China In-Depth: Coronavirus
It has long been said about economic performance that when the United States sneezes, we all catch a cold.
Yet it might be said, that when China gets sick, other parts of the world face a potential epidemic.
It is perhaps fitting, though unfortunate, that in the digital age, this illness has gone literally viral and causes global disruption as the pandemic sweeps across nations like an invisible tsunami.
What has been the impact?
The effect has been terrifying. Stock markets have plummeted, with some days being double-digit falls. One day saw $160bn wiped off the FTSE, while the Dow Jones dropped 10%.
The US markets have tanked, with the Dow down around 20% at the time of writing, while the S&P 500 and Nasdaq has both lost in the region of 15%.
Each nation is preparing for widespread disruption, pumping liquidity into the economy, slashing interest rates and making plans to shore up businesses that can no longer trade under the government’s social exclusion and distancing regimes.
What is the problem?
The reason for the disruption is the nature of the virus. There’s nothing new about the type of virus – it is related to SARS (severe acute respiratory syndrome coronavirus) but not developed from it. It is technically called SARS-Cov-2 but is being referred to by the disease it causes, COVID-19.
This new strain is far more vigorous than the 2003 outbreak of SARS that infected 8,000 globally and killed 800. It has been responsible for more than 220,000 cases and 9,000 deaths.
Seen as something of an Asian problem at first, the speed with which COVID-19 decimated the health care services through northern Italy has provided a stark warning to other nations, particularly in Europe.
Many, including the UK, France and Spain have introduced restrictions on their populations and a state of lockdown exists in many countries to stem the flow of cases.
This approach would appear to have been successful in Singapore, Hong Kong and China – which at the time of writing, has posted its first day since mid-January without any new cases.
What has been learned so far?
COVID-19 spread fast, far faster and further than SARS did in 2003. However, China in general and Wuhan, the capital of Hubei province and the epicentre of the contagion, is far better connected than ever before.
Strict controls on the movement of individuals would appear to be the best way to control the spread of the disease. Singapore led from the front, as the first to cease air transfers from Wuhan and place returning residents on leave of absence and into quarantine. Total transparency from the Singapore government was effective at preventing panic among the population.
Hong Kong adopted a similar approach, but with confinement and social distancing. This has contained the spread, though it continues to have a small number of new cases each.
A fiscal package of support calmed the nerves of many citizens faced with the prospect of not being able to work for an extended period of time.
How did the insurance industry respond?
In January, China’s central government made it clear that coronavirus patients should not have to meet the costs of treatment. Hospitals began to admit patients without charging upfront fees, instead keeping detailed records for future reimbursement.
Such an approach was laid down by the Chinese government during the SARS outbreak in 2003. Treat first and settle bills later, hospitals were told, with local governments taking the strain.
There was no single policy, however, as in Shenzhen, SARS patients were asked to pay 10%, while in Beijing, where more than 190 died, the municipal government met all costs under the urban health insurance scheme if they had been diagnosed with the virus.
Full reimbursement for both diagnosed and suspected coronavirus patients seems to have been the pattern in most parts of China. Claims processes were fast-tracked, restrictions on designated hospitals and drugs were removed and deductibles waived in order to eliminate delays.
For a look at some of the products in place in China, see the associated piece – Asian insurers respond.
A sting in the tail
But not all insurance sectors will escape the virus unscathed. Using the example of Shenzhen during the SARS period, aviation insurance premium income in April 2003 went down by 18.2% against the previous year. Meanwhile, the underwriting of freight insurance fell by 60%, from 33.952 billion yuan in 2002 to 13.79 billion yuan.
However accident insurance only accounted for 4% of the insurance industry’s premium income in 2019. So the negative impact will pose little threat to the overall growth of the P&C insurance.
The role of technology
Aside from the obvious disruption the COVID-19 pandemic has caused, it is notable for being the first major outbreak of the digital age.
It is hard to imagine a life before the digital gadgets that now dominate our lives, but when the SARS outbreak was finally over, the iPod had only been around for around 21 months and it would be another four years before Apple launched the first iPhone.
The huge growth of smartphones in the intervening years has driven the development of the Chinese consumer – including insurance – ecosystems. But ultimately, the smartphone is a means of communication.
The connectedness of distant regions now may have allowed the more rapid spread of COVID-19, but digital technology also helps to control the response.
In Singapore and Hong Kong, the penetration of smartphones eased communication and greater transparency calmed worried populations.
At first, social media was both a boon and a bane to the Chinese authorities. Citizen journalists announced the spread of the virus faster than the official channels could coordinate their messaging. This led to panic in some areas, resulting in the displacement of people with the danger of spreading the virus further afield.
Consumers who were quick to turn to digital resources, eager for advice and guidance. However, in most cases, their insurers were not well placed to offer help, due to low levels of digital transformation within the consumer experience. Being unprepared to service consumers in their hour of need – outside their traditional contact points of policy renewal – is an opportunity missed by the industry and is likely to harm new business growth.
Ironically, the technologies being deployed within the more agile insurance businesses – artificial intelligence (AI) and machine learning (ML) – will likely be silent heroes in the narrative, as they are put to work searching for a vaccine.
Big data or Big Brother?
One particular application that stimulated the return to work by allowing the movement of citizens was the Alipay Health Code. This was developed by Ant Financial – sister company of e-commerce giant Alibaba – in partnership with the local government of the easter city, Hangzhou, where it was first introduced.
People could sign up to the code through Alipay’s wallet app and they would be assigned a colour code – green, yellow or red — to indicate the state of their health. Green was healthy, but yellow or red required individuals to report to authorities.
Without a green code, you could not gain access to public buildings, accommodation or the transport network.
More than 50 million had signed up in Zhejiang province, which has Hangzhou as its capital, by February 24. This is more than 98% of the population.
By the start of March, it had been rolled out to 200 cities, and it was expected to go nationwide.
Those with a red or yellow code will have had contact with an infected person, visited a virus hotspot or had symptoms when signing up for the app.
Ant would not explain how the app worked, but it would rely heavily on the processing of big data.
Such a system would meet resistance in certain western cultures unless mandated by the government – possibly for a fixed term – in order to control population movement during such a crisis.
Yet, Singapore used a system called TraceTogether, a Bluetooth powered app that created an encrypted ‘handshake’ between a user’s phone and the phone of anyone they came into contact with. This allowed authorities to identify those who may have come into contact with COVID-19 patients and alert them, without taking a lot of personal or location data.
Impact on the insurance market
In Asia, there was a rapid extension of healthcare and P&C coverage to include coronavirus. This will have contributed to a less panicked response from the general public.
Elsewhere, there is likely to be a mixed impact to the coronavirus crisis. While western nations have made contingency plans for keeping people off the streets, they have been criticised by some for not instructing businesses to close down.
It may be a very different war for the west, as the vulnerable groups appear to have shifted, While deaths occurred primarily amongst older individuals, or those with underlying health conditions in Asia, many in Italy were from younger groups. And a report of the first 2,500 cases identified in the United States found that 40% were under 54 year of age.
While there may be a flurry of claims, in reality, very few companies will be covered under their business interruption policies. Unlike during a flood, earthquake or other natural disaster, there is no problem with access to worksites.
Coronavirus as a cause will be excluded on the basis that few businesses will have included cover for contagious diseases.
Insurers may suffer on the asset management side of their businesses in the medium term and this is likely to force up premiums.
Data from Shanghai-based InsurTech, The Care Voice, based on a survey of more than 50 healthcare insurers from mainland China and Hong Kong in mid-February, suggests that most (84%) are confident of their business being back to normal within the next three months.
Their greatest fear in that period is managing their channels and retaining customers. But almost three quarters (70%) believe the COVID-19 crisis will drive up the adoption of health insurance.
The final analysis
The depth of the COVID-19 crisis demonstrates that post-globalisation, the world wasn’t prepared for such an outbreak. Nor was the insurance industry.
Both businesses and consumers are largely powerless in the face of COVID-19 and subsequent government advice, guidance and in some cases, compulsion.
Ultimately this is a humanitarian challenge – and how the insurance industry responds to it will likely determine how relevant it will be in the post-viral world.
Some businesses across different sectors including travel and hospitality have suffered reputitional loss as their actions received a negative response, particularly across social media.
The virus may increase healthcare cover, but will also add momentum to digitalisation within the insurance industry – and perhaps the medical sector as a whole.
Those who had a better time servicing their clients are the businesses that had applied themselves to implementing apps and online servicing that placed the customer at the centre of the process, according to the data from The Care Voice.
Agility was one of the key factors to success, combined with a rapid response to the emergency.
We live in a digital age, and this crisis should be the final warning to all businesses that have failed to understand that even insurance must obey the laws of evolution if there is not to be a mass extinction event.