What now for general insurance products?
29 July: Writing for ICAEW Financial Services Faculty, journalist Jonathan Minter looks at how the pandemic has affected the insurance industry.
As Q1 progressed and it became clear that COVID-19 was going to disrupt the global economy, catastrophic consequences were widely predicted for the insurance industry.
Several months later, and the portents of doom are yet to come to fruition. In fact, for motor insurance claims have fallen off a cliff as people have been forced to stay at home.
Instead, the largest increase in claims has come from the travel and business interruption (BI) insurance sectors.
Mark Patterson, global general insurance leader at Deloitte explains: “There is going to be a material pressure on premiums. If you look at classes of businesses which have lower claims experience like aviation, anything tourism or recreation, energy and entertainment, any small business is likely to have downward pressure on premiums moving forward.”
Part of the challenge lies in how long the tail of the pandemic will be.
Travel insurance has taken a reported £250m hit in claims this year. As COVID-19 lingers on and new localised outbreaks appear in different regions, it is becoming increasingly clear that travel disruption will carry on until next year.
The situation for business interruption is even more complicated.
Although insurers are expecting to pay over £900m in claims, many SMEs have found their claims rejected. The crux of the issue is that BI was not designed for a global pandemic. The FCA is running a test case to clarify the wording on some BI products, but the fact remains that many policies simply do not apply to the current situation – something the FCA has acknowledged.
Events have resulted in some soul searching in the industry. Coming out of the current crisis, many insurers acknowledge the need to improve their image and communications with their customer base. At the same time, with more people working from home, insurers are having to consider new risk factors, and add them to their policies.
COVID-19 is a historic event which could have lasting impacts on how our society operates. Insurers need to look at how they can prosper in the ‘new normal’.
You can read the full article from the Financial Services Faculty here.