Start of the beginning or the point of no return for the insurance industry?
I am pretty certain that we are about to enter choppy waters around customer trust post the Supreme Court business interruption ruling that some policyholders are entitled to business interruption pay outs. For those insurers not precise enough with contract terms then they can hardly deny desperate business owners the opportunity for a commercial lifeline – but some did.
The industry cannot deny it was unaware of the risk of a global pandemic – take a look at most insurers Risk Registers and you will see pandemic at the top of the list. Take a look at the UK National Risk Register for the countries agreement. So, we had a known known and a sector bleating that it had no intention of providing cover for a pandemic but it would appear some didn’t do enough to make sure.
I reflect on uncertain policy wordings and lack of clarity around cover on all sides – customers, brokers, capacity providers and the lawyers. How did it come to this? Well, I think it is fair to say that some are suffering a consequence of mergers and acquisitions, cost cutting measures and a manyana attitude to legacy systems and wordings. Where have all the policy wording experts gone?!I strongly suspect that there are insurers struggling to cope with multiple different policy wordings on various operating platforms and that is before we get to claims departments trying to work out cover.
We will no doubt enter a period of arguing the toss and not paying too much notice of how our industry looks and feels to the insurance buying public. There will be proof of loss to establish, indemnity debates and quantum discussions. We may even have to consider the thorny subject of damages for late payments. There will be a raft of communicable disease exclusions – belt and braces this time round. New word of the year – endorsements! There will be rate increases for sure.
It is time for a change surely? How can we get away from complexity and adversarial contracts? The most obvious will be regulatory pressure for simpler policies and wordings and few could argue against that. What could be simpler than having a standard market policy wording for example? Has the sector gone too far in seeking differentiation and competitive advantage and got itself in such a muddle that it’s time to return to basics?
Personally, I would think the time is right to develop more widespread thinking around parametric insurance. There should be opportunity now to move away from the principle of indemnity based insurance and towards making a payment upon the occurrence of a triggering event, a pre-agreed pay-out if the parameter or index threshold is reached or exceeded, regardless of actual physical loss sustained. This should enable businesses to find protections outside of exclusions/deductibles or unaffordable risk transfer.
There are opportunities. Whilst the focus remains on pandemic there is no need to lessen concerns around extreme weather or a world rapidly seeing increasing cyber exposures or workers health exposures.
Let’s hope the Chancellor doesn’t decide to increase Insurance Premium Tax in the budget – now that would just cap it all…!
Be careful out there .