How Indian insurance companies can respond to coronavirus

McKinsey 07 May 2020 12:00

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As the COVID-19 pandemic continues to unfold, what began as a health crisis is quickly turning into a financial one. The global economy is in turmoil and expected to shrink significantly. Although potential scenarios depend on virus spread and the readiness of public-health systems to respond, McKinsey analysis suggests that global financial-rebound scenarios show GDP reverting to precrisis levels as early as Q4 2020 or as late as Q3 2022. India will likely face similar scenarios.

The outbreak has already heavily affected the global insurance sector; the insurance index decreased by 22.6 percent between December 31, 2019, and April 9, 2020, and this impact will likely last until Q4 2020. In India, share prices in the insurance sector dropped by 25.9 percent during the same period (Exhibit 1).

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In general insurance, motor claims are expected to decline, given fewer vehicles on the road amid lockdowns, and there may be a significant drop in motor insurance premiums after lockdowns end (Exhibit 3). However, insurers may see an uptick of business-continuity insurance claims and commercial-risk claims due to the economic slowdown, though effects will vary for small and midsize businesses compared with larger corporations. If cases of COVID-19 increase significantly, a spike in health insurance claims will likely follow.

How to respond to the crisis

Resolve (May 2020)

In the case of a prolonged contraction, insurers could consider investing significantly in direct-to-customer channels to reduce dependence on intermediaries and reduce commission costs; focusing on artificial intelligence to promote bancassurance and improve efficiency; hiring high-skilled workers who can enable a truly digital and agile organization; improving retention by stepping up employee satisfaction; and reducing dependence on legacy operations to increase resilience for future risk scenarios.

The core objective of this nerve center would be to manage the COVID-19 situation across the five Rs. It could mobilize resources across three dimensions—scenario planning, strategic moves, and integrated operations—balancing immediate action with the flexibility to tackle evolving challenges.

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