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.