The impact of the COVID-19 pandemic on medical and travel insurance pricing and fraud risks: An exploratory study

Abstract

This study investigates how the emergence of the coronavirus disease-2019 (COVID-19) pandemic has raised many concerns in medical and travel insurance, how insurers perceive and react to this pandemic, and the role of governments in this new context, with a particular focus on the Gulf Cooperation Council region (GCC). Data has been collected using archival research and conversations with some chief risk officers (CROs), internal auditors and insurance practitioners. The authors explain how, following the COVID-19 pandemic, the GCC medical and travel insurance industry faces pricing and fraud risks that need specific planning and control. In the GCC, pricing risk is found to represent an immediate risk that is not easy to manage as historical data is not available. This causes the failure of the present risk models in anticipating the probability and severity of the claims. As a response, insurers rely on scenario analysis and brainstorming to anticipate the costs. Fraud risk is harder to manage, as traditional internal controls are inefficient. Further, both risk managers and internal auditors are currently struggling because of the ‘working from home’ situation and the massive digital transformation in all the transactions. Moreover, the time spent in fraud investigation will delay the payment for hospitalised insurance claims, which would raise concerns about the insurer’s reputation. To resolve this conundrum and manage reputational risk, most GCC insurers seek trade-offs and negotiations with the insured. The authors’ observations and analyses revealed that current responses by GCC insurers are insufficient and need enhancements. Therefore, the authors propose some potential policy solutions that would help insurers overcome both pricing and fraud risks. Through explaining medical and travel insurance risks and proposing potential solutions in this emerging market, this paper provides some practical insights for insurance researchers, insurers and CROs who are seeking solutions to pandemic-related risks.