COVID-19 and insurance companies: Understand impacts, manage risk, plan ahead

The COVID-19 pandemic is testing the insurance industry and shaping the future for years to come. There’s no question the aftermath will alter the way business is conducted. Understanding the current and future impacts on operations and employees, effectively managing risks and threats, and smart strategic planning are critical.

It’s easy to focus on what’s immediately in front of you and less on the longer-range ripple effects. Consider the following high-risk areas – how is your insurance company being affected? How can you protect yourself as you plan to operate in a new environment? 

Helping your employees in a time of uncertainty as a plan sponsor

We all want to help each other, come together, and move forward stronger than ever. The hard reality is COVID-19 has caused hardship for your employees — personally and professionally. Of course, your goal is to help them, hold on to the culture you’ve worked so hard to build, and still run you daily operations efficiently. The CARES Act is providing relief to employees and employers, but most feel it’s complicated, overwhelming, and requires extensive expertise.

How can you help your employees? As a plan sponsor and administrator, you should be aware of several provisions — as well as their potential caveats — that involve participation in programs to assist your workforce. For more information, check out our overview of these programs in “The CARES Act impact on retirement plans for plan sponsors” and our employee benefit webinars.

The cyber environment: IT infrastructure, cybersecurity, and data protection

Most insurers moved to a remote environment quickly and believe they are operating securely without missing a beat. IT departments worked tirelessly to make sure companies could work remotely and function in record time. But it is very likely the transition occurred with a short-term mindset — perhaps upgrades to  VPN, bandwidth, increased firewalls, and security . But as weeks turned into months and it’s become clear that how you do business is and will continue to change, are you truly protected for the long-haul? Have you updated and fortified your IT infrastructure for a longer or repeated period of remote work?

Hackers, unfortunately, haven’t taken a holiday during COVID-19. It is expected that old and new cyber-based schemes will emerge from the pandemic stronger than ever. The current frontrunners include phishing, IP theft, and selling policyholder or member data on the black market.

Preventing fraud and protecting your data, including personally identifiable and other sensitive information, require the right technology capabilities so you can allow remote access while keeping security levels high. Consider these measures as it relates to your cyber environment:

• Have you trained staff in home network and cyber best practices, such as changing cable modem passwords from factory defaults and updating all home network components (modems, routers, printers) with current software and security patches?
• Are you continuously monitoring your network to detect suspicious activity and red flags that signal unauthorized access or data theft?
• Are you using a centralized audit logging system, or have you hired a third-party vendor to provide security monitoring services?
• Have you restricted access to your systems so that unrecognized IP addresses can’t export your data?
• Are you conducting periodic assessments of your IT and cybersecurity practices and controls?
• Have you revisited your incident response plans? Is your incident response initiative built on best practices to maximize resilience?

The strength of risk management and fraud programs

As the country continues to re-open and people try to recover, motivation and opportunity create a perfect storm for fraud. It’s not unlikely the insurance industry will see a spike in fraudulent claims. Are your current risk and fraud prevention programs equipped and ready to tackle this increase in a new environment? Do your employees know how to identify fraud schemes related to claims?

Consider these questions and measures to help mitigate the risks of claims-related fraud:

• What processes and controls have you instituted to ensure vigilance with claims processing and review in a remote environment?
• Do you have fraud training programs in place? Do your adjustors know how to spot suspicious or fraudulent activity, such as manipulation of invoice numbers and dates?
• Have your adjustors been trained to watch body language clues during virtual claimant interviews and to verify authenticity of claimants and their representatives?
• Have you revisited vendor payment processes and confirmed effective checks and balances on electronic payments?
• Are you using data to detect anomalies in claim volume, value, and location?

The internal control environment

Most insurers have pivoted seamlessly to remote environments and, as essential services, have continued operating. But maintaining continuity amid disruption can threaten your internal controls, particularly control effectiveness and design. If you streamlined controls for greater efficiency or changed a process to work in a remote environment, for example, you might have eliminated a key control in your month-end close process or heightened your risk for asset misappropriation or fraud.

Longer-term, workflow processing, electronic approvals, and your ability to document processes and controls will need to change to reflect our “new normal” COVID-19 world. Since more accounting functions are, and may continue to be, performed remotely, can automated and online workflow processes be used to document proper approval channels for accounting transactions? Also consider your current control environment — do business cycle controls need to be reviewed, tested, or strengthened?

The sales process

Insurers thrive on customer and agency relationships — referrals, face to face meetings, longevity, and trust. Changes due to the pandemic’s impact are affecting pricing, online quotes, and renewals. Agencies already are experiencing reduced sales opportunities. The emphasis on virtual meetings compounds the impact, challenging insurers and agencies to differentiate their businesses and build new customer relationships.

Insurers will need to think strategically about what a successful sales cycle looks like now.  Consider these measures as it relates to your sales process:

• Are you effectively incentivizing sales people for our new and potentially long-term remote environment?
• How are you building your marketing pipeline and motivating prospective policyholders now that the sales process has gone mostly virtual? Auto insurers, for example, are offering premium discounts since individuals are driving less.
• How are you addressing situations resulting from COVID-19? Insurers will need to be creative and think outside of the box as policyholders’ mindsets shift.  For example, many households are switching to storage insurance for some vehicles. Insurers that offer multiple products could consider offering packaged products to offset risk from one line of business to another.

Office protocols

The daily routine and bustle of the office that employees grew comfortable with and, in many ways, represents your organizational culture, no longer exists — or rather, now it exists in a remote environment, and it looks very different. Is the new home-office routine better, or is it putting insurers at risk? Only time will tell, but as insurers begin to bring employees back into the office the question remains, “What will the new workplace look like?” As you reopen your offices, are you prepared for new safety protocols?

Reopening will require changes in policies and procedures to protect your employees and customers and comply with new guidelines and regulations. Consider these measures as it relates to safety protocols:

• Have you analyzed how people move around your workplace and made appropriate changes to minimize risks?
• Have you reviewed scheduling policies to lessen the density of individuals in your offices?
• Have you made changes to your offices in response to new guidelines, such as adding hand sanitizer dispensers or partitions between work stations?
• Have you added signage to let clients and other visitors know how to behave and what to expect when they enter your workplaces?

Research and development — thinking outside the box

Insurers are constantly faced with change — internally and externally. While insurers tend to be conservative in terms of change, it’s inevitable and can be costly.  One high-cost expense, as an example, is legacy system replacement. Insurers are constantly working on a new claim, financial, billing, or procurement system. These systems can take years and cost millions of dollars and significant employee resources to develop and make a reality.

Sound familiar? But what if these projects could provide an opportunity for additional cash flow?

If you’ve never considered an R&D tax credit, now is the time to do so. You could be missing out on a valuable tax benefit. If you’re already familiar with the credit, keep in mind that it could be impacted by the CARES Act and impact your tax return. If you want to learn more,  our experts discuss the credit and incentive in our article, “R&D tax credits in the time of COVID-19.” 

In conclusion

In unprecedented times, the key to long-term success is balance: maintain current operations, anticipate impacts, and weigh necessary future changes. All three will help position your company, not just to emerge from the COVID-19 crisis, but to emerge stronger than ever before.

As always, if you have any questions, please reach out to one of our Plante Moran insurance experts.