Insurers learning from coronavirus what pandemic protection means

The COVID-19 pandemic isn’t going anywhere, as cases surge in dozens of states and thousands of companies assess their options for reopening physical workplaces. For the commercial insurance industry, important questions hang in the air: How can insurers deal with these new vectors of risk? How will they adapt to make sure that businesses are adequately covered for their risk going forward?

The massive upheaval of the past few months have put these issues front and center for commercial insurers, which are facing a deluge of business interruption claims (though more than half of today’s property policies specifically exclude viruses). On July 1, for example, a coalition of media and entertainment groups, including NASCAR, the NFL and the Screen Actors Guild, called on Congress to pass legislation providing pandemic risk insurance to help mitigate major revenue losses from the coronavirus. And Lloyd’s of London is calling for the creation of new insurance policies and government-backed funds to protect against future pandemics and global threats, proposing a new type of policy that would cover revenue lost during a lockdown when businesses are ordered to close.

There is no doubt that both insurance companies and employers want to understand the current pandemic and how to mitigate the risk of future shocks. Many are looking at solutions offered by a variety of technology companies, including IoT and wearables, that offer options to track metrics related to Covid-19 and future pandemics.

“We sensed that Covid-19 was going to be big based on what happened in Asia and what was emerging in Europe at the time,” says Timothy Nimmer, global chief actuary at Aon, a global professional services firm providing a broad range of risk, retirement and health solutions. “We dropped everything to focus on this, leveraging our AI platforms and other high-tech apps for clients.”

Aon debuted a new interactive web application, the Covid-19 Employee Impact Model, that forecasts the impact of COVID-19 on employee populations throughout the U.S. The tool was designed to help employers anticipate medical costs, absenteeism and potential needs to shift work operations due to the spread of COVID-19. It combines employer-specific data with geographic infection rates, updated daily based on the spread of the virus, social distancing measures taken by local governments, and current data related to patients, hospitalizations, deaths, testing and treatment patterns.

Digital transformation is also supporting the development of new kinds of products and services that insurance companies are offering in order to help protect more people against these risks, rather than excluding them. It’s an opportunity to leverage parametric insurance, which guarantees a direct payout after a triggering event, offering protection against unpredictable but potentially devastating risks (such as a pandemic) that traditional insurance packages cannot address.

Meg Roussos/Bloomberg

Marsh’s Alternative Risk Practice already offered an innovative parametric insurance policy, PathogenRX, developed with Munich Re and technology firm Metabiota, that would pay out as soon as an epidemic reached a certain threshold. But the product, which models and estimates pandemic and epidemic risks through Metabiota’s comprehensive infectious disease database, did not sell when it launched in 2018, a year and a half before the first Covid-19 cases appeared in China. Now, while the current coronavirus is not covered,interest in the product is — not surprisingly — sky-high.

“We are in the process of underwriting a number of different companies in a number of different industries,” says Chad Wright, Marsh’s alternative risk transfer group leader, US and Canada.

“Prior to Covid, the vast majority had no conception of what epidemiological risk looked like,” he says. “We model what the risk is likely to look like for a given company with their geographical spread, and the policy is not about physical damage, but physical interruption.”

Insurtech company Machine Cover, which focuses on parametric insurance, is also developing a parametric-based pandemic insurance product that founder and CEO Inder-Jeet Gujral, founder and CEO says will fill a critical gap in mass-market coverage. “Historically, parametric insurance remained a kind of exotic species, because each deal was custom,” he says. “If you’re paying a million bucks, I can afford a couple of analysts to come up with fancy formulas.”

But with the cost of computing way down, Gujral realized that the time had come to offer a more broad approach to parametrics, starting with analyzing hundreds of millions of airplane flights to offer parametric payouts if a customer’s flight is late. Businesses will be able to purchase its new parametric insurance product as an add-on to their existing commercial policy. If automatically triggered as the result of an agreed parametric measure of a significant decline in economic activity (such as a decline in area foot traffic, for example) the business would receive an automatic payout without the need to make a claim.

“Everyone has suddenly woken up to parametric insurance,” Gujral says. “Of course, no one is going to insure the current pandemic — it’s about the next one. If I’m buying insurance, I will want to find out if I should get something that deals with a future pandemic. An insurance broker does not want that answer to be no.” He adds, though, that the possibility of parametric expansion, thanks to the cloud and mobile data, does not mean that traditional indemnity-based insurance will be replaced: “There’s no parametric that can address fire, for example.”

In addition, both Marsh and Machine Cover point out that a parametric insurance market will not fully work without help from the federal government as a backstop. “There has to be a market developed and in order to do that we need governments around the world to help us create that market with a public and private solution,” says Wright. “It’s wise to plan for it going forward, since as an emerging risk, disease risk could be parallel to cyber — fifteen years ago, people weren’t thinking of cyber as big, but now we know it is one of the top risks.

Overall, though, there is no doubt that emerging technologies, from IoT to data-driven AI, will play a significant role in providing businesses and commercial insurers with new ways to track and mitigate disease risk, including during a pandemic such as Covid-19.

“We’re going to see continued changes in how businesses and insurers are able to predict and understand the risk of pandemics, and then implement mechanisms to avoid those risks,” says AltumAI’s Turk. “We are only just beginning to see a huge movement in the industry as businesses need to know more about their workers. We will see a series of changes as companies and employers move to act and protect their workers — this is just the tip of the iceberg.”

Some tech companies were already working to take advantage of the predictive risk opportunities of biometric data when Covid-19 emerged. For example, in 2017, IoT and analytics startup AltumAI was already trying to answer a simple question: “How can companies make sense of the data that surrounds workers to protect their health and safety?” However, according to CEO Doug Turk, the platform’s biometric data options were not initially enabled due to privacy concerns. That all changed in March.

“That was when the governor of Ohio required companies to start tracking individual worker temperatures,” says Turk. “We decided to focus on biometric data attributes and offer it as a standalone product.” That became the recently launched CheckPoint, a mobile app that provides self-screening, symptom and temperature reporting tools and contact tracing. It also allows employers to communicate federal and state COVID-19 protection guidelines to workers.

“We’re already seeing interest from insurance companies,” he says. “For example, we’re working with a large California insurer that sees this as a standard that workers would use to better identify and avoid risk, which would inform underwriting and claims.” There is enough data around today’s workers to move from predicting risk to avoiding risk,” he explains.

Critical data is also drive interest among commercial insurers in Tesseract Venture’s PRISM, a real-time location system made of small devices that can be worn by workers as pins or badges, to track locations of people, gauge biometrics and push critical data to everyone on the team, says CEO John Boucard. These wearables allow workers to better adhere to social distancing guidelines by tracking their proximity to others and vibrating or beeping when they get too close.

“With the need for social distancing, having powerful, real-time data at the fingertips of leaders and operators will be essential for success,” he says. “As insurance company clients begin implementing their reopening plans, workplaces can provide up-to-the-second data, including proximity, that allows businesses to set safety protocols and receive real-time alerts on when they have been broken.”