Alistair Chamberlain, examines the impact that COVID-19 is having on business, the actuarial profession and the way we work
Coronavirus is one of the greatest challenges the modern world has faced. From its macroeconomic consequences to the human mortality impact and mental health challenges of self-isolation, it has the potential to impact the lives of nearly everyone on the planet. Huge pressure is being put on healthcare services, and governments are having to act pragmatically, changing policies daily. For business, the watchword is ‘agility’, adapting to new ways of operating to protect the health of the workforce while trying to maintain continuity for clients, customers and business partners.
As we digest the news and the impact it is having on us, our families and communities, actuaries must also discharge the responsibilities and professional duty we have to the companies and societies we serve. The impact to our respective businesses and wider society comes from multiple and varied sources.
Business disruption impact
As white-collar workers, the go-to business interruption solution is working from home. As we settle into the new ‘normal’, specific home-working challenges for actuaries include mobile computing power (some companies allowing actuaries to take desktop and other equipment home, as well as laptops) and new communication challenges, including with those teammates and colleagues we would normally communicate with on a real-time, face-to-face basis. Thankfully, this crisis has reached us in the broadband age, and in most cases the communication solutions are excellent. While conference call facilities and servers are challenged by the volume of traffic, and family interruptions on work video calls are now commonplace, those businesses that stress tested their business continuity and contingency plans will be grateful. When this pandemic is over, the largest work from home exercise of all time is likely to change the way we work forever. Overall, the business disruption impact seems manageable and rather minor in the context of the unfolding crisis.
Business volumes impact
In Q1 2020, consumer behaviour changed in a way we couldn’t have imagined in January. Sorting out one’s personal finances, often seen as a ‘job for tomorrow’, is even further down the priority list in the immediate term. A long face-to-face meeting with a complete stranger – a standard element of financial planning in many places – is currently unimaginable. Actuaries need to distinguish between short-term disruption and long-term paradigm shifts, bearing in mind that the long-term change in trend is likely to be facilitated by our now-intimate familiarity with remote connectivity. Financial planning via video conference is likely to be rapidly accepted and normalised. Consumer appetite for insurance is also likely to change, with awareness of and sensitivity to potential life events at an all-time high, and an increasing demand for new types of cover. People may start to think about their policy, and the cover provided, in more detail – a number of customers have had travel insurance claims rejected as a result of government advice regarding travel, even though customers reasonably changed their plans. In Asia, insurance companies saw strong demand immediately after the SARS crisis. In some markets, we are already seeing a large increase in uptake of protection products that consumers have, in the past, struggled to engage with.
The initial phase of the crisis, when cases appeared to be limited to Asia, was largely shrugged off by the financial markets. The current phase, in which the impact is hitting home in Europe and North America, has sent markets spiralling, calling the valuation of long-term assets into question. This, in turn, quickly generates questions about capital measures, what the numbers mean and what actions companies should take. As actuaries take this in, they need to bear in mind the limitations inherent in the bases and models, which are now being operated with previously unseen and unforeseen parameters. As well as understanding and relaying all this, actuaries need to consider the macro context and the underlying, sometimes implicit, limitations. Helping companies make sense of the numbers in fast-moving and uncharted territory is a moment when all of our skills, knowledge and judgment are put to the test.
“The long-term implications of the crisis seem likely to be profound – maybe more so in the West, where this is the first major pandemic for 100 years”
So far, the insurance claims impact has largely been felt on general insurance product lines, with a massive incurrence of travel cancellation claims and business disruption cover potentially triggered. Indeed, swathes of suppliers in the UK responded to the crisis by completely withdrawing travel insurance products from the market before the government imposed travel restrictions.
In some markets, policy clauses will often exclude governmental action (eg forcible closure of businesses, even when they are not directly impacted) or can limit exposure with respect to new viruses. Insurance that doesn’t deliver at the moment of truth, while being actuarially logical, will raise major questions about the effectiveness of the industry when it is most needed. It remains to be seen if this will change people’s willingness to pay for stronger cover, or if governments will accept that they effectively underwrite unexpected universal loss events such as COVID-19. Either way, it will provide a test for insurance industry bodies, insurers, reinsurers and intermediaries, determining how far they are willing to go to define what they are prepared to protect individuals and businesses from during an ‘unexpected, unforeseen event’ for a customer.
While mortality cases make vivid images and headlines, as an insurance mortality claims event, the experience has so far not been extreme; even medical insurance claims are limited, with treatment in most countries restricted to government-controlled facilities. The mortality impact is focused on some of the most vulnerable groups of society, who are either aged, and therefore largely not in the insured population, or who may have struggled to get insurance in the past due to inherent health conditions. The latter group especially may be one where we have questions to answer about access to insurance cover.
The long-term implications of the current crisis seem likely to be profound on many levels – maybe more so in Western society, where this is the first major pandemic for 100 years. Impact is likely to range from the relatively minor (maybe more appetite for remote working) to major questions about how we organise as a society on a local, national and global basis. For insurers, the impact will be felt for some time across life and general insurance, covering both immediate-term balance sheet implications and also some longer-term questions about how we serve society and how our products and services responded in the hour of need. Questions will be raised about policy limits, wording, exclusions and coverage levels – how will insurers, corporates and individuals react if another ‘unforeseen’ event hits? We will need to find new solutions to these societal challenges.
What can actuaries do?
First of all, we must keep going through these tough and strange days – which include extended working from home while managing our personal lives and supporting family near and far. These things should not be trivialised, and it will test our perseverance and impact aspects of our mental and physical health. Secondly, we must do what actuaries are required to do in our professional capacity – manage the immediate and also take the long view, exploring and optimising a range of plausible outcomes. Our businesses and societies are being asked tough questions, and so are we. While we won’t have all the answers, our training to understand a new range of implications and scenarios and enabling rapid, level-headed and sound decision-making is fully needed now.
Alistair Chamberlain is the group head of product and actuarial, global insurance, at HSBC Life