Lessons from Covid-19: Bringing clarity to the industry’s role in society
The ReInsurer’s first virtual panel discussion examined the fallout from the industry’s response to Covid-19 and identified the steps needed to ensure the role of insurance is better recognised within society.
Public perception of the insurance industry has suffered during the past six months with ongoing disputes over business interruption claims shining an unfavourable spotlight on how the sector has responded to the Covid-19 pandemic.
During the first of The ReInsurer’s virtual panel discussions, which are set to take place throughout #ReInsurance Month, senior industry executives highlighted the bad and the good in the industry’s response to Covid-19.
Isabelle Santenac, EY’s global insurance leader, acknowledged the industry had been perceived as not willing to fulfil its obligation to policyholders during the Covid-19 pandemic.
“This sentiment was exacerbated by pressure from governments in the US, initiatives taken by the regulator in the UK to go to court, as well as the verdict of some court cases, which added to the perception that the industry was not willing to take the pain in this extraordinary crisis,” she said.
Santenac said the fragmented response of the industry had further added to reputation damage facing the industry.
Stephen Catlin, chairman and CEO of Convex Group, also believes the industry’s reputation has suffered.
“Some of the comments made by the industry about coverage and BI exposure have been unfortunate. You can’t say ‘I never intended to cover this and I’m not paying the claim’ if the contract wording says you do cover it,” he said. “We should recognize we were clumsy and make sure we are not as clumsy in the future.”
John Neal, CEO of Lloyd’s, said the industry could not say it had done everything it could to support its customers “The challenge is how do we set ourselves up to serve our customers better next time round.”
Vicky Carter, chairman of Global Capital Solutions, International, at Guy Carpenter, said ambiguity over coverage has been a major factor in challenging our industry’s reputation.
“Covid-19 should really have helped reinforce the value proposition of insurance and reinsurance, yet the brand has been somewhat tarnished,” she said. “Companies have maybe tended to pamper a bit towards shareholders and lacked a certain empathy towards the client base.”
However, Carter said the industry had also paid out billions of dollars in claims across multiple product lines and continues to do so. “We need to be far more aggressive about promoting the societal good we do as an industry.”
Moses Ojeisekhoba, CEO for reinsurance at Swiss Re, said there was always room for improvement but, aside from the business interruption issue, praised the industry’s response.
“The industry has paid billions and will pay a lot more and has maintained a presence. We need far greater clarity around BI but in the broader context, I think the industry has done extraordinarily well.”
A resilient response but room for improvement
Ojeisekhoba said the industry had maintained security of employment for its workforce when compared with other industries. “If we look at customer service, theindustry has responded incredibly fast to continue to provide cover during this period,” he said.
“I also recognise the flaws that exist in the system right now, which we can move forward and address in a constructive way.”
Carter said the industry is very well positioned to make loss prevention recommendations and from that can create best practice to deliver resilience measures ahead of an event.
“The industry needs to advocate public-private coverages now to deliver pandemic coverages for now and the future.”
Carter said the industry had also done incredibly well to convert to remote working overnight. “The whole industry has operated incredibly efficiently, if not more efficiently than before. There is an awful lot of good that has come out of this.
”We need to look at what has worked really well. Remote working can help promote D&I and flexibility for people and bring in new talent and skillsets that can be critical for the future.”
Embracing the remote working challenge
Neal said the experience of the pandemic had accelerated the thinking around what a different world could look like.
“Getting the balance between the virtual and real world is critical,” he said. “We need to take the good lessons from Covid-19 in our thinking around building back better.”
”Covid-19 has taught us two things – the way in which the new world can operate and accelerated our ability to do that, and reminded us the ability to connect physically is important, and we need to recover that as quickly as we can.”
”There is a value in physical connection and the real world, for all of our wellbeing and all of our health. We do have a responsibility to get back to work and to get the economy moving as well and do our bit in that respect.”
Neal said Lloyd’s had received 45,000 claims from Covid-19, of which 40 percent had been paid.
“We said we expected losses in and around $4bn. Where there is cover in place we are determined to crack on and settle those claims as quickly as we can,” he said. “Even today we are involved in insuring over 100 of the clinical trials taking place to get a vaccine out there.”
National solutions to a global pandemic
“There is talk about there being a European solution and I find that concept very difficult to get my head round,” Catlin continued. “I feel each government needs to work with its insurance industry accordingly. I don’t see how you can come to a global solution for what is essentially a national issue
“The national issue for just about every government in the world is that their SME businesses are in real trouble.”
He said one of the challenges for the industry with dealing with governments is the short-term view they take on risks, given that most politicians are elected for periods of up to five years.
“This is one of the greatest challenges for us as an industry – maybe we should aim to persuade the taxpayer and voter of the issues, so the voter says to ministers I want you to look after my long term future rather than just my short term future.”
Ojeisekhoba said the industry has a significant role to play in making governments aware of risks and putting pressure from one country to another to build resilience.
Bringing clarity to cover
Ojeisekhoba said one of the ways companies find the edge in a competitive environment is through the way they draft policy terms.
“My view is that for certain exposures there should be no ambiguity and we should have standardised terms across the industry,” he said.
Ojeisekhoba said this would prevent a situation where the ambiguity of 2,000 different wordings, lots of which have not been tested through courts of law and are often subject to differing views.
Carter said the industry could consider turning contracts round, “to clearly state what is included, and have absolute clarity around that, rather than focusing on what is excluded.”
“Simplicity and absolute transparency are so important going forward, and could take out a lot of that ambiguity,” she said.
Finding a balance to meet policyholder needs
“If you want clarity of cover, the only way of getting it is to name the cover you are going to insure,” Catlin said. “If you give umbrella coverage, you are de facto covering the unexpected.”
“You can easily go down named perils and have certainty, but if you are going to give overall coverage, by its very nature you have created uncertainty, and I don’t know how we get round that.”
Neal acknowledged the need to make contracts more readable and easier to understand for customers.
“There is big education piece to do. The customer gets tangible – when it gets to the intangible side of the balance sheet, they are not buying the covers. We will try to come up with a solution.
“There is a big education piece on getting customers to understand intangible cover.”
Carter said: ”We all have a responsibility for providing clarity. We should take responsibility as brokers for outlining the contract to customers, but there should also be responsibility between broker and underwriter to make sure we all understand what the contract is.”
Engaging governments with a long-term view
One of the challenges for the sector is engaging governments, elected on a short-term basis, with a long-term view.
Government partnerships will be critical to meet the challenge presented by pandemics and other risks too big for the industry balance sheet to take on its own.
“If society thinks the next time a major event of this magnitude comes along it will be bailed out, why would it buy insurance?” Neal said. “Ultimately, when governments settle down, they have to sit down with us and think through the long-term implications about how to manage society better.”
Catlin said there is a need to be honest with governments as to what the industry can and cannot do, limited by its finite capital globally.
“I’d certainly like to see more constructive debate with government about those systemic losses that are outside the industry’s ability to pay”.
“I would like to think that from all this we can have a broader debate about what the industry can do and what it can’t do.” Neal said the opportunity is around non-damage business interruption coverage.
“That is what the customer understands they need cover for,” he said. “The wakeup call for everybody has been the need for that type of cover.”
An acceleration in digital thinking
On Lloyd’s progress towards digitalization, Neal said Covid-19 had ultimately accelerated momentum.
“We have to get into a data-led world, and change our thinking around digitising contracts,” he said. “We were struggling to get that debate heard and understood, and it isn’t as simple for us as it is for personal lines. But Covid-19 has fundamentally accelerated our thinking by as much as three to five years. We feel better for it in our ability to fulfil some of the ambition we described a year ago to enhance the marketplace.”
Santenac said: “What we see with our clients is this crisis is an accelerator of modernization. That is linked with simplification, which is needed to sell products to the new generation of people who need a different customer experience. They need perhaps more education on insurance products. You need simplification, education, and a better customer experience, and all of that will be facilitated by digitalisation.”
Ojeisekhoba described digitalisation as a tremendous opportunity, as well as a means of radically reducing the carbon footprint for the industry. But he acknowledged there would still be a need for face-to-face contact from time to time to build the social equity that allows businesses to function.
Looking forward: Priorities for the months ahead
Covid-19 remains an ongoing event and as such will be at the forefront of business decisions for the remainder of 2020 and into 2021. This brings different challenges to different businesses.
For Ojeisekhoba, the challenge is ensuring the wellness of a large global workforce, without which the company cannot address the challenges it must meet as a major global reinsurer.
For a relatively small but growing workforce such as Convex, Catlin said the challenge is to drive through the company’s cultural and personal values across the business, when many of those on board have been employed virtually.
“Fifteen months ago we had 16 people. We now have 250 with another 50 on board by the end of the year, of which 80 have been employed virtually, which is an interesting new challenge,” he said.
Neal said Lloyd’s remains focused on its response to Covid-19 and driving through its vision for a digital future at Lloyd’s, as well as setting the right culture for the market. For Carter, it is vital that the industry does not lose its focus on the next generation.
“Educating the next generation is so important for our industry. What this crisis has done is made it very difficult in how we continue to educate them and give them the opportunity we have all had in building relationships.”
Santenac said it was important for insurers to better communicate the value they create for society.
“There is an opportunity to state better the purpose of the company and what they do. That will help balance the negative noise that has been in the media over recent months,” she said.