The long-term effects of Covid19 on financial services and healthcare
Covid19’s immediate impact is clear: we are all bracing for a wave of widespread economic and social pain. Many of us are either living in, or are separated from loved ones living in, countries where healthcare systems are currently overwhelmed and inadequately provisioned. Economies will see spiking unemployment, business and personal bankruptcies, and deteriorating bank balance sheets.
Yuval Noah Harari pointed out in the Financial Times that we are also living through a time of historic changes. The unintended and second-order consequences of Covid19 will be with us for a long time to come. Marketers have long known that when a life event shakes you out of your day to day routine, old habits die and new habits are formed – that’s why brands make so much effort targeting college graduates and new moms. When these shocks happen to societies as a whole, entire cultures change – measures taken during emergencies tend to stick around and become a new way of life. During World War II, women entered the workforce when men went off to war, and they never left. 9/11 changed the way we think about airport security and plane travel forever.
Here, we’d like to spend a few minutes looking beyond the current crisis to its aftermath, and how it may alter the way of life in our chosen sectors of interest. As always when speculating about the future, some predictions will be right, and many will be off the mark. In 12 or 18 months, as the crisis unwinds, we’ll revisit this article and see how these have played out.
1. Realtime digital payments will become the norm
This should come as no surprise, as Southeast Asia has been headed this way for quite some time. But as social distancing forces transactions to move online, this may be the catalyst that finally drives widespread, ubiquitous adoption of realtime digital payments. Oliver Wyman reports that China’s financial services sector experienced 100-900% traffic spike in key digital channels during the outbreak. Central banks around the region are doing what they can to facilitate the transition: the Philippines central bank has asked all local banks to waive interbank fees on Instapay, removing a key factor of resistance to merchant and customer adoption. This will be a boon for financial inclusion initiatives.
As the health crisis subsides and life returns to “normal”, lingering social distancing habits will nudge consumers towards contactless digital payments in point of sale (“POS”) transactions over contact-based ones. This will accelerate adoption of near field communication payment methods – such as contactless cards and phone tapping – and QR code-based POS payments over card-swiping, signature and PIN code-based payment methods.
2. The parts of the banking industry that have resisted digitization will move online
Some parts of the banking industry, like retail payments and retail banking, have made significant progress on digitization. Others remain bastions of white-glove, analog service – like private banking, which continues to rely on face-to-face meetings with relationship managers (RMs) and monthly, difficult-to-interpret PDF statements to engage with customers. But with markets in turmoil, and both clients and RMs homebound, this may be the impetus for HNWIs to start demanding and adopting better online services. This is especially so as Singapore and Hong Kong have typically served as the twin wealth management capitals to all of Southeast Asia’s moneyed classes, but international travel remains closed.
3. Enabling technologies
Following on closely from large-scale digitization of financial transactions will be the enabling technologies: eKYC, ways to link digital identities to real identities, ways to electronically sign contracts and offer consent, embedded in chat and videoconferencing services. Linking all of the above will be open API architecture, fraud protection, and cybersecurity protection. We’ve already seen indications of how important this is. As countries around the region remain in lockdown, banks that have flexible online architecture remain open for business, whereas others that are digitally unprepared are completely freezing account openings and product applications.
An additional note here about cybersecurity: our friends and founders in the cybersecurity world have started seeing cyber attacks escalate, as malicious actors take advantage of distributed workforces., and the general chaos and confusion. Now is the time to exercise extra caution.
1. Gig economy insurance takes off
Gig economy and informal workers are seeing their incomes crater. Few of them have access to health insurance in this time of crisis. Insurtechs have been offering products like income protection insurance, personal loan insurance, and health insurance tailored to gig economy workers for some time, but they may have come second to more immediate needs in normal times. Covid19 is bringing home their importance now.
2. Demand for commercial specialty insurance will spike
Supply chains are breaking because factories are closed for business; ransomware attacks are increasing because hackers know that workers are now logging on beyond company firewalls: these are risks that businesses can no longer ignore. The demand for supply chain and cyber insurance coverage will increase dramatically as companies seek to protect themselves. This crisis will catalyse the budding epidemic insurance sector, which will continue to grow well into the recovery with fresh memories of the Covid19 epidemic. As of early March 2020, Marsh had a six months of demand backlog for epidemic insurance coverage. Expect to see more analytics firms tackling pricing of pandemic insurance and reinsurance risks as this space matures, (i.e. Metabiota). Similarly, business interruption insurance and key man insurance will receive increased attention from business post-crisis. As a sidenote (this doesn’t fall within the bucket of commercial insurance): demand for life insurance and death planning services will also increase, as society as a whole engages in a collective confrontation with mortality.
3. Insurance companies change the way they price risk with new sources of data
Covid19 and its second-order effects is causing all sorts of previously unrelated risks to become correlated. You can find analysis on what insurance policies are immediately impacted by the virus here and here. But the effects spiral outward: as the virus uses up more and more medical resources and non-Covid19 patients lose access to healthcare, this could have much longer-term impact on patient health and insurance loss ratios. This may be the catalyst that pushes insurance companies over the edge to greater reliance on realtime data and to adopt new pricing models. This is especially so, given that the virus will encourage wider adoption of telemedicine, electronic health records, digital therapeutics and realtime health tracking (see below).
1. Telemedicine becomes the norm
This one is fairly obvious, as the fear of the virus encourages people to stay away from potential infection hotspots. At the time of writing, one of the few publicly traded telemedicine players, Teladoc, is trading up nearly 50% over the course of a month. Many of the patients who try telemedicine for the first time during this crisis may find that they like its convenience and ease of access. Insurers anxious about Covid19’s impact on loss ratios and eager to control costs may nudge more customers towards tele-doctors as the first port of call when they fall ill. Secondary effects from the rise of telemedicine will include accelerated adoption of electronic health records and infrastructure around e-pharmacy – from solutions for providing optimal transport conditions like temperature and humidity to new regulations around the prescription and distribution of controlled drugs.
2. Subscriptions to private concierge healthcare programs for the wealthy will spike, while governments may be galvanized to build up healthcare infrastructure
This is the healthcare version of supermarket hoarding. In the United States, where tests kits are in short supply, the wealthy are leaning on memberships in concierge healthcare programs to get priority Covid19 testing. As public healthcare systems strain to meet the need, and trust in governments’ abilities to provide adequate care during the crisis erodes around the globe, those who can afford it will make sure that they have other options when the next crisis hits. This will grow more acute as people with non-Covid19 related conditions find themselves crowded out of the healthcare system in the coming months.
In Southeast Asia, the upper-middle class and the wealthy are used to regionwide access to healthcare – from wealthy Indonesians flying into Singapore to visit primary care doctors and specialists, to middle-class Singaporeans flying into Bangkok and Vietnam for elective procedures. With borders shut, this is no longer possible. At the same time, the experience of Italy and now the US is a tragic demonstration of the disparity in Covid19’s fatality rate because of variances in the capabilities of local governments and healthcare systems to respond early and nimbly. This experience has highlighted the consequences of unequal access to healthcare and underlines the urgent need to shore up domestic healthcare systems.
3. Digital therapeutics take off
Anecdotally, digital therapeutic apps designed to help patients manage chronic health conditions are seeing an uptick in engagement. In part, patients are avoiding clinics for fear of infections, but Covid19 is also making people realize the importance of managing conditions like diabetes and hypertension as the patients with such conditions are more at risk of developing severe infections. It remains to be seen whether this lasts once the immediate crisis passes, but this could be a silver lining for public health if patients habits improve.
4. Verifiable “clean bill of health” in realtime
If Covid19 is the 9/11 of healthcare, we will all transition to a new level of vigilance. The infectiousness of the virus and the fact that asymptomatic carriers can infect others have formed a common understanding that health management is not an individual but a societal issue, lest one gets infected and in turn infects others. The countries who have seen the most success so far in keeping Covid19 under control are the ones who have managed to modify the behaviour of citizens at the community level and have leveraged technology to track the health of its citizens multiple times a day. So far that’s mostly been done at checkpoints in the form of temperature scanners at airports and at building entrances. Now Singapore is launching TraceTogether, an app installed on your phone which uses Bluetooth to track if a user has been in close contact with a Covid19 patient. The logical extension of this is to create a “bill of health” using health tracking technologies built directly into the phone: temperature, heart rate, blood pressure. Only a clean bill of health allows you to enter crowded public spaces or to travel.
5. “Age in place” technologies and services
Covid19 will make us question the wisdom of housing vulnerable populations close together in enclosed spaces. The Kirkland nursing home was the center of the outbreak in Washington State, the first state in the U.S. to be badly hit, with all residents quarantined inside and family members barred from visiting. The Spanish army, dispatched to disinfect nursing homes, found residents abandoned as staff fled after cases of Covid19 were detected. Incidents like these will stick in the cultural memory and renew interest in technologies that help the elderly age in place in their own homes – health tracking wearables, on-demand home nursing care, and digital therapeutics being some of the examples.
That’s it for now. As William Gibson said, the future has arrived – it’s just not evenly distributed yet. We will know better in six months what Covid19-related measures will go away and what will be with us for a long time. Please stay safe and take care of yourselves and those around you.