Anti-crisis strategies of insurance companies

Ryszard Kamiński,
PhD, Professor, Head of Department of Economic Sciences, Adam Mickiewicz University,
Poznan, Poland

Oksana Polinkevych,
PhD, Professor, Head of Department of Tourism and Hotel and Restaurant Affairs, National Techonology University,
Lutsk, Ukraine

Anti-crisis development strategies are the basis for ensuring successful operation and maintaining competitiveness in the markets.  The pandemic COVID-19 has become a test for the insurance market too. Insurance companies are forced to develop anti-crisis new strategies and change approaches to the provision of services.

The need to develop anti-crisis strategies is due to the fact that the losses of insurers from COVID-19 grew rapidly. The most vulnerable were travel companies, hotels and restaurants and healthcare. Insurance premiums for this group of companies are significant. This violates the financial stability of insurance companies, which introduces an imbalance in the development of the insurance market. An example of a market that has been hit by the crisis is the United Kingdom, In this country insurance companies will pay travelers at least £ 275 million (about USD 340 million) due to the coronavirus epidemic. In March 2020, London stopped selling travel insurance to new customers. In September 2020, Lloyd’s of London confirmed its forecast, according to which the losses of the insurance industry from the COVID-19 pandemic amounted to USD 107 billion. That month the High Court in London clarified the situation with insurers covering the risks of a pandemic. As of October 5, 2020, coronavirus was recognized as the main insurance risk of 2020. As of October 28, 2020, the publicly reported COVID-19-related losses of the world’s largest reinsurance companies reached USD 23.7 billion. As of November 3, 2020, insurers’ losses from coronavirus exceeded USD 100 billion.

Prior to the COVID-19 pandemic, insurance companies developed and implemented the following key anti-crisis development strategies: 1) A long-term planned change strategy. Anti crisis strategy is a function of duration of crisis and has certain limits of the nature of changes. This strategy is considered to be successfully implemented once the organization has entered sustainable operation and a steady state is planned. From this point of view, the anti-crisis development strategy can be seen as a means to achieve a specific goal, namely over coming the crisis. 2) A strategy for balancing the interests of the insurance company and stakeholders. In both groups (individually or in combination), the level of significance of certain development areas is determined and the assessment is taken into account not only by the owners, but also by customers. For this, it is recommended to conduct SWOT analysis and TOWS analysis. 3) A risk management strategy. The risks can be divided into several groups: “flexa” risks, technical risks, and risks of social and civil responsibility to service users.

During the pandemic, insurance companies changed their approaches to the formation and implementation of basic anti-crisis development strategies. Among them can be distinguished:

1) An effort concentration strategy that combines a strategy of long-term planned changes and balancing the interests of the insurance company and stakeholders. The main priority is to find a balance of interests between the three participants in the process: owners, managers, and clients or stakeholders. Besides, it is worth developing a marketing strategy for managing the image of insurance companies, which should form a positive goodwill of the company.

2) An innovation strategy consisting in the development and implementation of new insurance services, risk compensation mechanisms, considering the specifics of pandemics and crises. These include cyber insurance and an overview of the risk management mechanisms associated with the coronavirus pandemic. That is, insurance and reinsurance companies must develop a mechanism to compensate for damages directly caused by COVID-19.

3) A strategy for maintaining a sufficient level of financial sustainability of insurance companies. In this context, the concept of financially sustainable development of an insurance company arises. The closer the company is to the center of the financially sustainable development zone, the more risks it may face, which is especially important during the COVID-19 period. The influence of one or more factors of the external or internal environment can cause deviations in the activities of the insurer and the variability of its transition to a higher level of development with an increase in financial sustainability.

In addition, depending on the strength of the factor and operating conditions of the company, this can lead to the termination of activities due to reduced financial sustainability and the lack of opportunities to resume or continue development in the same area with changes in some characteristics.

When shaping and implementing anti-crisis strategies for the development of insurance companies, it is necessary to consider basic conditions, thanks to which they will be successfully implemented: 1) systematic and balanced decisions regarding changes in approaches to insurance; 2)  specifics of the emergence of risks, that is, depending on the type of economic activity, it is necessary to determine the needs and preferences of customers.

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