The COVID-19 crisis has brought forth an unprecedented level of reputational threat which insurers must meet with a measured response.
Public perception of the insurance industry around the world has suffered in the wake of the COVID-19 outbreak with ongoing disputes over claims and coverage casting an unfavourable spotlight on how the sector has responded to the pandemic.
In many cases, insurance companies are perceived as not willing to fulfil their obligation to policyholders who filed claims for business continuity, loss of income and travel cancellations on the ground the perils are not covered. As a result, the overall reputation of insurers is taking a battering as consumers and businesses come to terms with the fact that most insurance policies do not cover pandemics.
What’s at stake?
COVID-19 has been an immense global upheaval that has suddenly shone a spotlight on many industries, including insurance, said Willis Towers Watson head of Central and Eastern Europe, Middle East, and Africa Pamela Thomson-Hall. “Whereas previously, insurers may have faced large claims in relation to a natural catastrophe contained to a specific region, or a certain major business event, here the reputational risk has been magnified by the sheer global scale of the pandemic.
“Reputation is especially important to insurers because they’re offering a service and, in effect, a promise, rather than a manufactured good. So, the industry has not faced a reputational challenge on this scale before,” she said.
In terms of the situation in the Middle East region, reputational challenges due to the coronavirus have increased on a few fronts, said Moody’s Investors Services assistant vice president analyst Mohammed Ali Londe. First, insurers are faced with business continuity challenges and their ability to service customers and stakeholders without disruption came under scrutiny.
Second, social risk for retail insurers has increased significantly. “Many insurers have generated exceptional profits from a steep drop in motor claims during the coronavirus-related lockdown and this resulted in pressure to share the benefits with customers. In some cases, such pressures took the form of directives from regulators to provide discounts or, as seen in the case of motor polices in Saudi Arabia, free extended cover,” he noted.
For commercial insurers, they are facing legal pressure, mainly for some business interruption claims which they have rejected citing pandemic exclusion clauses, said Mr Londe, adding that some policyholders are suing insurers with the argument that the exclusions were not sufficiently clear. Finally, the industry’s ability to service and honour claims in a timely manner was also challenged due to liquidity pressures, albeit many highly-rated insurers maintain significant liquidity buffers, he said.
Amid the negative publicity, the threat of reputational damage generally ranks at or near the top of the list of potential risks that can impact an insurance company during the COVID-19 pandemic, said KPMG UAE director, accounting advisory services Anay Srivastava. “Insurance companies’ risk management strategies are therefore likely to be recalibrated to focus on new reputational threats generated by the pandemic.”
Reputation risk threats are always a big deal, as they are the only risk directly affecting all other financial, cyber and operational risks, said Bupa Arabia CEO & managing director Tal Nazer. “Any mismanagement within any function could lead to a reputational risk in this connected world we live in. A company’s reputation, how the general public perceives a company or entity, is its most valuable asset. As a healthcare company, and especially during the pandemic, we are being held at the highest standards and that puts us, along with the entire healthcare ecosystem, at a higher reputational risk,” he said.
Reputation risk management should be treated as part of the overall strategy of the organisation; company leaders must have the proper tools, processes and resources to identify and respond to reputational risks, said Mr Nazer.
He said traditional ways of reacting to reputational issues is no longer relevant today. “The first step for companies is to identify potential risks and what the company is or is not doing to address those risks. The second and equally important step is to have a response model ready for unknown potential reputation risks, enabling fast and organised plan-of-actions to be set up. The final step is to spearhead positive reputation drivers by leading the social responsible needs of society during a crisis which we can support.”
From a rating agency’s perspective, “we find that highly-rated insurers have overcome the reputational challenges with minimal impact to operational performance by having good risk management in place which ensured business continuity and ensured that their exposure to liquidity risks and investment risks were manageable under stress scenarios”, said Mr Londe.
As for the reputational risks arising from the profits made on both retail and commercial exposures, Mr Londe said insurers have defended their reputation by lowering premiums, returning premiums or offering ex gratia payments, whilst at the same time enhancing their corporate social responsibility policy.
The positive aspects
During this challenging period, there are some clear steps that the insurance industry can take to manage the implications of the COVID-19 crisis and thereby demonstrate social responsibility and empathy for clients and society at large.
The insurance industry would do well to act in a socially responsible manner, demonstrating empathy for their clients and society at large during this difficult time, said Mr Srivastava. Insurers may also aim to forecast consumer needs, and offer improved experiences through low-effort interactions, as well as versatile products and payment schemes.
“While demonstrating the industry’s essential role in providing coverage for insurable exposures in a responsible, affordable way, insurers may undertake constructive and focused communication, utilising both publicity and private policyholder outreach. The goal is to make the public aware of potential assistance offered to individuals and companies by sector stakeholders during this period,” he said.
Concurring, Ms Thomson-Hall said, “This is a great opportunity for the industry to show how it can help repair the global economy and get clients back on their feet. It’s also a time for brokers like us acting for clients with claims to come into our own and show what we can do as advocates for clients to get these claims paid.”
One critical aspect that the industry can focus on is to work hard with clients to show transparently what kind of coverage is possible and desirable, which will come through discussions, negotiations, and changes to policies, she said. “Clients need to understand the best options and to be given a range of solutions. This is a particular challenge in a hardening market, so it’s important for the industry to start thorough client conversations as early as possible.”
COVID-19 is a health and humanitarian crisis and it is at times like these we need to step up and contribute to society, said Mr Nazer. “During the pandemic, and in line with our vision, we went beyond standard obligations as a healthcare insurer to support and help our customers and our community at large. We created a designated taskforce to measure and address potential risks associated with COVID-19 internally and externally; we expanded our Tebtom programme to include all members and 40 cities around Saudi; and we set up a state-of-the-art command centre for public queries about the virus.”
Managing social media
While the industry is taking action to help both customers and their communities during the pandemic, media coverage has primarily focused on disputes over policy language and claims with little public attention being given to insurers who went beyond their policy obligations. At the same time, fear and misinformation can spread quickly online, and this is particularly true of COVID-19, which has brought on an ‘infodemic’.
Social media can really amplify reputational damage, “whether that’s from an individual or company feeling wronged by an insurer, or from people sharing negative news reports from the traditional media and giving those stories extra weight or creating fake news”, said Ms Thomson-Hall.
She said insurers should be actively monitoring key social media channels to pick up on trending topics or complaints, and they should have a risk framework in place to address any issues that arise. “That may mean speedy and direct contact with unhappy clients, to publicly acknowledging issues and setting out solutions. For consumer-facing insurers, Twitter can be a particularly lively arena for dissatisfaction. Prompt, clear, and fair engagement is often the best solution.”
Insurers are seen to be focusing on the economic effect of COVID-19, said Mr Srivastava, adding that media analyses have concentrated largely on policy language, “which often precludes claims related to infectious disease in general, and pandemics in particular. Insurers may do well to publicise those claims for which clients have been compensated, taking into account the conditions of the policyholder”.
He advised that insurers may also tap on social media channels to reach out to the public to explain the steps being taken to alleviate any financial burden experienced by policyholders and to expand their assistance to communities, where possible. In the Middle East, for example, some insurers are offering a discount of 15% to 50% in premiums, especially for frontline workers in the wake of the outbreak. Additionally, a number of insurers are now increasing their funding for voluntary initiatives and community service.
Traditional media like newspapers and online news sites should not be forgotten, and companies should engage with them, said Ms Thomson-Hall. During times of heightened confusion about fake news, “we have seen that many people look to trusted sources like mainstream media titles and established journalists. It’s vital that these stakeholders understand where insurers are coming from, and where they hope to go to”.
Be resilient and change ready
COVID-19 is a game-changer and the industry needs to respond to it with new solutions moving forward, said Ms Thomson-Hall.
“Companies should be alive to their reputation and should monitor it regularly. Regular risk assessments and crisis workshops; proactive media engagement and a responsive social media presence; and asking clients for their feedback should all be part of the mix.
“Build a strong and fair culture internally. That means clear and relevant values for all staff to work by, as well as awareness of any regulatory or compliance frameworks. In addition, there should be absolute dedication to serving clients and understanding their needs, and from that new product development should flow,” she said.
Insurers are likely to do well if they expand their CSR programmes and offer greater support to the broader community, said Mr Srivastava. In addition, “improving the customer services experience as well as designing offerings that fulfil the needs of stakeholders in a rapidly evolving environment, will likely be a priority in the near term”.
It is also important for insurers to explore ways to participate in conversations with individual policyholders and society to raise awareness around the bases of valuations, he added, reiterating that reputation risk is likely to become one of the top priorities for insurers’ risk management strategies.
Insurance leaders need to re-evaluate and articulate plans for the months ahead to ensure their organisation’s continued place and relevance in the market, said Mr Nazer. They need to re-strategise and formulate a post-pandemic plan with both short-term goals and long-term objectives, “putting the health and well-being of their clients, their employees, and the society at large at the heart and staying true to their visions”.
He said the focus on the customer has helped to continue to drive innovation at the company, “enabling us to offer solutions that empower customers to make informed decisions. The pandemic fast tracked our digital transformation plans, facilitating the expansion of our services and improving efficiency in responding to the needs and expectations of our clients”.
Last but not least communicate heavily not only with clients, but with employees too, Mr Nazer said. “Get their input, listen to their concerns and understand their needs, then, innovate to cater for them. There is no better time to drive customer-centric innovations now.”
In the wake of COVID-19, the insurance world has undeniably undergone a profound change and the companies able to continue to adapt effectively will be better equipped to survive with both their bottom line and reputation intact. M