COVID-19 changes both working methods and customer habits in insurance market



COVID-19 pandemic has caused a global crisis in health and economy, and it deeply impacts insurance activities in Turkey and the rest of world. While the insurance market re-examines its methods of operation in order to heal some wounds caused by the pandemic, changing demands of customers cause a shrinkage of demands for insurance.


First seen in China’s Wuhan province at the end of 2019, coronavirus has since spread to nearly every country in a very short time. Declared a pandemic by World Health Organization, the outbreak has been one of the most influential health crisis in the history of humanity and turned into an economic crisis at the same time.


Due to the coronavirus outbreak which has infected millions of people and killed hundreds of thousands, and imposed deep impacts on especially Europe and USA; many countries were forced to shut down their borders, and people confined themselves in their homes as social isolation has become the most important defense against the virus. Quarantines imposed by many countries around the world resulted in an economic depression. As the commercial activities nearly came to a halt, customer habits and priorities have consequently changed, and many sectors decided to cease operations. Financial losses in sectors that try to survive this crisis with measures and support packages provided by the governments, have unfortunately brought deep economic wounds.


Turkish insurance market has played an efficient role in fight against coronavirus with changes in health insurance coverage

Following the first coronavirus case in Turkey as of March 11, measures and supports were put in place immediately. Insurance market has been one of the markets that were impacted by the negative results of the outbreak.


After the outbreak in Turkey, customers rapidly turned to health insurance products as a solution. Over 4 million health insurance policyholders in Turkey began to wonder whether coronavirus treatments were covered by their private or complementary health insurance policies.

All medical examinations were covered by the health insurance policies until a COVID-19 diagnosis was made, but the following treatment costs were not. Despite this rule, Turkish insurance market took responsibility. One by one, insurance companies began to announce that COVID-19 treatments were included in the scope of health insurance policies as an ex-graita payment. Atilla Benli, President of the Insurance Association of Turkey, stated that many insurance companies contributed to the spirit of solidarity, as a result of which, 80 percent of private and complementary health insurance policies started to provide coverage for COVID-19 treatments thanks to changes in the special policy conditions.


Agencies are impacted by the crisis, too


Insurance agents who generate 70 percent of overall market premiums were previously the most important representatives of face-to-face sales activities. However, under these circumstances transactions that require personal contact have been put on hold by the consumers. As a sector that involves high level of interaction, insurance market has adopted the home-office working method together with its agents. Thanks to technical support activities such as removing static IP address, agents have become able to do their job remotely; but are concerned that this process will be longer than expected. They can currently continue working thanks to the support they receive from the government and insurance companies; but also emphasize that their loss of income might be substantial if the circumstances continue to remain unchanged for a longer period.


Sector-specific measures were announced


General Directorate of Insurance of the Ministry of Treasury and Finance also announced precautions right after the first case of outbreak in our country. Precautions taken to make sure that insurance services for the society continue without any interruptions included remote expertise transactions, extension of deadlines for applications to Insurance Arbitration Committee, extension of deadlines for insurance premium payments, reducing personal contact by efficient use of several digital programs, waiving additional premiums for renewal transactions of traffic insurance policies, and cancellation of actuary exams.


It is estimated that these new decisions will result in an increase of costs, especially in the health insurance segment, while numbers of new sales and renewals have begun to decrease. As the use of policies have decreased in lines such as motor casco and travel insurance during the outbreak, a significant amount of penetration loss is expected. A negative impact is estimated on commercial credit insurance and bond insurance products due to economic slowdown; while products such as loss of profit, directors and officers’ liability, cyber risks, employers’ liability, marine, construction and engineering will probably face negative results due to stagnant economy as well as changing living conditions.


Threat is global, not specific to Turkey


The pandemic is expected to cause serious damage in global insurance market. Many insurance lines and reinsurance markets are estimated to receive negative impacts in the coming term, while financial tables of insurance and reinsurance companies will probably suffer from a similar fate. Due to the pandemic that has deeply impacted the insurance market, large companies such as Allianz, Munich Re and Willis Towers Watson reduced their targets for 2020.


Working methods have changed in many sectors including the insurance sector due to COVID-19 pandemic. As a market that has recently been focusing on digitalization, Turkish insurance market has started using their investments in this area much more effectively during this pandemic. A significant part of the market has adopted the way of working remotely from their homes, and communication and meeting activities have been carried to digital environments. As an important distribution channel of the insurance market, agents are also conducting their communication and marketing activities through digital means. Insurance companies have taken a lot of precautions to protect their employees, customer portfolios and distribution channels; while conducting several activities to gain new customers. As consumers have begun to see it a luxury consumption to buy insurance policies, insurance companies are warning people against increasing number of risks especially under these new circumstances. As shrinkage in the insurance demand continues to threaten the market, many researches have been conducted to reveal the economic impact of the pandemic.


Economic impacts may continue throughout 2021


McKinsey has announced the results possible scenarios according to their estimations. Two of those scenarios indicate that the recovery from the crisis will possibly begin in the third quarter of this year, while a worse case scenario estimates that first recovery signals will be seen in the second quarter of 2021. According to a survey conducted by KPMG with the participation of representatives from the business world, 88 percent of them believe that the pandemic will have a serious impact on Turkish economy. 80 percent of participants think that Turkish economy will shrink more than 3 percent in 2020. 35 percent believe that the economic crisis will continue for at least 12 months. 58 percent of the participants indicated that they can work remotely, which includes insurance market as well. According to the survey results, insurance market is one of the relatively lucky markets in terms of the impact of this crisis on financial turnovers.

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