COVID-19: What insurers need to know about purpose statements

As the crisis evolves, insurers must rigorously assess their purpose statements, which can guide actions, but also attract criticism.

Purpose statements have assumed increasing prominence on board agendas and within annual reports across the insurance sector during the past few years. Ideally, purpose statements create an organizational “north star” to guide corporate culture, shape operating principles and create competitive advantage through brand differentiation. Typically, purpose statements reflect the themes of reliability, security, confidence and living a better life. A sampling from across the industry shows the near universal appeal of what insurers claim to offer:

• We help people carry on with their lives, giving them peace of mind now and in the future
  
• To help people achieve a lifetime of financial security
  
• To help customers defy uncertainty and look to the future with confidence
  
• To help clients make the most of their money so they can achieve financial peace of mind
  
• To empower our customer to live a better life
  
• We provide you the confidence and control to be ready for whatever life throws at you

It’s clear that purpose statements are grounded in insurers’ historical role of protecting against future risks. That purpose goes back to the industry’s first days, providing money to families to bury fallen Roman soldiers. Supporting families, business and communities has long been part of the industry’s DNA. Clearly articulating that important societal role through formalized purpose statements would seem to be a very good thing for an industry that is often regarded with scepticism by many consumers.

Purpose statements are typically emotive and speak to benefits, such as peace of mind and personal security, seeking to convey the sentiment to policyholders, “we have you covered and we’ll be there during times of need.” However, what underpins the ability to deliver against these sentiments are models and decisions that drive what risks are covered vs. which are excluded. In the time of COVID-19, this clash between the rational and emotional is potentially explosive for insurers – especially those that have not carefully audited their purpose statements or thought through what they mean in terms of operational realities and actual customer interactions.

Purpose in a time of pandemic: a double-edged sword

The COVID-19 pandemic – the largest uninsured event in the history of the industry, with impacts exceeding Katrina and 9/11 – is the realization of consumers’ greatest fears: loss of health, life, livelihood and financial security. In one sense, the crisis presents a high-profile opportunity for insurers to deliver on their purpose statements – but only if they can translate them into specific actions and policies. Doing the right thing by customers may boost long-term loyalty and the industry’s reputation. Consider how insurance companies in the US, the UK and Canada are offering premium holidays worth billions of dollars to struggling consumers – which also offers potentially priceless brand equity to the insurers themselves.

But what if insurers can’t live up to all that their purpose statements seem to promise? After all, the global scale and scope of COVID-19 far exceed the industry’s ability to cover all of the costs of its impact. And that impact will be felt across virtually every form of risk coverage: life, health, income, business interruption, travel, cyber, longevity and credit. Insurers will simply not be able to pay all claims. They will have to balance a range of priorities – supporting the workforce, meeting customer needs, maintaining their own solvency and engaging with governments to help restore the global economy. It’s not hard to imagine how purpose statements could be used against insurers whose actions seem to contradict their ideals.

Certainly, regulators and government authorities will ask questions. In the US, the Senate Judiciary Committee has issued “Dear CEO” letters asking insurers to disclose the claims they have paid out or denied to small businesses. The potentially harsh spotlight will also feature many lawsuits over clearly defined exclusion clauses related to business interruption. Negative press coverage might contrast insurers’ purpose statements with their claims denials, playing to common public perceptions that insurers won’t pay in a crisis.

Thus, we believe that boards and senior executives must fully assess their ability to live up to their firms’ purpose statements in light of COVID-19. These statements can be used to devise action plans to support stakeholders and restore the global economy. But they can also be lightning rods for criticism of individual insurers and the industry as a whole.

The following recommendations can help insurers evaluate their ability to live up to their purpose and translate it into meaningful actions and effective policies in the coming weeks (now), in the intermediate term (next) and in the longer term (beyond).

Now: 1-3 months

In the immediate aftermath of the crisis, insurers rightly focused on restoring their own operational resilience and establishing remote working capabilities. Now, boards and senior leaders should rigorously examine their action plans in light of their purpose statements. Specifically, they should ask themselves:

• What does it mean to help people and provide security during a time of great uncertainty?
• What can the company deliver and what can it not deliver, relative to our purpose statement?
• If we can’t deliver what customers are asking for, what are the best back-up options?
• Which are the right metrics and time frames to measure performance against the purpose?
• Should we refine or de-emphasize our purpose if we can’t live up to it in this time of crisis?

Insurers that want to do everything they can to fulfill their purpose may explore the feasibility of easing some policy exclusions. That may lead to guidelines for being flexible for some types of policies or customers, and taking a stricter course for others. Second-order consequences (e.g., reinsurance recoveries, reserving requirements) must also be taken into account.

Insurers must also prepare to face the court of public opinion. That entails playing both offense (e.g., shaping a narrative about the industry’s commitment and efforts to restore the global economy) and defense (e.g., litigating where necessary). Insurers will need to embrace a range of tactics – from scenario modelling for potential lawsuits to public relations (PR) campaigns featuring top executives – if they are to successfully demonstrate that they are doing their part.

Even for insurers that fully commit to delivering on their purpose, engagement and collaboration with regulators and other businesses will be essential. Insurers and banks must contribute to – and even lead the development of – plans for restoring the economy. For instance, they can help efficiently transmit government stimulus packages. Historically, the financial services industry has struggled to fulfill this role in a way that satisfies customer and governmental expectations. If they can do what it takes to get government aid to those who need it, insurers can “walk the talk” of their purpose statements (and strengthen their reputations at the same time).

Insurers can also show themselves to be good corporate citizens by creating emergency funds to be donated to community groups. Whether they are extensively publicized or kept quiet, such initiatives go a long way to generating goodwill among citizens in need, who also happen to be policyholders. They may also limit downside risks of large-scale, unanticipated pay-outs. Here again, the industry’s actions in the crisis speak to its historical origin and purpose – protecting individuals, families and communities in need.

Recommended actions now:

• Ensure purpose-related criteria are used by COVID-19 war room teams or other groups coordinating response efforts
  
• Review policy exclusions through the lens of the purpose statement
• Engage crisis management and PR professionals to devise strategies for press coverage on complaints and litigation
• Assess current and potential lawsuits in light of PR opportunities and impacts
• Adopt the perspective of customers in mapping potential responses, including policy adjustments and premium holidays, to purpose statements
• Engage brokers and agents to ensure that the link between purpose and action is embedded and consistent across customer touch points 
• Maintain formal, frequent lines of communication with fellow CEOs, board members and senior executives in the insurance sector and beyond 
• Seek an effective role to play relative to stimulus transmission
• Create an emergency fund and make appropriate contributions to communities

Next: 3-9 months

The recovery is likely to be slow and gradual. Businesses and consumers will be in survival mode during the summer and into the fall, as cash-flow constraints force companies to scale back and consumers draw down savings accounts and credit lines. Insurers will be challenged to maintain their own financial stability and address the expectations of ratings agencies and shareholders, while also meeting customer needs. It will be a delicate balance to strike.

Insurers’ purpose statements will remain in the spotlight, too. Via their response war rooms, insurers should formally monitor a range of metrics, such as claims volumes, cancellations and consumer complaints, as well as social media chatter and press mentions. These measures and feedback loops are necessary to gauge the brand impact. They also help enable effective and prompt responses, ranging from executive statements to call center scripts to policy adjustments. Ongoing pressure may ultimately require insurers to adjust their purpose statements.

Insurers should also seek operational improvements that back up their purpose statements. For instance, insurers should look to streamline service functions and accelerate claims processing. This benefits customers looking for rapid closure. It also helps insurers by creating visibility into the actual financial impacts.

Recommended actions next:

• Create dashboards to monitor metrics related to brand value
• Accelerate response times to queries, complaints and claims
• Establish quick-response capabilities to prepare for negative press
• Continue to coordinate with government bodies, industry groups and other financial services peers
• Continue to engage in and lead community recovery efforts
• Re-assess the transformation agenda and investment priorities to address the issues and gaps exposed by COVID-19
• Consider prioritizing initiatives that can deliver meaningful impacts on communities, companies and consumers

Beyond: 1-3 years

By the end of 2020, insurers should have a clearer sense of their financial position, the claims pipeline and the status of litigation. Boards and senior management will have a sense of how well the company has performed against its purpose. Whether or not they’ve refined or de-emphasized their purpose statements, consumers, businesses and regulators will be looking for them to help provide stability and secure the financial future.

The “new normal” will mean a range of once unthinkable risks now comprise “business as usual.” Product innovation will be essential; if pandemics and business disruption become the new norm, as epidemiologists suggest, the sector must find ways to identify and cover insurable risk. That’s the only way to continue to deliver on the fundamental purpose of insurance to protect against future shocks.

Government intervention is likely. The creation of a pandemic version of the Terrorism Risk Insurance Act seems inevitable. Thus, insurers must exert leadership in shaping future legislation. They will have more influence and credibility in doing so if they’ve been transparent about their purpose. Formalizing the networks by which they engage their peers in financial services and other industries will be critical step as insurers seek to shape and execute a long-term solution.

History shows that insurers that commit effectively to strategic change during and after a crisis tend to emerge as winners. Such future success requires senior executives and boards objectively evaluate their purpose and its link to business strategies and operational realities. The key question is whether the company is ready to live its purpose in good times and bad.

Recommended actions beyond:

• Rate your performance against your purpose and be transparent about the findings
• Determine how to provide coverage for some elements of pandemic risk, including new product models or participation in industry consortia
• Continue to engage with government authorities and formalize the cross-industry leadership network to advise on protections against future pandemics and other new risks
• Re-evaluate your strategy and transformation agenda in light of lessons learned from the crisis

This article was co-authored by EY partner, Penney Frohling, Financial Services Strategy, UK.