As with most things in life, the business environment is unpredictable. And although Hollywood, the scientific community, health experts, and even Bill Gates have warned of the possibility, no one saw this pandemic coming or can predict with any certainty what might happen next.
The World Insurance Report 2019 from Capgemini and Efma warned that emerging risks such as disruptive weather patterns, new infectious diseases, and pandemics could significantly disrupt businesses. And today, the virus has spurred the most abrupt and widespread cessation of economic activity in history by blocking the world’s ability to produce and consume.
- Social distancing is physically disconnecting families, co-workers, trusted advisers, supply chains, and governments. The World Economic Forum estimates that nearly three billion people worldwide are in some form of lockdown.
- Government mandates to shelter in place are preventing consumers from visiting brick-and-mortar locations to conduct day-to-day transactions, and working from home is now the new normal for millions in the global workforce.
Businesses large and small are struggling as the International Monetary Fund (IMF) predicts the global economy to shrink 3% this year – far worse than its 0.1% dip in the Great Recession year of 2009 – before rebounding in 2021 with 5.8% growth.
These fast-evolving social, business, and economic scenarios are stirring blustery headwinds for Financial Services (FS) sectors. Firm executives are grappling with issues ranging from business continuity to employee safety, risk management and coverage, to customer service and communication – all while keeping a wary eye on investments, financial results, and business outlook.
Amid almost daily change, three broad key performance indicators (KPIs) can help FS businesses measure and mitigate the impact of challenging operating conditions.
- Customer engagement: Maintain customer touchpoints and ensure that client needs are met efficiently in the absence of physical (face-to-face) channels. Minimize the impact of customer desertion and identify ways to drive acquisition and engagement in an era of social distancing and a harsh business environment.
- Business performance: Ease the effects of an economic slowdown on business growth and profitability while managing business-related risk and staunching erosion of shareholder equity or returns.
- Sustainability agenda: While driving an effective business continuity plan, restructuring operations, and safeguarding the health and safety of employees – pursue initiatives to reduce the company’s carbon footprint to stem resource depletion and align brand values with a customer base that, increasingly, is becoming environmentally conscious.
The pandemic’s impact on FS businesses will undoubtedly evolve throughout the near- and long term. Let’s take a look at the potential implications for KPIs within the banking and insurance sectors.
Houston, we have a problem. Our customers are changing, and our numbers are plunging!
Getting customer engagement right during a crisis is a top agenda item for financial services as it can make or break future customer relationships. Capgemini conducted a survey (of more than 11,000 customers across 11 countries) at the peak of the crisis in April and found that despite the quick efforts by many banks and insurers, an assurance gap exists. Only 65% of customers said their bank is taking care of their financial needs in the present situation, and only 54% thought their bank/financial institution is taking initiatives to help them overcome the current situation and stress. “Find out in detail the impact of COVID-19 on the financial services consumer in the detailed research note: COVID-19 and the financial services consumer.”
What does it mean? A substantial portion of customers do not believe their FS service providers are meeting their present needs adequately. What is more, 44% of survey respondents said they would consider switching to a BigTech (such as Amazon, Google, or Alibaba) or a FinTech (such as Revolut, N26, or Monzo) after the pandemic if their FS firm did not deliver the experience they expect.
On the business performance front, banking indexes face pressure as fears over a prolonged lockdown, fragile economy, and business slowdown pummel global markets. As Q1 drew to a close, the S&P Banks Select Industry Index’s (SPSIBK) one-year returns were down more than 33%.
Traditional customer touchpoint channels are becoming irrelevant. JPMorgan Chase temporarily closed approximately 1,000 branches (around 20% of its total footprint) in mid-March. And Citibank temporarily shut around 700 of its branches (15% of its outlets) to protect its employees while continuing to provide essential services to customers and communities.
As economic activity slows, reduced demand for bank services is likely to subdue 2020 financial performance. In its latest quarterly report, DBS Singapore said the outbreak could affect its 2020 revenue by at least 2%. Also, as several industries temporarily shut down, banks are preparing for a provisional rise in loan defaults. For example, HSBC plans to reallocate capital to Asia as it braces for $600 million in additional business loan losses.
At the same time, the insurance sector is navigating a similar maelstrom. Now, as most insurers cannot deliver services via their traditional brick-and-mortar channels, policyholders may face service disruption unless robust digital options are available. Customer experience (CX) is at stake. Insurers’ ability to fulfill payouts and provide seamless claims’ experiences will define customer relationships and trust now and into the foreseeable future.
The COVID-19 virus is driving a flurry of claims arising from business interruption or loss of income, event cancellation, travel, and medical malpractice – in health, life, and several other classes of insurance. Lloyd’s CEO John Neal said Lloyd’s insurers face coronavirus-related claims from approximately 14 categories of coverage. Moreover, Swiss Re recently estimated exposure to around 15% of event management and cancellation covers as a result of COVID-19.
However, with the World Health Organization (WHO) recognizing coronavirus as a pandemic, many claims across all insurance classes can be declared void because global epidemics are considered exclusions. Now, insurers face the dilemma of whether to work to retain an emotional connection with customers by honoring claims that drive trust and loyalty or to prioritize underwriting profitability and financial performance at a time when investments are eroding.
Perhaps the answer lies in recognizing that these objectives do not necessarily conflict. Isn’t there, after all, an undeniable link between customer engagement, business performance, and sustainability?
Customer engagement while continuing to invest in environmental sustainability measures is critical to driving steady business growth and profitability, although one might think sustainability would take a back burner these days. The combination of these two complementary approaches can help FS firms drive strong customer preference and advocacy.
A keen focus on customer centricity and environmental sustainability is critical to maintaining profitability as the risk landscape quickly evolves.
As FS sector executives slog through unprecedented scenarios, they are likely to mull over significant questions:
- Are we willing to take a hit on our valuation, or can we quickly adapt to this fast-evolving risk landscape to create new business opportunities?
- With the redefinition of businesses and operating models, are old KPIs still valid, or should we rewrite or modify some parameters?
- Given the challenging future outlook, how can we achieve the golden mean between customer centricity, sustainable business growth, and all-important profitability?
The way forward
Life – although different – will continue, and business must go on. The most successful financial services providers will decode today’s challenges and pursue their long-term, socially conscious, and environmentally sustainable agendas – all while innovating to boost CX that supports maintainable, profitable growth.
Long live the new normal.