• Nicoletta Nicolaou

COVID-19 Pandemic and the Direct and Indirect Effects in the Insurance Industry


On the 12th of March in 2020, Dr Tedros Adhanom Ghebreyesus, Director-General of the World Trade Organisation, has announced that COVID-19 can be characterised as a world pandemic due to the rapid increase of cases outside China (WHO, 2020). The rapid spread of the virus through countries all over the world has led to the collapse of most economies as governments were forced to undertake drastic quarantine measures, or even complete lockdowns of cities and countries for preserving their health system. The spread of COVID-19 is an aspect of the global economy that affected differently the economy of each infected country. On the 23rd of March of 2020, where the new ruling was imposed by the Cypriot government: ΚΔΠ 135/2020, most employees were forced to work from home, transportation was banned unless given permission from the government, and all coffeeshops, cosmetic saloons, restaurants, etc. were forced to cease operations. Regardless of the fact that aid packages were offered by the Cypriot government, many residents received lower income compared to prior COVID-19.

Taking into consideration that the demand for insurance services is income elastic, meaning that consumers can only purchase insurance if they have adequate income to do so, a decrease in prospects’ income would have consequential effects in the business success of the firm. The figure below shows that a small decrease in prospect’s income from Y1 to Y2 causes a movement along the demand curve that leads to a substantial decrease in the quantity of insurance policies demanded from Qd1 to Qd2. Since the lockdown in Cyprus, AN Insurance Ltd has reported a decrease in the amount of new policies sold, compared to the corresponding months of the previous years, by approximately 25%. Except for the prospects’ reduced income, the uncertainty of future earnings and job security has also negatively affected the new business activity of the firm.


The extent that the pandemic could affect the firm’s business success during the next years depends on the type of policies that AN Insurance Ltd sells and the degree of impact that the newly imposed regulations for the pandemic has on the clients’ income.

The type of policies that AN Insurance Ltd specializes in selling has a crucial role in determining the extent that the pandemic will decrease its future business success. After the excursion of the pandemic, the demand for health policies is expected to increase as prospects will be more prone to the risk of needing health insurance than prior to COVID-19. According to Vaidyanathan Ramani (Financial Express, 2020), there will be a “fair surge in the people” demanding health insurance as after the pandemic people “will realise that not being infected by such a deadly virus is not completely in one’s hand.” In addition, the demand for corporate general insurance policies (e.g. business interruption policies) is also expected to increase as corporations will be more prone to the risks of insolvency in the case that an insured event takes place. On the contrary, the demand for unit-linked life insurance policies is expected to decrease due to income elasticity of demand. The fact that unit-linked policies are income elastic, reduced household incomes will lead to a greater decrease in quantity demanded.

AN Insurance Ltd: Sales Performance Reports 2020 (Q1)

· 54.37 % - unit-linked life insurance polices

· 32.24 % - health & term life insurance policies

· 13.39 % - general insurance policies

The degree of impact that the new regulations imposed by the government for protecting the country from COVID-19 had on clients’ income has a crucial role in determining whether the business success will be affected during the future years. For example, if the majority of the agency’s clients or prospects work in the airline industry, then their demand to buy insurance is expected to decrease as their incomes are more prone to a reduction and they are uncertain of holding on to employment. According to the ruling: ΚΔΠ 135/2020, the airline companies were forced to cease operations while the government pledged to subsidize 60% of payroll costs. Therefore, the income of employees in the airline industry has decreased by 40%. On the contrary, if the majority of prospects are employed in the finance industry or work for government institutions, where their jobs have not been disturbed significantly, thanks to digitization practices, their income will remain static, parallel to their demand for unit-linked insurance.

To sum up, considering that most of the policies that AN Insurance Ltd specializes in selling are life and unit-linked policies, the impact brought by COVID-19 is expected to have a negative effect to the agency’s business success. However, the fact that roughly 88% of the portfolio and sales pipeline are employees or employers of finance and government institutions, the agency is not expecting significant disruption in sales. In any case, with the pandemic still undefeated and looming around the corner the future business success of the agency is uncertain. In addition, the direction (i.e. V-shaped or U-shaped) that the recovery of the economy will take will have a detriment effect on the agency’s future business success and of the overall economy. A V-shaped recovery will involve a sharp rise to the previous peak, after a sharp fall, and hence, it will bring the economy back to where it was in a quick and sustainable way. Such a case would be the best-case scenario for the economy. On the contrary, a U-shaped recovery will involve “a longer time slagging along the bottom of the recession rather than immediately rebounding” and hence, will lead to more detriment effects for both the agency and the overall economy (Smith, 2020).


Internet Sides

Financial Express, 2020. Insurance: COVID-19 to lead to Spike in Demand for Health and Life Cover [online] Available at: [Accessed 08 June 2020].

KPMG, 2020. Do Insurers have COVID-19 covered? [online] Available at: [Accessed 16 June 2020].

World Health Organisation, 2020. WHO announces COVID-19 a pandemic [online] Available at:,growing%20number%20of%20countries. [Accessed 9 June 2020].


The Quarantine Law Act: Κ.Δ.Π. 135/2020. Cyprus, Council of Ministers.

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