Insuring a global pandemic

The repercussions of COVID-19 and worsening climate change are among the issues that will impact the insurance industry, according to Tony Wirjanto, University of Waterloo professor.
 
Wirjanto, working as a curator in Insurance and Asset Management for the World Economic Forum (WEF), identified eight key issues poised to influence the insurance industry in the recently released WEF Transformation Maps.

Transformation maps are dynamic knowledge tools that help users explore and make sense of complex forces transforming industries. It allows leaders in that space to visualize and understand more than 250 topics and their connections between each in one place. The result helps support better-informed decision-making.
 
The eight issues explored in the insurance transformation map, in this case specifically, are big data, commoditization, privacy trends, cyber risk, artificial intelligence, insurtech, Internet of Things and climate change. COVID-19 will be the latest topic to be added. 

According to the insurance transformation map, climate change is a systemic and irreversible process that introduces sensitive paradigm shifts to insurers’ risk-return profiles — significantly affecting both the asset and liability sides of their balance sheets. Climate change risk affects both the “property & casualty and life” insurance sectors in several important ways. These, in turn, pose a threat to the reinsurance industry through coverage of exposures that are in excess of insurers’ capacities. 

Wirjanto believes the insurance industry may, in the end, be able to survive the COVID-19 pandemic as it has done in other notable crisis episodes in the past. However, to do so, insurers need to quickly determine how best to meet the needs of their employees, brokers and customers with products, financing, sales and service that work best in the presence of the unprecedented scale of this pandemic crisis.

“This project started before the pandemic, and this is why I haven’t included the impact of COVID-19 in the initial insurance transformation map,” Wirjanto, a professor jointly appointed in Waterloo’s School of Accounting and Finance and Department of Statistics and Actuarial Science, explains.
 
“My job is to update these key issues every three to four months over the next five-and-a-half years, and I will include the impact of COVID-19 for each of the eight key issues in the next edition.”
 
The maps are driven by an AI algorithm that anticipates what type of information policymakers and public officials may need. The curator then collects relevant and actionable information and makes it available in one linkable source to aid the decision-making process.
 
In coming up with the map’s content, Wirjanto and his team, former PhD student Mingyu Fang (’19 ActSc) and Rong Brenda Dang, a current master’s student in the Computational Mathematics program, undertook a tremendous amount of research to ascertain the challenges CEOs working in the insurance industry face.
 
Based on research, Wirjanto believes worsening climate change and the global responses to the COVID-19 pandemic so far have highlighted the need for insurers to adopt various innovative approaches. These methods include customer-centric digital tools and other innovations that respond to stakeholders’ needs in times of a crisis, such as online payment of premiums and claims and acceleration of digitization adoption to improve data collection, products and customer relations. 
 
“It has become increasingly clear that insurers need to tailor their products and processes to accommodate differing risk profiles as well as differing needs of their diverse customers and work to mitigate the extent to which this pandemic crisis further widens the existing gender gap, income gap, etc.,” Wirjanto says. “Whereas the climate change-related impacts merit greater amounts of risk-related research in the insurance industry.
 
“Integrated assessment models, which can aggressively leverage cross-disciplinary tools from climate science, finance and actuarial science, should increasingly be used for robust quantitative analyses of risk and effective qualitative studies on the subject will also be valuable.”

Interested to hear how green innovation is driving our economic recovery? Register for our next Waterloo Innovation Summit scheduled for November 30, where industry leaders will explore how green innovation and sustainable enterprises can drive economic growth while ensuring our planet’s future.