If you’re an insurer reading this, you successfully made it through your first year of COVID-19. Like a dependable four-wheel drive, the insurance industry kept itself on the road over the past year’s many first-of-their-kind hazards: remote-working mandates, the evaporation of face-to-face channels, mass event cancellations and a slew of Business Interruption claims, to name a few.
By this stage, insurers can certainly be forgiven for casting a relieved glance in the rear-view mirror, as 2020’s trail of carnage slowly recedes from view. But, tempting as it is to push into 2021 looking backwards, we must not take our eyes off the road ahead.
In this extended series, we explore what the aftereffects of the coronavirus pandemic mean for the industry, and how general insurers stand to win or lose in the “new normal”.
Taking stock of Covid-19
The direct impact of the pandemic on insurance is by now clear, both for the top and bottom line. Accenture Research estimates between £2bn and £3bn in “missing” GI premium during 2020 in the UK alone, with up to £5bn missing by 2022, depending on whether we see a “V-shaped” recovery (best case) or an L-shaped recovery (worst case). Meanwhile, the Association of British Insurers (ABI) expects COVID-19 to cost UK carriers £1.8bn in claims.
Source: Accenture Research modelling (2021)
But, for all that direct costs from COVID-19 have been large, they are not the full picture. The coming years could bring a further cost – an opportunity cost – if insurers choose to look back on 2020 as an aberration, instead of recognising the ways in which the pandemic has changed the game for good.
New year, new normal, new competitive dynamic
For now, the sector remains overwhelmingly focused on claims and other downsides from the pandemic. But this obscures an important development: Covid-19 has radically reshuffled the deck, ushering in new risks to insure, new product potential and new ways to engage with customers.
So, what does this new normal look like for insurers? Well, let’s start with consumers… The pandemic has melted the ice caps of digital apathy once and for all, hastening even the most old-school buyers into the Amazon age.
Consumers are simultaneously cash-strapped and fixated on their financial future – and more willing than ever to wield the hammer on bad customer service. Elsewhere, policy documents and their many obscurities have become a daily concern for business owners great and small.
All this brings a new competitive dynamic into play, and insurers slow to embrace this within their lines of business risk losing market share to better-attuned competitors. This is insurers’ time – but never have the shortcomings of the industry been so apparent to so many.
With the pandemic still ongoing, insurers have plenty to do to keep the wheels on the road. But their long-term planning cannot be about restoring themselves to 2019 condition. The next stretch will require more than a change of tires and a fresh lick of paint. In many ways, insurers must become a different kind of vehicle entirely if they are to stay in – and win – the race.
Exploring the new normal across insurance lines
Implications vary substantially by line, and insurers will need to match their New Normal strategy to their business mix. Differences are most pronounced between Personal and Commercial:
- Personal lines continue to experience commoditisation, pushing carriers not just to reduce operational costs but also to look for new pockets of growth outside the core business.
- For commercial insurers, the pandemic has inflicted heavy losses, creating attractive hard-market opportunities in many areas as well as a heightened sense of societal mission – especially with regard to the small and medium-sized businesses (SMBs) that form the backbone of the UK economy.
We will explore the threats and opportunities that the New Normal brings for Personal and Commercial lines, in the UK and more broadly, over the coming weeks. If you’d like to get in touch in the meantime, please reach out to me on LinkedIn.