If you are an insurer reading this, you have succeeded through the first year of COVID-19. As a reliable four-wheel drive, the insurance industry stayed on track during the past year's many first dangers: remote work assignments, evaporation of channels face-to-face, cancellations of mass events and a ton of Business Interruption allegations, to name a few.
At this stage, insurers can certainly be forgiven for casting a lightened glance in the rearview mirror, as 2020's slaughter of carnage is slowly diminishing in sight. But, tempting as it is to push into 2021 and look back, we must not take our eyes off the road ahead.
In this extended series, we examine what the repercussions of the coronavirus pandemic mean for the industry and how public insurance companies stand to win or lose in the "new norm".
To make an inventory of Covid-1
The direct impact of the pandemic on insurance is now complete, both for the top and bottom line. Accenture Research estimates between £ 2 billion and £ 3 billion in "missing" GI premiums in 2020 in the UK alone, with up to £ 5 billion missing by 2022, depending on whether we see a "V-shaped" recovery (best case) or an L-shaped recovery (in the worst case). At the same time, the Association of British Insurance (ABI) expects COVID-19 to cost British carriers £ 1.8 billion in damages.
Source: Accenture Research modeling (2021)
But for all the direct costs from COVID-19 have been large, they are not the whole picture. The coming years may incur additional costs – an opportunity cost – if insurers choose to look back on 2020 as an aberration, instead of acknowledging how the pandemic has changed the game for the better.
New Year, New Normal, New Competitive Dynamics
At present, the sector remains overwhelmingly focused on claims and other disadvantages of the pandemic. But this hides an important development: Covid-19 has radically mixed on board the deck, initiated new risks to insure, new product potentials and new ways to engage with customers.
So what does this new normal look like for insurance companies? Well, let's start with consumers … The pandemic has melted the icebergs of digital apathy once and for all and has rushed even the oldest school buyers into the Amazon era.
At the same time, consumers are cash-strapped and fixated on their economic future. – and more willing than ever to use the hammer on poor customer service. Otherwise, policy documents and their many ambiguities have become a daily interest for entrepreneurs who are large and small.
All this gives a new competitive dynamics in play, and insurers are slowly accepting this within their business areas risk losing market share to better-suited competitors. This is the time of insurers – but never have the shortcomings in the industry been so obvious to so many.
With the pandemic still going on, insurers have a lot to do to keep the wheels on the road. But their long-term planning cannot be about restoring to the 2019 state. The next stretch requires more than one tire change and a new paint lick. In many ways, insurers have to become a completely different type of vehicle if they are to stay in – and win – the race.
Exploring the New Normal Across Insurance Limits
The implications vary widely from line to line, and insurers will need to match their new normal strategy to their business mix. The differences are most pronounced between personal and commercial:
- Personal lines continue to experience commoditization, which drives operators not only to reduce operating costs but also to look for new growth pockets outside the core business.
- For commercial insurance companies, the pandemic has caused huge losses, creating attractive opportunities in hard markets in many areas as well as an increased sense of community mission – particularly with regard to SMEs that form the backbone of the UK economy. We will explore the threats and opportunities that the new standard provides for personal and commercial lines, in the UK and more generally, in the coming weeks. If you want to get in touch in the meantime, please contact me on LinkedIn.
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