James Dalton, Director of General Insurance Policy, gives his take on the response of the sector to the pandemic and how issues, such as GI pricing, are affecting the sector.
This year has been extraordinary in so many ways. What have been the main themes in terms of insurance cover during the pandemic?
In my view, the Covid-19 crisis has demonstrated that some things are simply too expensive to insure without state support. While some consumers will maintain that insurance policies should cover pandemics, the Treasury’s colossal borrowing underscores just how expensive they are, which is why insurers didn’t intend to cover them. This debate is now playing out in the test case being considered by the Supreme Court, and going forward, as a sector, we’ll need to decide how to work with the government to cover any future pandemics.
We’ve also realised that pandemics, by their nature, are transnational, and therefore bear some resemblance to other areas of insurance, such as cyber. I think the cyber area has a lot to teach us about pandemics, and vice versa.
Also, we’ve seen the re-emergence of an enduring issue – what I would call the ‘expectation gap’ between what customers think they’re buying and what insurers think they’re selling. This has been most apparent in the area of business interruption and the focus of the debate surrounding the test case.
We have to balance the importance of issuing comprehensive and compliant policy documents for customers against the need for transparent, clear guidance that customers can actually understand. If anything, the pandemic has only exacerbated this tension.
During the pandemic, ABI members made a series of pledges to customers. What was the rationale behind this initiative?
Early in the crisis, the ABI saw there was a lot of confusion and anxiety among customers in relation to car, home and pet insurance. For example, people were worried that they might need business insurance in order to work from home. Also, at one stage, volunteers were delivering meals to NHS workers in their own cars, and were concerned about the insurance implications. There were also some questions around pet insurance, which requires policyholders to prove they have taken their pets to the vet for various injections. The pledges were our way of helping customers. We wanted to communicate to them clearly and say, ‘don’t worry, you’re covered’. Our aim was to take something off their plate when frankly, they had more important things on their minds.
What was the ABI’s role in this project?
Initially, we socialised the idea among our members, facilitated discussions, and finally reflected back what we thought was the consensus, which was to take action. Once we had got the wording agreed, we pushed out the message targeting those people who really needed to hear it. As a trade body, the ABI’s role is sometimes to hold up a mirror to the sector, before assimilating the different viewpoints and offering a way forward. In this project, we helped the industry support the wider community in the context of a hugely challenging pandemic.
What are the prospects for a ‘Pandemic Re’ structure being implemented to prepare for future pandemics?
This comes back to the question of government participation in the industry, because most people agree that such a scheme would require state backing. However, the more the taxpayer supports the economy as the pandemic continues, the less chance this idea has of success. If you’re a business owner and you’re offered a pandemic insurance product from a broker, you might look at the government support you received during this pandemic and decide you didn’t need the extra cover. So, we’ll need to research the potential demand for such a scheme among the business community.
What lessons has the industry learned from the Doncaster floods?
While the pandemic has been the main focus this year, the ABI and wider industry has also been involved in some other very important issues. Responding to the Doncaster floods was one of them, as well as taking steps in the area of building cladding. With regards to flooding, I would say the industry is learning lessons from each flood event, and to avoid being complacent we need to continue to learn. It’s important to continuously improve and own the things we didn’t get right.
What is your view on the FCA Pricing Study?
The ABI is in the process of responding to the FCA consultation, which closes in January. In my view, our industry has a once-in-a-generation opportunity to change fundamentally the way insurance products are bought and sold. The price comparison websites do a great job in helping consumers get the cheapest policy. However, this has driven a model where customers are focused on price rather than quality. So, if the ultimate outcome of the FCA’s work is a system where customers focus on whether they are getting a quality product, that would be very positive.
What can the ABI do to take the lead in this area?
The industry has done a lot over the years, for example by proposing to the regulator that there should be transparency on last year’s price when sending out renewal documentation to customers. It took time, but the regulator ultimately agreed with this recommendation and now this is a regulatory requirement. We also issued the Guiding Principles and Action Points that sought to bring some best practice into the industry. As we’re not a regulator, there are limits to the types of interventions we can do regarding price. This highlights the importance of working closely with the regulator to create an improved market for our members and customers.