Covid-19: effects on the financial services and insurance sectors
A COVID-19 impact analysis data-driven report on the Financial Services segments
#financial services
#insurance
Preliminary remarks
Reply leverages Data and Analytics to gain insights into the development of the Coronavirus pandemic and how it impacts society, consumers and industries. Using the Quentin Search Data tool developed by TD Reply, which aggregates data from Google Trends and Google Ads, this report provides an Industry Impact Analysis on the Financial Services sector (including investments, loans, mortgages and equities) and on the Insurance sector (car, commercial, health, house and property, life and travel insurances).
This report is in no way intended to distract from the fact that the outbreak of the novel Coronavirus is primarily a human tragedy affecting hundreds of thousands of people.
As the situation evolves rapidly, please note that this page reflects the data collected until 18 May 2020.
Intro
To what extent can an industry be prepared?
The European Financial Services and Insurance sectors have been spared from serious losses since the beginning of the Coronavirus crisis. However, some risky trends are emerging as consumer interest in loans and insurance has declined (in some cases significantly) and insurance companies are not progressing their digitalization as they should.
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FINANCIAL SERVICES
The current crisis echoes memories of 2008. This time, financial institutions were able to react faster, as they had learned the importance of introducing crisis management protocols. However, credit defaults and the decline in consumer purchasing power still represent an imminent threat.
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INSURANCE
Insurers also learned from previous SARS epidemics. Most had already brought pandemic exclusion clauses into their policies, which limited COVID-19 related pay-outs and managed liquidity issues. This is not the case for health insurers, that have struggled with demand for medical services and testing.
Financial Services
An early push for financial services
Data shows that Financial Services experienced a gain of +18% in consumer interest during the Coronavirus peak when compared to the same period last year (CW13-19 2019 vs 2020). This was due to an initial interest in stocks that has now started to normalise.
EU-5 CONSUMER INTEREST IN FINANCIAL SERVICES
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Data retrieved from Quentin, TD Reply’s Search Data tool across 5 EU markets (DE, ES, IT, FR and UK). CW13-19 2019 vs CW13-19 2020.
Short-term vs long-term investments
With the fall of worldwide markets in March, we’ve noticed a sharp increase in the interest in stocks. This investment was gradually replaced by bonds, as investors tend to rely on more stable instruments during a crisis. At the same time, we can see there hasn’t been much change for long-term investments, such as pension funds.
INTEREST IN STOCKS
(SHORT TO MID-TERM INVESTMENTS)
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INTEREST IN ETF’S AND BONDS
(MID-TERM INVESTMENTS)
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INTEREST IN PENSIONS
(LONG-TERM INVESTMENTS)
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Data retrieved from Quentin, TD Reply’s Search Data tool across 5 EU markets
(DE, ES, IT, FR and UK). CW13-19 2019 vs CW13-19 2020.
Learning from past crises
The 2008/2009 global financial crisis weakened consumer confidence in traditional financial services and led to the rise of digitally-driven financial start-ups – evidencing the need of consumer-centricity, low costs and transparency. Another example of evolution in the sector is the 2018 Financial Markets Regulation, that modernised European financial markets and created open banking rules to allow easier access to banking and financial information.
FINTECH TREND DEVELOPMENT
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Trade Republic (Germany) is a commission-free stock trading app. It achieved immediate success by allowing consumers to invest small amounts of money. As COVID-19 tightens consumer budgets, this application could become a no-brainer when it comes to investment.
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While global economies reboot, some small businesses and start-ups can’t recover from their financial losses. They could be making use of equity-based crowdfunding like BacktoWork24 (Italy) – a platform that connects lenders and borrowers, offering equally beneficial opportunities.
Data retrieved from Sonar Trend detector 2013 - 2020
Going completely digital
Previous crises have driven the digitalisation of Financial Services on the consumer side. COVID-19 seems to have accelerated this process and extended it end-to-end.
TODAY
The majority of financial firms seek to consolidate remote working as a permanent option.
Most office layouts are not suitable for post lockdown regulations.
Financial Services typically rely on hardcopies, making remote working more difficult.
TOMORROW
Permanent move to cloud servers and computing, enabling faster, cheaper and more flexible remote working.
Implementation of smaller, cross-functional teams, to quickly address changes in regulations and consumer requirements.
Streamlined workflows and automation to reduce paperwork.
Insurance
Dampened interest in insurance
Due to the Coronavirus crisis, consumer interest in insurance has decreased by -36% when compared to the same period last year (CW13-19 2019 vs 2020).
EU-5 CONSUMER INTEREST IN INSURANCE
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Data retrieved from Quentin, TD Reply’s Search Data tool across 5 EU markets (DE, ES, IT, FR and UK). CW13-19 2019 vs CW13-19 2020.
CONSUMER INTEREST ACROSS INSURANCE TYPES
Insurance policies that involve a particular case or have to be frequently renewed were affected the most (car and travel). Mid to long-term insurance that is closely linked to the purchasing power of the consumer was also significantly affected (house & property and commercial). Long-term policies like life and health insurance have suffered the smallest impact.
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CAR
-39%
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TRAVEL
-64%
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HOME
-21%
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COMMERCIAL
-27%
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LIFE
-5%
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HEALTH
-17%
Data retrieved from Quentin, TD Reply’s Search Data tool across 5 EU markets
(DE, ES, IT, FR and UK). CW13-19 2019 vs CW13-19 2020.
The rise of Insurtech
The shadow of a possible recession makes consumers look for cheaper, digital, alternatives, giving Insurtech start-ups an edge over traditional insurance companies. This becomes evident when comparing the 1% loss in consumer interest for Insurtechs, against the 36% lost for the traditional business, over the same period (CW 13-19 2019 vs 2020).
EU-5 CONSUMER INTEREST IN INSURTECH FIRMS
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Friday is a digital car insurance provider that offers consumers the option of paying per kilometre. As social distancing is likely to continue for the time being, this insurance model will be attractive to many who work from home.
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Dinghy offers a “charged by the second” insurance policy, focusing on freelancers and self-employed professionals. Users can digitally toggle on and off their policies or adjust their terms on the fly. Reduced workload caused by the pandemic has made this kind of insurance even more relevant.
Data retrieved from Quentin, TD Reply’s Search Data tool across 5 EU markets
(DE, ES, IT, FR and UK). CW13-19 2019 vs CW13-19 2020.
Looking into the future
What does the disruption posed by COVID-19 mean for the future of financial services and insurance companies?
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MORE GRANULAR INSURANCE PRODUCTS
More people working from home, or even furloughed, has made room for new insurance products that cover, for instance, home offices or freelancers and self-employed professionals working in the gig economy.
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COMMUNITY FINANCE & INSURANCE PRODUCTS
Peer-to-peer insurance was already gaining ground before COVID-19. Companies can use the increased sense of community to grow community insurance and finance options as part of their policy offerings.
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CROSS-FUNCTIONAL WORKFORCE
Taking a page from start-ups, Finance and Insurance sectors are expected to expand the development of consumer-oriented products. That will require smarter cross-functional teams.