The COVID-19 pandemic has triggered monumental shifts in almost every industry, and one of the most affected has been the insurance industry.
Medical insurance providers have been thrown into flux by legislation, vaccine rollouts, long-COVID claims, and much more. But health coverage isn’t the only part of the industry affected—far from it. Issues like rising costs and a changing workforce have altered the way that nearly all insurance firms do business, and the shake-up isn’t over yet.
Below are a few ways that the insurance market has changed in the era of COVID.
Record Number of Consolidations
Mergers and acquisitions within the insurance industry are at a decade high. One reason for this is that consumer preference shifted to a digital brokerage model during the pandemic. Compared to 2018, consumers were 30-50% more likely to buy home insurance and car insurance online in 2022.
Smaller firms that were unable to keep up with the speed of changing legislation or the cost of maintaining a digital infrastructure were glad to accept the support of larger companies. Larger entities, in turn, welcomed the opportunity to scale and lower costs.
While insurance companies argue that acquisitions are a good thing, consolidation normally results in higher prices for customers due to a decrease in competition.
Supply Chain Disruptions Boost Claims Costs
Enduring supply chain issues are driving up costs around the globe. This, in turn, has fueled unprecedented inflation affecting even the most stable of currencies. As a result, insurers are dealing with increased uncertainty when fulfilling claims. While brokers used to have static lists of service providers, they are now having to perform underwriting that reflects unexpected changes in suppliers, logistics, and distributors.
This, along with inflation, has led to spiking costs of fulfillment. Rising costs of raw materials, auto parts, medical services, and property has caused claim costs to rise in nearly every insurance market, from car insurance to music instrument insurance. Increased interest rates may bring some stability back into the insurance market, but supply chain issues still threaten volatility.
Workers’ Compensation is Less Predictable
COVID-19’s impact on the workforce is still not fully understood, and insurers were left in murky waters when dealing with claims of workers’ compensation for COVID cases. Those affected by COVID are entitled to workers’ compensation, which has led insurers to reevaluate workplace expectations.
Industries that could shift to work-from-home labor models were largely unaffected, but essential workers who often work face-to-face with the consumer have been heavily impacted. These positions, such as healthcare providers, food service staff, and retail workers have increased in value due to higher risk. Yet, rising wages have been matched by rising workers’ compensation costs, offsetting wage value and squeezing both employers and workers.
Legislators and insurers have yet to agree on how to deal with workers’ compensation within a work-from-home model, too. A lack of observation and uncontrolled home environments may increase employers’ liability.
Property Insurance also Affected
Private property insurance pricing has been skyrocketing due to pandemic-caused inflation and supply chain disruptions, leaving homeowners in many parts of the world struggling. Construction materials rose in price by 20% from January 2021 to January 2022 in the USA, which means it costs much more to repair or replace a home.
Volatile costs can be particularly devastating to families, as insurance coverage can change from month to month. For example, if you’ve insured your home for the rebuild value of $250,000 and the price of construction materials increases by 10% over the course of 6 months, you may end up paying an unexpected $25,000 out of pocket to repair your home.
Commercial property insurers aren’t off the hook either. According to most commercial property insurance plans, the presence of a contagious disease such as COVID-19 may constitute damage to property or physical loss. So, those insured may qualify for compensation in the event of an outbreak of a new COVID-19 strain. This is likely to increase the risk to commercial property insurers and cause policyholder prices to rise.
The Insurance Market is Marred by Uncertainty
A well-functioning insurance industry is marked by risk assessment and predictable outcomes. In unpredictable times, everyone suffers. Insurers, especially small firms, may be overwhelmed by claims. Large firms may face adverse market conditions due to uncertainty.
In the end, policyholders pay the price—literally—as insurers attempt to shore up risk by raising prices. While the current volatile state of the insurance industry is not likely to impact the financial markets overall, it is far from stable. We can only hope that insurers and legislators will learn to better anticipate the challenges of a post-COVID world and that insurance markets will find their footing once again.
