Can insurers cope with colossal COVID changes and new corporate practices?

The enduring theme of conversation since the beginning of the COVID pandemic has been change. For the insurance industry, this has meant grappling with significant disruption as risk profiles were completely tipped on their heads. Since its inception, the insurance industry’s great skill has been understanding how to turn the risk data available to it into risk transfer, underpinning economic growth and innovation in the process. With so much change having been unleashed, how well is the industry keeping up and is it well placed to manage further change as we emerge from the pandemic?

Motor insurance seems especially ripe for change. There are two factors disrupting the sector; one, the FCA’s ban on preferential pricing for new customers, and two, apparent evidence that shows people will drive less frequently than they used to after the pandemic.

Once the FCA’s loyalty penalty ban kicks in from January 2022, insurers will need new ways to compete with one another. This can no longer be simply on price alone, and if they are to retain customers, the focus must shift to the quality of cover and service they offer 

It looks like the industry will lean into a greater use of technology to deliver more customer-centric motor insurance. Speaking to journalists recently, Direct Line CEO Penny James, noted that, “Like many consumer markets, ours is digitising fast. Future success will be predicated on providing customer focus, efficiency, and innovation with the insurance specialism of pricing and claims expertise.”

 Through the of use cloud-based systems, data analytics and machine learning, insurers should regain the competitive edge when it comes to costs, customer service generally, and specifically, the speed at which they resolve claims. These are set to be the new battle lines upon which insurers compete for customers, as once the price difference becomes negligible consumers will start to look much more closely at other factors.

Trends in motor insurance are being driven by fundamental changes in car usage too. According to the Department for Transport, between March 2020 and July 2021 car usage fell to 22 percent compared with the  previous year, as lockdown kept people at home. Accordingly, the cost of motor premiums fell by the largest amount in over six years as insurers adjusted for lower mileage and fewer claims.

If drivers are to continue using their cars less, especially for commuting, then insurers need new ways to address this market that fit with this occasional usage. This must mean that Usage Based Insurance (UBI), which has been around for some time, will become more mainstream. A study conducted in April 2021 by research company Censuswide into insurance customer attitudes found that only 9 percent of respondents had a UBI policy, yet 6 out of 10 people could see how it would be valuable to them. Moreover, those aged over 55 were particularly open (65 percent) to the idea. Usage based policies are largely the preserve of smaller players, such as Flock in the UK, but there are signs some of the incumbents are beginning to take more notice. Last year, Zurich partnered with By Miles to underwrite their business after seeing the aforementioned drop in car usage.

Another post-pandemic change affects home insurance policies when working from home. There appears to be confusion around whether employers or employees ought to be responsible for insuring business equipment when people are working remotely. The same Censuswide study found that two-thirds of people (66%) did not know whether company technology installed in their homes was included in their home insurance policy. Furthermore, two-thirds of people thought it should be their employer providing insurance cover for them whilst they worked from home; whilst 92% felt insurers needed to be doing more to explain what is and is not covered by their home insurance policies when they are working remotely. 

In many cases typical home insurance products will protect people and devices whilst working from home. However, there are numerous exceptions, such as if people are having visitors to their home on business matters, or if they are running a business from their home address. In these cases when a change needs to be made, it is up to the customer to notify their insurer.

Insurance companies need to respond to two further changes brought about by COVID-19.

On the one hand, there is a definite need for insurance policies that account for behavioural changes and in conjunction with this, a need to ensure that policy language is clearer and communication with customers more transparent. A failure to ensure consumers understand the exact terms of their coverage has contributed to the reputational damage seen in recent months. Insurers cannot afford to take this for granted any longer. They need to be more proactive in speaking with and educating their customer base, as well as providing suitable channels through which they can be contacted.

Secondly, insurers need to adapt the systems they use to run their businesses so that they are able to innovate and change more easily; bringing new types of cover to market; offering customers omnichannel communications that suit their lifestyles; and creating more regular touchpoints so that consumers are educated on how their changing circumstances may affect the cover that they need. A lot of work has already been done to upgrade legacy systems, but there is still much to do before the whole industry can confidently say that it is well placed to implement these changes.

The insurance industry provides an incredible socio-economic benefit to people and businesses. However, this is undermined by the confusion and misunderstanding seen in the coverage of the industry in the wake of the pandemic, and the resulting reputational damage. Whether it is cloud, artificial intelligence, chatbots, or data analytics capabilities, the tools and technology insurers need to tackle the challenges that have been brought about by the pandemic exist already. It is now time to ditch the excuses and for insurers to be proactive in adopting and using them to their fullest potential in order to recapture the trust of their customers.