COVID-19 is driving up insurance rates - but is it enough?

COVID-19 is driving up insurance rates - but is it enough? | Insurance Business New Zealand

COVID-19 is driving up insurance rates - but is it enough?

As New Zealand battles through its ongoing Delta outbreak, insurers are looking for ways to ensure that their customers retain their much-needed cover - and according to most insurers, hardship measures have largely achieved this goal, and new business has also been thriving.

According to EY, the COVID-19 pandemic has presented a “good news, bad news” scenario for insurers, and particularly for those in the life space. It stated that the pandemic has been a “generational opportunity for insurers to demonstrate their relevance and value,” and EY research has indicated that customers have gained “a new appreciation and clearer understanding for the need for life protection.”

It noted that COVID-19 has also increased interest in other products like cyber insurance, however, the research revealed that customers “don’t think of insurance first (or even second, or third) when they think about financial wellbeing.”

However, the pandemic has undeniably raised awareness around the need for cover in case of unexpected circumstances and financial shocks. Over in the US, almost a third of customers (31%) said that COVID-19 made them more likely to purchase life insurance within the next 12 months, according to the 2021 Insurance Barometer Study.

New Zealand insurer Fidelity Life recently released its FY21 results, and CEO Melissa Cantell noted a strong book of new business as one of its key growth drivers over the past year.

Read more: What is the role of insurance in COVID-19 recovery?

“COVID-19 had the potential to make FY21 a particularly challenging year for new business and retention,” Cantell said. “It was pleasing to have delivered such a good performance, and a big driver of our success in both of these areas was the hard work put in by our advisers and partners.

“On the retention front, people tend to maintain their cover in times of uncertainty. That said, we were able to provide hardship support to more than 860 customers financially impacted by COVID-19, with 80% of these policies remaining in force as of June 30, 2021.”

“Anecdotally, we have seen New Zealanders become more interested in life insurance throughout the pandemic,” she added. “This is bourne out in surveys we ran when New Zealand first went into lockdown last year, as well as through our good FY21 new business and retention performance.”

Despite a strong performance for life insurers throughout the last year, a recent Swiss Re study still highlighted a significant protection gap in New Zealand.

Kresh Wright, head of life and health at Swiss Re noted that affordability is still one of the key issues driving customers away from purchasing cover, and perception of the industry has also played a significant role. She said that insurers have a strong opportunity to use their adviser networks to better educate the public on good levels of individual cover, and on the risks of lapsing a policy during times of uncertainty.

“Our survey showed that two thirds of consumers cite affordability as the biggest reason for not buying life insurance, and that is a huge number,” Wright said.

“But that number is actually quite consistent with what we’ve seen in other markets, and we’ve also seen that even if people do have insurance, they will often not increase the amount they are covered for because of the cost. People then end up lapsing their policies in tough times because of the cost, and that is a huge issue for the industry.”

Read more: Examining the future of insurance in a post COVID-19 world

“One of the other reasons consumers have given is that they have a poor perception of the industry in general, or of the adviser industry,” Wright continued. “They might find the product too complex and confusing, or they’ve done some research and decided for themselves that they don’t need it. These things all suggest that a bit of education could really help to turn that around.”

“Even in the advice space, I think the industry should really look at how we can make advice more accessible to Kiwis. We all need a bit of guidance to help us determine what level of cover we need, particularly as that’s going to change at various points over our lifetime.”

Wright said that although recent regulatory overhauls have improved the perception of insurance to a degree, there is still a lot of work to be done to ensure that coverage levels increase.

“On the perception side, the changes in regulation in both Australia and New Zealand has increased levels of awareness, which I think is a great starting point for consumers,” she said. “But even with that awareness, I think they still need some guidance and support in making the right decisions around what exactly they need to suit their circumstances and future needs.

“Having said that, awareness has definitely improved, and COVID-19 has opened everyone’s eyes to the possibility of unplanned and unexpected events impacting us financially. But there is still a lot of guidance needed to get us to the right numbers.”