Building back better with simpler insurance products

The Covid-19 pandemic has set in motion huge changes across society, with businesses being forced to respond to the ‘new normal’ with a host of rapid modifications to how they operate.

This has created a fast moving, changing market where organisations of all types are looking at how to build back better from the pandemic. As a result, insurance customers are increasingly looking for simpler, less complex insurance products with enhanced coverage clarity.

The global insurance industry has responded to this demand through a number of means, including claims payments, charitable donations and product innovation.

However, there have been significant complications, including uncertainty over coverage and the resulting court disputes, notably the Financial Conduct Authority’s business interruption case that is still working its way through the courts.

A recent Lloyd’s of London report set out a number of ways the global insurance industry could remove complexity and provide enhanced coverage clarity for customers.

Commenting on the report, Lloyd’s chief executive John Neal said: “As many businesses around the world evolve to withstand the continued impacts of the Covid-19 pandemic, including radically changing their business models, the insurance industry must urgently reassess how it can better serve and support its customers.

“While the societal and economic impacts of the pandemic are of a scale that has never before been experienced, it has reinforced the global industry imperative to accelerate its efforts to build simpler insurance products that are more easily understood by its customers.”

The question now for the insurance industry is how to respond to the demand for simpler, clearer products. And can it leverage its existing good practices and services to meet these changes?

Mark Budd, head of innovation at Zurich Insurance UK, said: “Insurers and other organisations are all readjusting their products and services to the ’new normal’.

”There are some elements of society and customer need that have changed forever. Areas like electronic payments, e-signatures, physical documentation - those things have changed for good.

“The changing profile of the way we work will uncover new needs over time.

”Employees at home, data at home, the changing risk profile of our customers.

”A physical retailer that previously didn’t have any digital assets, e-commerce or whatever, those businesses have now adopted a digital presence and they will never give that up, even if the digital asset takes a bit of a dip over time.

”Resilient organisations will no longer be in a position where they only have a physical asset.

“A lot of these technologies have been around for a long time; technology these days is rarely the blocker. You need something that is a significant shift in need or circumstance to drive the adoption of some of these things.”

Meeting changing needs

The industry will also need to invest in continuous product design and delivery innovations to create products that are fit for purpose for customers’ changing needs.

So, will we see more cover being offered in areas such as data-led policies, parametric triggers, or outcome-based insurance?

Budd said: “Usage-based insurance (UBI), previously these things were available, now people are much more likely to look at UBI - maybe their cars, maybe their property.

”There’s suddenly a light come on that we don’t always have to be in the office, we don’t have to always drive to work every day. UBI will be a technological solution to a changing customer dynamic.

“The beauty of the parametric model is the frictionless payment process up front.

”The transparency of the language in the parametric model - the triggers are clear, the payouts are clear. It takes out some of the ambiguity and the lack of transparency.

”We will see an acceleration in parametric solutions because it meets the customers’ needs of frictionless and transparency. It meets the insurers’ needs in terms of transparency and operational costs in terms of managing a claim.”

Alastair Blundell, head of general insurance at Biba, agreed that outcome-based insurance is an interesting prospect.

He added: “If a business has been disrupted, footfall has dropped, for whatever reason, pandemic, terrorism, so how will it be protected? It is a different way of looking at it, a different way of thinking of using parametric-based products.”

Biba has continued its call to make policy wordings easier to understand.

The 2020 Biba Manifesto said: “Biba supports the move towards making insurance policies easier to understand through increased simplicity, use of plainer English and clearer design.”

Blundell continued: “Even a standard travel wording has 2,000 words in it, which exposes the problem. How is a consumer supposed to understand that?

”We’ve got to try and simplify and use plain English wordings wherever we can. Biba are pushing this and we’ve had some traction, particularly in the travel sector, but it is a big task.”

Collaborative product design

In order to ensure the drive to build simpler, more relevant products is successful, it is crucial that insurers involve brokers, risk managers and customers in the product design process.

Mark Dawson, insurance manager at Dyson and board member of Airmic, said: “Involving customers is really important here.

”A lot of the time insurers create products with limited customer involvement and then they hope that that product will be taken up by customers. I do think we’ve moved on from that now.

”It is important that customers, perhaps those larger corporate buyers who have close engagement with the market and who will work with the market in terms of developing bespoke or tailored solutions. It is really important for insurers, brokers and customers to work together in terms of developing solutions.

“Different data sets can be used. Larger corporates have a wealth of data sets, which are obviously specific to their organisations, which can be used. They can be compared with wider market data sets, so this is where insurers need to be looking at different types of data sets in helping them not just deliver solutions, but also improve underwriting.

“When designing policies, it is critical to keep claims in mind. Too often the claims piece comes at the end of the process and it really needs to be front and centre of the process.

”Insurers need to look at the customer experience when it comes to claims and focus on how they can deliver a best-in-class claims response.”