“There are some lessons learned from that because clearly we weren’t expecting to catch COVID quite like we did,” said Isherwood, noting that while the industry has pandemic models, not many of them captured the extent of the potential losses, especially regarding business interruption. He added: “I would also say that the patient I’m describing (the industry industry) has recovered and fared pretty well. COVID-19 is primarily an earnings event across the world, with one or two exceptions. I think the industry has shown its resilience.”
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While COVID-19 was top of mind for everyone in 2020, dominating both our personal and our professional lives, it was not alone in determining the health of the global insurance industry. Isherwood described multiple “co-morbidities” that the industry had to deal with, including a very costly natural catastrophe year, combined with low interest rates, years of soft pricing, and certain types of social inflation or expectations.
“I think the industry is a patient that caught COVID-19 and actually recovered pretty well, but what’s really important to remember is that you don’t just get out of hospital and feel good immediately,” he said. “Is there a good recovery program? Is everyone focused on not just feeling good for a few days, but so that we actually recover well and have a good program in place for the coming years? There’s still a lot for the industry to do to put ourselves on a much stronger basis.”
Furthermore, the common co-morbidities that Isherwood alluded to will remain post-pandemic, and other pre-pandemic factors will come back into play. For example, some lines of business, such as auto, have experienced a lower frequency of claims over the past year, but that will balance out and claims will likely pick back up again once the majority of people recommence their usual commuting and daily driving habits.
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“Let’s focus on what we can control [and] the things we can improve – getting back to a healthy recovery,” Isherwood stressed. “We can’t change the low yield environment, we can’t change inflation, but we can continue to push and reflect on [policy] wordings, which is another lesson to come out of this. I don’t want to paint the world the same everywhere, but I don’t believe everybody is looking at claims they expected to be paying, or that they had priced for. So, it’s important to stay focused on wordings, and just ensuring that we get enough rate to accurately reflect a decent return on capital for the long-term sustainability of this industry.”
While its easy to focus on the challenges, Isherwood said there are some positives that have come out of the pandemic. One example is the industry’s proven ability to work remotely. This has created opportunities to work a bit differently in the future, making more use of collaboration tools and technology to enable more flexible working conditions.
“Personally, I think we’re an industry that adapted extremely well,” the CEO added. “The industry hasn’t really missed an operational beat. I would also say that the industry has been forced to innovate in ways that perhaps we wouldn’t have done otherwise. That forcing function is something that we need to keep momentum on.”