What will a post-COVID world bring for insurers?

What is the single biggest obstacle to people picking up additional coverage?

What will a post-COVID world bring for insurers?

Business Resilience

By Mia Wallace

There’s a careful optimism to the thought leadership features, reports and webinars that explore what a ‘post-COVID’ future will look like, but, with lockdowns easing across the globe, these conversations are becoming increasingly well-timed.

While introducing the recent Geneva Association (GA) webinar on ‘The Global Risk Landscape after COVID-19: What role for insurance?’, Simone Bemporad, director, communications and public affairs at Generali, outlined how the question is relevant to billions of people around the world. It is the question examined during an extensive report published by the GA, which included 25 executive and expert interviews and a customer survey of 8,000 insurance customers across eight countries (commissioned with Edelman Data & Intelligence).

Bemporad chaired the webinar, which drew on the knowledge of several senior leaders involved in a variety of sectors across the insurance industry, as they discussed the implications of the report. Kai-Uwe Schanz, head of research & foresight at the GA noted that the research emphasised how customer expectations are increasing in the wake of the pandemic, while there is enhanced global recognition of the concept of systemic risk.

“Everyone has experienced personal vulnerability, fragility, so there’s a clear increase in interest in insurance and expectations towards insurance,” he said. “At the same time, insurers and reinsurers have tightened their terms and conditions, and have added new exclusions, especially with regards to business interruption related policies in light of what they have experienced during the pandemic.

“There is a sort of gap emerging between what our customers expect, on the one hand, and what insurance can reasonably do based on their finite balance sheets. I think this gap presents us with a formidable challenge, intellectually, actuarially, commercially - a gap that we need to explore.”

This is supported by the findings from the report’s global customer survey which revealed that more than 40% of retail customers consider health and life insurance as more important post-pandemic. Meanwhile, over 50% of small business owners value business interruption, group life and health, and liability insurance more highly. Examining how this is reflected in post-pandemic buying intentions, however, the report highlighted that just over a quarter of small business owners plan to purchase (additional) business interruption and workers’ compensation insurance.

“We [have seen] that there’s a significant gap between higher levels of value attached on the one hand, and the willingness to actually purchase additional insurance coverage,” he said. “Now, what’s behind this gap? The biggest single main obstacle to purchasing additional coverage is the fact that insurance is not on top of the minds of our customers. This obstacle and barrier is more important than a lack of affordability… and to some extent, this is good news for us because it’s in our hands to change this and to lift insurance higher on an individual’s agenda.”

Arguably the most important takeaway of the survey is the reflection on what customers expect from the industry post-pandemic – it found that retail and small commercial buyers expect more comprehensive policies to account for (unknown) future crises, clearer policy wordings and more prevention services. Essentially, they expect coverage for the next Black Swan event, he said, which is a very tall order for the industry.

There were five key recommendations for insurance companies outlined by the report - the first among them being the need to harness heightened risk awareness and the shift to digital to narrow the protection gap.

Schanz noted that the report’s second recommendation was around the pivot to sustainability. Against this backdrop, he said, it should be easier for the insurance profession to convey its ultimate purpose- protection and resilience building. Adding to this point, Jerome Haegeli, group chief economist for Swiss Re, stated that the insurance sector has a truly special role to play by being part of the solution for the number one global risk - climate change.

“The third recommendation or conclusion is that the pandemic might be viewed as a catalyst for business model innovation,” Schanz continued. “We have seen a rise in mindfulness all over the world. This rise in mindfulness has increased the appetite for prevention services, as we have also seen from the customer survey. So that’s an important consideration.”

The fourth conclusion is almost a no-brainer, he said, as COVID has accelerated digitalisation. It can be argued that this is particularly relevant to insurance because digitalisation entails at least three major changes that could be transformative for the industry. Firstly, it could help the sector extend the boundaries of insurability, using the Internet of Things, for example. Secondly, it could help insurance businesses address the significant block of transaction costs the industry is carrying. And thirdly, and perhaps most importantly, digitalisation could help insurance redefine the way customers are interacted with.

“[Our final recommendation] is to simplify products,” he said. “Again, it’s a very straightforward conclusion. This is clearly what customers expect when you dig deeper in the customer survey, but it will also be a very important element of our industry’s reputational risk management going forward. We have seen that ambiguities in contract wordings can have a reputational fallout and I think this lesson has been learned by many industry participants.”

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