The world is going through an extraordinary moment due to the Covid-19 crisis, and while all sectors have been hit, the (re)insurance sector has been particularly affected for two main reasons, writes Hervé Nessi, chief underwriting officer at CCR Re.
There’s no doubt that Covid-19 will be one of the biggest loss events in history, but the pandemic has also highlighted another serious issue: our sector has a bad reputation among the general public.
The explanation for this disenchantment is multifaceted.
First of all, the sector is a victim of its very nature and the famous reverse cycle: it offers a promise which may – or may not – be fulfilled until long after the expenditure.
In contrast, when purchasing a smartphone the enjoyment of the product is simultaneous with the expense.
In insurance, this marketing difficulty is recurrent in agricultural insurance, where the product suffers from low take-up rates, and the issue still remains unsolved when it comes to long-term care insurance.
Naturally, this deferment of satisfaction creates fertile ground for a certain media and political demagogy. We already knew there was an information imbalance between insured and insurer, which can lead to adverse selection.
It is now confirmed that there is also a worrying emotional imbalance. This phenomenon has already been seen in serious bodily injury disputes, where social inflation of compensation amounts is in part driven by sympathy for plaintiffs.
It has become more obvious this year in the disputes between restaurant owners and insurers over business interruption.
We have, moreover, seen some insurers completely change their policy for handling Covid-19 claims – not based on their legal analysis, but in response to pressure from certain media. This image risk is now clearly established and constitutes an element which should be integrated one way or another in the pricing of insurance policies.
There is also a general lack of awareness and even a lack of interest among the general public in the insurance sciences. However, insurance is ubiquitous in our lives and represents a significant part of families’ budgets – up to 20 percent of the budget in some countries goes towards property and health insurance.
To address this misunderstanding of the pooling mechanism, it would probably be a good idea to implement appropriate and adapted marketing.
For several years now, excessive segmentation and targeted marketing has treated each insured person as an individual, making them lose sight of their place in the mutuality.
Collective necessity should be highlighted, perhaps by using concrete examples. For instance, how many citizens know that to compensate for a bodily injury caused in a traffic accident you could need the total annual motor premium of a city with a population of 20,000?
By the way, it would be useful to simply recall an obvious fact: to finance claims one needs a premium. Demagogues expect insurers and reinsurers to compensate all restaurant owners, bars and nightclubs around the globe. But let’s not forget that, except in very few cases, no one has really insured against this specific risk, so no one has paid.
As countries gradually set up national pools as a first solution against future pandemics, the financing of these pools will only be possible through an additional premium, particularly during this time of low financial yields.
We should also promote the societal role of insurance. Consciously or not, it alleviates our fears. We should guide policyholders to help them better identify their fears in everyday life. By doing this, insureds could adapt their insurance, optimise their budget by focusing on their areas of concern and avoid paying (sometimes several times over) for an insurance that does not interest them.
With this in mind, a lot of contractual work will be necessary across the board and is already in progress among all professionals in the sector to allow a better understanding and greater transparency of the contracts.
(Re)insurance is an exciting, interesting and vital business that unfortunately few know about or understand properly. It’s time for a sea change!