STANDARD 9 TO 12 NA STUDENTS MATE BISAG NA MADHYAMATHI SHIKSHANIK KARYKRAMO PRASARIT KARVA BABAT | HOME LEARNING TIME TABLE SEPTEMBER
The Covid-19 coronavirus outbreak that began in China towards the end of last year has now become a global pandemic. Although it now appears to be slowing in China, the spread of the disease is accelerating elsewhere, with the World Health Organization recently describing Europe as its current `epicenter'. Governments are reacting in ever more dramatic ways, closing borders, imposing lockdowns and travel restrictions, shutting schools and colleges, and banning mass gatherings such as sporting events.
Globally, life insurers manage more than $20 trillion in assets and as much as half of this is estimated to be in government bonds. But the yields from these have fallen dramatically - US 10 year bond yields have more than halved since the end of 2019 for example. The crisis also puts pressure on non-Government bonds which may cause credit concerns and may lead to an increase in bond downgrades.
In addition to this, as noted earlier, central banks have been slashing interest rates. We were already in a low interest rate environment - which is always difficult for insurers in general, but especially for life insurers - now rates are heading down even further (possibly below zero in some countries). Legacy businesses or products that are highly sensitive to market variables such as variable and fixed annuities, long-term care insurance and universal life insurance are likely to feel the effects more deeply.
All of these factors can result in solvency ratio challenges. Prior to this COVID-19, much has been said about the industry being well-capitalized and so insurers may be starting from a position of strength as it relates to capital. However, risk-based capital approaches vary widely by country which impacts how reactive the ratios are to current market conditions. For example, the EU's Solvency II regime is very sensitive to financial market volatility and movements in bond yields and credit spreads. Other capital approaches could be sensitive to bond downgrades. As a result, insurers will need to closely monitor solvency ratios in order to meet economic, regulatory and rating agency capital requirements.
Clearly, this year could prove to be a difficult one for many insurers given the predictions of the economists, some of which are saying that a “U” shaped or even a “W” shaped recovery pattern may be more likely now (as opposed to “V” shaped). Early questions are starting to emerge around possible recessions around the world. Why? We've seen such varying virus containment efforts which dramatically impact consumption levels on a local level and therefore impact speed to recovery. Expectations vary on the long-term impacts; no one can be entirely sure.
While it is tempting for insurers to suspend investment and cut costs in such a challenging financial year, I believe the crisis creates an incentive for them to do the reverse - continue to invest in how they operate and create a more agile, digitally-enabled business. In other words, now more than ever insurers should keep investing forefront in their minds so that they can be prepared for the future.
By this I mean firstly embracing the flexible and remote working that will be needed across all sectors due to the virus, insurance included. The crisis provides the opportunity for insurers to test and ensure that their businesses have sufficient connectivity to support more staff working off-site and in flexible ways - now, and for the future too.
What this means today is that management teams should be rapidly assessing operational areas with high concentrations of human capital support such as call centers, claims, shared service centers, etc. to determine the impact. Business disruption or resiliency plans are being tested, stressed and in some cases derived. This is especially true in areas where there is a lack of digital workflow tools, limited virtual or mobile work station capabilities or unscaled communication technology. These traditional methods are often used for completing moderate to more complex processing activities that require a team approach to resolution. This situation is allowing for a significant shift in the adoption rate of new ways of working, including the supporting technology, which may change the ways organizations are run post crisis.
More broadly, insurance businesses - as other sectors - need to embark on the digital transformation of their organizations, to become more agile, responsive and connected enterprises. Perhaps one legacy of the coronavirus crisis could be that it actually propels more insurers to do that.
These are extremely challenging times for individuals, families, businesses and indeed whole societies and economies. The insurance industry has a key role to play in supporting customers and societies through the crisis and recovery.