In the second of a series of sector-specific blogs, we look at the impact of Covid-19 on the insurance sector, and what the future might hold for businesses operating in this sector.
The insurance sector employs 139,000 people across the UK, and PWC places them at a ‘Medium’ jobs at risk rating, due to lower cash flow during the pandemic. However, a high proportion of workers in this sector – 67% – can work at home, and only 30% normally come into less than 2m contact with co-workers, making this sector one of the more adaptable to new social distancing rules and extended lockdown periods. In particular, those insurers who had already fully digitised their systems, enabling customer service calls to be handled by workers from home, should reap the rewards of increased customer satisfaction when renewals become due.
The Covid-19 crisis has arguably made the insurance sector more visible than any other event in living memory. The pandemic has brought to the fore the need for comprehensive insurance which can cover any eventuality. Many businesses and individuals found their insurance policies lacking in cover for the effects of the pandemic, highlighting a general level of misunderstanding between the customer and the insurance sector. Moving forward, this is likely to result in customers becoming much more discerning in their purchase of insurance, and insurers needing to expand the quality and quantity of their offer in order to retain old customers and attract new customers.
In 2020 there has obviously been a growth in the number of claims against Business Interruption Insurance, but there have also been other trends across the sector. Motor insurance claims are down – unsurprisingly since there have been far fewer cars on the road due to lockdown! Claims for cancelled holidays and events are up significantly, again no surprise, and sadly life insurance claims have also increased. Health insurers have also seen a spike in enquiries, and in particular for more comprehensive cover, reporting an increase of 150% for support services.
Of course, insurers rely on the markets to keep their assets secure, and the economic downturn across the world has had a significant impact on their financial health. This coupled with an increase in claims as outlined above has placed some insurers at significant risk of insolvency. Even Lloyds has taken a significant hit, losing a third of the buffer on its market-wide solvency ratio between December 2019 and March 2020.
By far the biggest issue for insurers will be the fact that pandemics are not covered by most policies due to the fact that they affect ‘all people’ and therefore risk pooling methods cannot apply. Despite this being perfectly legal, fair and above board, insurers are likely to see an increasing amount of litigation from customers who did not understand that this would be the case. In some countries, governments are now stepping in to attempt to force insurers to cover Covid-19 losses, so we could see significant legal challenges over this issue for many months to come.
