Impact of COVID-19 on Motor Insurance & Practical Challenges for Insurers

The outbreak of COVID-19 shook the very foundation of many industries. It is probably the first time that a pandemic created a dent in the world economy. Statista estimates that COVID-19 will bring down the global real GDP growth by 0.5 percent in 2020 compared to the previous year.

Consumers have become conscious of their expenditure. Due to disruptions in supply chains, many small and medium businesses have suffered huge losses. A dip in international trade has created a ripple effect across all industries including travel, hospitality, insurance, and manufacturing. 

The pandemic has different effects on the life and non-life segments of Insurance. While the rising concern for health has led to a spike in life and health insurance demands, the general insurance sector is suffering a setback due to restrained expenditure. 

Motor insurance is no different from being severely hit by the pandemic. Amidst this crisis, people are not keen on purchasing cars, bikes, which is directly affecting the insurance sector as well. Re-negotiation on premiums is another big challenge for Insurers. Let’s delve deeper into the impact of Covid-19 on motor insurance and practical challenges for Insurers.

The Real Picture

Till a cure is available in the market, there will be travel restrictions to a certain extent. People will hesitate to commute daily and avoid long-distance travel. The significant drop in the usage of motor vehicles is impacting claims and sales differently.

Claims and Premium 

In the initial lockdown period, many people were not able to drive their vehicles. The domino effect of this was a reduced number of motor insurance claims. 

At first, it sounds profitable for Insurers. But, for policyholders, continued premiums on policies they can’t use seems an additional burden. So most customers are either asking for bailouts or reduced premiums or refunds on premiums. 

Some major Motor insurance companies in the US and UK have already refunded 10-15% of annual premiums back to customers. In India, the finance ministry has extended the validity of the third-party insurance policies which were up for renewal during the lockdown.

Sales 

Moody’s Investors Service, expects a 20% drop in global auto unit sales as compared to its earlier projection of 14%. In many countries, Motor Insurance is compulsory. However, if people won’t use vehicles, there’ll be a significant dip in the requirement for Motor Insurance policies. 

In the wake of the current situation, IRDAI decided to withdraw its earlier policy of long-term third party vehicle insurance coverage from August 1, 2020. Earlier, the third party insurance was mandatory (three years for new cars and five-year policies for two-wheelers). 

The IRDAI’s decision is a result of concerns over the implementation of a long-term insurance cover package which made buying new vehicles an expensive affair. This will reduce the price of vehicles, which, in turn, will boost the automobile and motor insurance sectors.

Prevailing Challenges for Motor Insurance Companies

Motor Claims Process

Vehicles can still suffer damage due to theft, natural calamities, non-usage, etc. Moreover, once people start traveling, accidents are prone to occur. It will be difficult for claims investigators to assess the damage through an in-person visit.

Some insurance companies are accepting claims and renewing premiums through online inspection and vehicle photograph assessment. This procedure, however, is still in a nascent stage. Despite high-resolution cameras, it is possible to overlook a dent due to deflection caused by sunlight. 

[Related: How Machine Vision can Revolutionize Motor Insurance]

Sales and Marketing

Even though automobile sales dropped in the short-term, it is expected to pick-up in the early quarter of 2021. 

On one hand, marketing & selling policies at the original price will be difficult for motor insurers, and on the other hand, people will avoid public transport and prefer personal vehicles for commuting. 

Insurers, thus, have a challenge for positioning their product that suits both — customer requirements and their profit margins amidst fierce competition with InsurTechs.

Policy Changes due to Volatile Consumer Behaviour 

Since there were no clauses or policies for the pandemic in place earlier, some immediate mitigation measures had to be taken such as refunds on premiums to safeguard customers’ interests. 

Going forward, till there is a conclusive solution to this crisis it will be difficult for Insurers to formulate policies that preserve both – their and customers’ interests.

Business Continuity

With lockdowns, major workforce resorted to working-from-home. In the beginning, some companies faced issues in making sure whether their employees had the means to work remotely. 

Even though the lockdowns have been eased a bit and the workforce is getting used to collaborating online, the situation is here to stay. Smooth operations with a major part of the workforce working remotely is still a challenge, especially for call-centers, surveyors, and field investigators. 

[Related: Business Continuity for Call-Center Operations: Case Study]

Lack of Historical Data

During the SARS and Ebola outbreaks, only some countries like Singapore, Thailand, China, the African continent were affected. To a certain extent, businesses were cognizant of the effects which COVID-19 would have on their businesses. 

Therefore, insurers had come out with new policies and clauses on pandemics. However, the outbreak of a pandemic of this scale where the entire world felt the effects had not happened earlier. Lack of historical data for motor insurance is making it difficult to come up with mitigation strategies and business models for a sustainable and profitable business. 

Mitigation Measures and The Way Forward

“Claims” is one of the most important aspects of motor insurance and will now witness automation more than ever. Coupling Machine Vision technology with panoramic/360° pictures can give insurers a holistic view of the extent of the damage.

Car rental services have an extensive guide to click pictures of the car rented before driving which makes the process very tedious. This can be simplified through apps having pre-shot pictures of the car before renting it out. AI can also help assess the accuracy of the images. 

[Related: How can Artificial Intelligence settle Insurance Claims in five minutes?]

In the short run, finance ministries in many countries have taken steps to lessen the burden of the insurance premiums. But in the long run, insurers will have to come up with policies that are more viable for the insurance buyers. ‘Pay-as-you-use’ policies will see more demand because of their small ticket size. 

Technologies such as IoT can help gather data through sensors that could help underwrite insurance premiums for vehicles. The data gathered can help understand consumer behavior and profile them for creating future strategies. 

We’re an InsurTech100 firm, building AI-First Solutions for the new age Digital Insurer across the entire Insurance Lifecycle. For your specific requirements and Machine Vision for motor claims, please feel free to write to us at hello@mantralabsglobal.com.