insurance sector are also witnessing a decline but that has been at a slower pace.
The insurance companies have to deal with a declining market share and lower profitability. Let us take a look at the various sides of the insurance industry and the future of insurance sector worldwide post this pandemic.
The impact of covid on premiums:
The premiums are the lifeline of insurance companies and experts with whom we interacted were of the opinion that life & annuity sections are sure to take a short term hit in terms of premium inflow. This is however a segment of insurance where the premium inflow dips should be for the short term only. However, the premium inflow for home insurance is likely to have a long term negative impact.
The impact on investment income:
The investment income for insurance companies should also take a hit due to the Covid. There are two factors responsible for it and first we would like to put the blame on volatile financial markets. We would also like to point out that interest rates are for certain to remain at record lows for a long time now.
There will be an increase in claims:
The experts have to say that the bad news for insurance companies do not seem to end here. They expect a significant increase in life and disability claims. The health agencies estimate that the death toll in the US could be 1.2 million.
Insurance companies must be ready for this imbalance:
The low premium inflow but the increase in claims will create a perfect imbalance and the insurance companies need to rise up to this challenge. These are times, which will separate the men from the boys.
This is a brief guide and an insurance industry analysis on the impact of covid 19 in this sector. The world will have to suffer from job losses, pay cuts and in such a scenario the insurance sector will have to take some bit of hit. It is to be seen on how quickly the sector is able to recover.