Articles - What will it take for insurers to be on the winning side

The Covid-19 crisis has many angles and presents innumerable challenges. Insurers had to quickly grapple with the operational challenge of moving their workforce to remote working, whilst dealing with a great volume of queries, claims and complaints. Most firms also worked hard to understand and quantify the impact of the crisis on exposures and coverage and this work will continue to evolve as more information is available. Although the first phase of the crisis is over, I believe the hardest part of the path lies ahead of us still.

 By Kareline Daguer, financial services regulation director, at PwC

 One of the key questions is about not just surviving through the crisis but what lies at the other end of it and how will our customers feel about the role we played. In the past two years regulators have been focusing more and more on values and purpose. This crisis will test firms’ ability to live up to their stated ambitions and core values. Now, more than ever, winning or losing may depend on whether you were able to do the right thing at the right time for both your employees and your customers.

 How can insurers get their actions right? And what lies in the way to a good response to the crisis? To get the customer response right there are three key challenges to focus on:

 First, insurers are businesses and their own financial and solvency needs take a central role in securing their survival. Even for mutual insurers the need to safeguard financial stability is at the heart of decision making. This also means that the need to do what is right for the customer and acting in their best interests tends to be in tension with the financial stability and security objectives. In this crisis, both PRA and FCA have clearly set out their expectations from firms and increased interactions to understand how firms are rising up to the challenge. Opening up the communication with regulators and pushing for a more coordinated approach between FCA and PRA can lead to better conversations and outcomes plus a better understanding of the drivers of decision making. Governance structures and decision making processes should reflect this tension. Firms need to make sure that the right people are seated around the table when making key decisions.

 The second key challenge relates to products. First, many insurers have identified serious issues with their T&Cs, from ambiguity, and out of date terms to widespread inconsistency. In some cases firms found as many versions of certain key clauses in T&Cs as products available for not discernible reason. This is an issue that goes to the heart of Product and oversight processes but also pricing and underwriting. It is a customer issue when customers expect to get something that is not actually clearly covered or excluded but it is also a prudential issue if reserves don’t actually reflect exposure. Secondly, another key product challenge relates to selling and renewing in the current environment and the lack of flexibility of insurers’ offerings. Some insurers have stopped selling certain products like travel whilst some have gone on to automatically renew travel policies that customers are unable to actually use. Motor insurers are seeing the decrease in claims frequency increase the prospect of profits but most have taken the avenue of no action. However, this is where your values can be put into action, it does not necessarily mean giving money back but at the very least communicating your plans to dealing with the windfall and how your values guide the action. Identifying key areas where customers might come to harm through buying products that can’t meet their needs should be top of the agenda now or it will be forced into the agenda by the regulator in a few months.

 Finally the third challenge is possibly the hardest. Even in normal circumstances the ability of insurers to make changes quickly and adapt their responses is significantly constrained by IT limitations and numerous legacy systems. Any response will be limited by the art of the possible and for many the art of the possible is very narrow. This can cost some insurers their ability to respond in the right way, make a difference to their customers and live up to the core values and purpose they set for themselves as corporate citizens.

 Winning and losing, enhanced or flattened reputations will be built or destroyed responding to these three challenges in a coherent and bold way.

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