How an insurance bellwether can offer post-lockdown insight

“Now is the right time to make sure that key metrics are in place to ensure that the data insurers will need is available to help them respond.” Tom Helm head of claims consulting at Willis Towers Watson.

· Changes in volumes of body shop activity provide insight into future
· Data from China key as nation is ahead of others in lockdown experience
· Post-pandemic scenario planning supported by "truly global" industry claims data
· Bellwether to help sector prepare a “war room-type” response

Efforts to get ready for the challenges of a very different post-pandemic world can be strengthened with information from an insurance industry bellwether, the globally interconnected motor sector.

With unpredictability and global shocks firmly established as a new normal, for the foreseeable future at least, it’s no surprise that people are trying to get a handle on what might come next.

Any effort to gain foresight is prudent—COVID-19 managed to turn economies across the globe upside down in a mere matter of weeks, while this week crude oil prices became negative for the first time in history.

But there is a global bellwether that insurers can turn to for predictive insight, according to Tom Helm, head of claims consulting at Willis Towers Watson. Helm has been watching the data for the automobile industry, which he highlights as “a truly global industry, which is all very interconnected”, adding that motor insurers have the biggest number of claims internationally.

By examining the impact of the pandemic on this sector Helm aims to glean the wider implications for insurance claims and claims functions.

Currently, he is looking at how the outbreak has hit volumes of motor claims and operations management as whole populations have gone into lockdown.

“We’re looking at how this is impacting claims right now and also looking beyond the lockdown period to determine some of the implications that might flow through from some of the lockdown impacts,” he says.

Back to the source

China is a good place to start. As the first country to report and act on cases of the new coronavirus with a stronger lockdown process than many other nations, it was also the first to see the economic effects. Data for the country’s body shop and motor repairs industry is a good indicator of the fallout for claims, Helm says.

Willis Towers Watson has been working with data from Solera’s Audatex system, which Helm describes as one of the biggest estimation systems in the world for body shops. It offers a view of the volumes of auto repairs coming in and how that has manifested itself in different countries. In China, body shop volumes reduced to zero.

“There was nothing going into the body shops for three weeks or so. Then as they started to come out of lockdown and were reopening things, and saying that by the end of March they had threequarters of the workforce back in, we saw volumes go above the forecast level for the period by about 60 percent.

“It was a massive swing down, tumbling down to zero then back up over forecast to 60 percent,” he explains.

There is another element of this industry to keep an eye on. An industry that is so internationally interconnected is “dependent on parts being able to move quickly around the globe. There’s a lot of just-in-time delivery”. Helm says the pandemic will have stopped production of some of those parts, as transport is blocked.

“This is happening particularly around Europe, where people have stopped things moving across the borders, where there had been free movement of goods and stocks. It’s worth considering whether all the businesses that make those parts are going to survive this financial strain?” he asks.

He adds that there are a lot of potential implications post-lockdown. They could be minor, such as a wait time for repairs to be done until everything normalises, or it could be quite significant in that people have to wait a long time for parts. “So you’ll have to respond differently to the customer claim,” he says.

Europe’s motor experience

In Europe, Italy was the first country to go into lockdown, followed by Spain and Belgium. Helm says the volumes of vehicles going into body shops in these countries “plummeted pretty quickly”.

In the US and the UK, the drop in volumes was “more gradual”, but they were still 60 percent down by the end of March against their prior year body shop volumes, Helm says. “Certain countries in Europe saw a big drop, dropping by about 20 percent in the middle of March; shortly after that the US and UK started reducing.”

He points to the Netherlands as a contrast to many other countries where, he says, volumes haven’t dropped as much, perhaps influenced by the government’s decision to go for an “intelligent” lockdown.

This has allowed many shops to remain open and people to go out as it embraces the controversial idea of herd immunity. Critics view this approach as high risk, causing potentially more casualties.

Helm says that global data on motor repair activity will be reviewed in April to assess China in particular, and to see if the country’s increased volumes seen at the end of March into April have continued.

Post-lockdown scenarios

For insurers, thinking through the different potential scenarios for auto parts suppliers and supply chains will be key.

“They had the initial stage of keeping operations running by enabling people to work remotely, now they’re into the phase of ‘we’re stabilising a bit, so how do we deal with the next implications?’,” Helm explains.

For example, if there is a shortage of parts getting to the front line, insurers could ask body shops to carry out temporary repairs for clients, or increase the number of vehicles that are assessed as a total loss, because that’s more economical.

“If you know you have a few months to wait for a part and it’s a borderline total loss then insurers may be more inclined to say it’s a write-off,” Helm says.

“As the entire global industry is pretty much shut down, it is important to look at what has happened in China, how things reopen there, and what can we learn from that.

“We don’t have any data point for how we dealt with this in the past. Insurers are used to looking at what happened with one weather event and comparing it to another, but this is completely new.”

Other parts of the claims process will be affected, requiring a rethink. Injury claims that were in progress would typically ask claimants to see a medical expert for an updated view on their prognosis.

“Some of those things won’t be possible right now, so there’s going to be a bit of a lag in terms of those claims coming through once we start to reopen. Those people are going to need to get those appointments back in, those reports written, and insurers will be seeing different implications from what was normal.

“Everything has been put on pause, so they will be working out what it will look like as things come back through,” he says.

As a result, insurers will need time for claims to work their way through the system and resolve themselves, Helm adds. There could also be a surge in claims as lockdown is lifted.

“Moving people to the right areas to deal with it is how insurers would deal with a severe weather incident. If you get a surge of new claims coming through then you move a lot of your back office people to deal with the calls coming through,” he says.

Agility and data

Helm adds that it is crucial for insurers to be agile, monitor what’s happening on the ground, and get feedback from their suppliers so they can make sure they’re working with them and responding in the right way as the industry faces these unprecedented circumstances.

“Now is the right time to make sure that key metrics are in place to ensure that the data insurers will need is available to help them respond—for example, data that shows if there is an increase in temporary repairs, or the number of claims calls, or what is happening with the claims that were put on pause,” he explains.

This will give insurers a dashboard view of what the implications are and how they are different from business as usual, he adds.

It will help insurers prepare a “war room-type” response, says Helm, as they confront something that has not been experienced before.

As the world begins to emerge into the post-COVID-19 world, fears of a second wave of infections will make contingency and scenario planning a must-have, and the motor insurance sector could again offer early insight to help the sector be forewarned and forearmed.