COVID must change insurance for the better

The nov­el coro­n­avirus has upend­ed all parts of every­day life, includ­ing the insur­ance indus­try. Thou­sands of cus­tomers called in poli­cies as hol­i­days were can­celled and unfore­seen clo­sures were forced upon firms. Insur­ers have nev­er been busier.

But there have been neg­a­tive head­lines along­side finan­cial reas­sur­ance. A recent case over 21 spe­cif­ic word­ings of busi­ness inter­rup­tion insur­ance poli­cies, brought to the High Court by the Finan­cial Con­duct Author­i­ty, has turned a spot­light on the indus­try.

“It’s a reminder to every­one, both insur­ers and cus­tomers, about the impor­tance of con­tract word­ings,” says Huw Evans, direc­tor gen­er­al of the Asso­ci­a­tion of British Insur­ers. The future of insur­ance relies on how the indus­try responds to neg­a­tive head­lines, how it charts a path through the post-coro­n­avirus world and how it choos­es to embrace dig­i­tal trans­for­ma­tion in the sec­tor.

“COVID-19 has been a huge oper­a­tional resilience stress test,” says Evans. “Can the sys­tems hold up, can you move hun­dreds of thou­sands of peo­ple to work­ing from home? Can you issue new claims and pen­sion pay­ments while work­ing cor­rect­ly?”

So far, the indus­try has come through with vigour and resolve, main­tain­ing strong cus­tomer ser­vice and keep­ing its busi­ness mod­el strong. It’s also improved trans­paren­cy, mak­ing sure the indus­try is open about what it does and why it does it, help­ing main­tain cus­tomer loy­al­ty and assur­ance.

But the pan­dem­ic has also reas­sured peo­ple of the impor­tance of insur­ance. “This hor­ri­ble pan­dem­ic, with the ter­ri­ble loss of life involved has, like all cat­a­stroph­ic events, remind­ed peo­ple things can go wrong in life,” says Evans.

Neil Clut­ter­buck, chief under­writ­ing offi­cer at Allianz UK, adds: “COVID-19 has sud­den­ly cre­at­ed this sit­u­a­tion where we thought we lived in a world that had a degree of cer­tain­ty, but has moved the goal posts con­sid­er­ably.”

Speeding up digital transformation in insurance

And, like every oth­er indus­try out there, the pan­dem­ic has sped up the use of dig­i­tal tech­nolo­gies. Dig­i­tal trans­for­ma­tion in the insur­ance indus­try has been build­ing up steam for years, but the rapid shifts that have rocked the world have con­densed decades of change into months. The future of insur­ance is no longer the future; instead it’s the present.

“It’s been a reminder of how much of our work is dig­i­tal­ly enabled,” says Evans. It has accel­er­at­ed the process of insur­ers think­ing about what types of prod­ucts peo­ple want and how they want to inter­act with their insur­ance providers. The future of insur­ance has long been her­ald­ed as a world where data ana­lyt­ics is key and dig­i­tal tech­nolo­gies sweep away lega­cy sys­tems run by tra­di­tion­al insur­ers.

At the start of the pan­dem­ic, half of Allianz cus­tomers using par­tic­u­lar insur­ance prod­ucts trans­act­ed with the firm dig­i­tal­ly. “Dur­ing the COVID-19 peri­od, that’s shot up to 80 per cent for cer­tain lines,” says Clut­ter­buck. “Cus­tomers are unlike­ly to go back, hav­ing got famil­iar with trans­act­ing in that way.”

Much of the data need­ed to affect dig­i­tal trans­for­ma­tion in the insur­ance indus­try already exists and is avail­able to insur­ers. Where­as, in the past, cus­tomers would have to report where they lived and whether it was near a water source that was a flood risk, insur­ers can now sim­ply look at a map and mod­el the flood risk for any prop­er­ty. “We’re liv­ing in a world where sources of data are explod­ing, not just grow­ing,” says Evans.

Predictive analytics make insurance smarter

That data explo­sion helps make insur­ance more effi­cient and brings ben­e­fits to cus­tomers. Clut­ter­buck explains: “You get greater insight and the abil­i­ty to use that data to real­ly fine-tune prod­ucts.”

But not every­one wants to hand over their life’s data. “How far it will go is part­ly depen­dent on how much cus­tomers give per­mis­sion,” says Evans, who fore­sees a mar­ket for those who wish to main­tain con­trol over more of their data, but per­haps will require a “more risk-reflec­tive pol­i­cy” and pay­ments.

We already see this in the car insur­ance world. “Some dri­vers are very hap­py to have black-box telem­at­ics if it means their pol­i­cy is judged on how they dri­ve and their dri­ving pat­terns,” he says. “Oth­er cus­tomers feel that’s an intru­sion.” Such usage-based insur­ance, how­ev­er, is impor­tant in a world where we’re as like­ly to rent vehi­cles as we are to buy them out­right.

“I think we’ll see more sin­gle-use insur­ance, where peo­ple pay per mile for car usage,” says Evans. Like­wise, so-called “para­met­ric” insur­ance, where cus­tomers buy a spe­cif­ic amount of cov­er for some­thing, is becom­ing more pop­u­lar as finances are strained and cus­tomers feel bet­ter able to judge their own risks.

Changes driven by young consumers and insurtech

Younger con­sumers may also pre­fer to buy data or cyberin­sur­ance, pro­tect­ing the infor­ma­tion on their phones, lap­tops and in the cloud. “They want to pro­tect that as much as 20 years ago they want­ed to pro­tect a TV,” says Evans. But the indus­try has to work hard to build up trust that it’s able to han­dle data respon­si­bly.

“We need to do more to reas­sure cus­tomers their per­son­al data is safe with us and how we use their data is clear and trans­par­ent,” he con­cedes. Part­ly, this can be done by build­ing bet­ter rela­tion­ships with cus­tomers, which is where the raft of new insurtech star­tups are chart­ing the course for the future of insur­ance. “They’re focused on how we can engage bet­ter with the cus­tomer,” says Evans. “In that per­spec­tive, insurtech star­tups have been a real pos­i­tive for our sec­tor.”

But they’re not work­ing alone. Dig­i­tal trans­for­ma­tion in the insur­ance indus­try is hap­pen­ing because of col­lab­o­ra­tion between insurtech star­tups and the tra­di­tion­al insur­ers that have spent cen­turies build­ing up the indus­try. Togeth­er they’re map­ping out where the insur­ance indus­try is head­ed in a post-coro­n­avirus world and the future looks bright.