Industry set to grow post Covid-19 due to ‘greater appreciation’ of insurance

Following the worst of the Covid-19 pandemic, commercial and financial technology firm FIS believes insurers could see a “natural growth” in their business if they respond to consumer demands for more mainstream pandemic coverage.

Martin Sarjeant, head of risk solutions management and strategy, insurance at FIS, explains: “Coming out of this, there probably will be a greater appreciation of the value of insurance. Insurers are treating customers fairly and they are honouring those valid claims and paying out. I do think if the industry responds with products that consumers want, there will be a natural growth.

“I don’t think insurers are looking to grow particular lines of business at the moment, but I think they’re certainly evaluating their portfolio, that plan and review phase. Certainly, where there [are] gaps in the insurance coverage, that’s something that I’m sure they’ll want to offer in the future.”

Pandemic Re

However, pandemic insurance may not be a suitable solution for all potential policyholders, despite the rapid increase of interest in this particular product since the onset of Covid-19. Primarily, this is because of the expense of pandemic policies, Sarjeant adds, citing the Wimbledon tennis championship as an example.

The All England Lawn Tennis Club (AELTC), the venue for Wimbledon, has been paying pandemic insurance for the past 17 years, to the tune of around £1.5m a year.

Although Sarjeant views parametric insurance as a “partial solution” to pricy pandemic cover, he says that the “full solution” would involve a partnership between the insurance industry and the government.

“I think [Pandemic Re] is the only answer,” he says. “There’s been pandemics before and I can see for the next 10 years, pandemics being top of everyone’s minds and certainly in terms of putting something in place, Pandemic Re, I think it makes sense for every insurance contract effectively to contribute into a centralised pool and [there will] be government funding because it’s a lot to cover these losses.”

Risk modelling

In terms of risk management surrounding the coronavirus pandemic, Sarjeant notes this is “improving”.

He says: “One of the challenges from a risk management point of view is there is clearly some data from previous pandemics, but there hasn’t been the widespread data and clearly there is widespread data now, so I think that will inform better modelling and even stronger capitalisations of companies going forward.”

Sarjeant adds that pandemic modelling is also a standard part of solvency II, which UK insurers adhere to.

He continues: “Incidentally, UK insurers and European insurers are under solvency II, which is the capital standard. Pandemic modelling is a standard part of that, as are stock market and bond yield falls of the order we’ve seen, so in terms of solvency and capital, insurers particularly in UK, Europe and the US, the stress testing they’ve done means they’re holding enough capital for this event, now we’re starting off from a new normal base and then you have to do stresses and shocks on that. So, we’ll probably see some refinement of some of those regulations.”

Sarjeant compares this style of modelling, typical in the UK, to approaches in China, for example, which merges “social media platforms with insurance and sharing of that data”.

“Google and Apple are looking to do that in the UK and the US and I see some of that information becoming more used within insurance going forward,” he says.

“While solvency II has pandemic modelling and stresses in there, it’s probably not as explicit or sophisticated as the modelling will probably be in the future.”

Going forward, however, Sarjeant feels the focus is on customer service.

He says: “Insurers [hold] a lot of capital in the event of unforeseen circumstances. It’s exactly what insurers are there to do, to pay out claims.

“What they do in terms of [the] treatment of policyholders, paying these claims in the next six to 12 months is going to be key in terms of the sector going forwards.”