Brokerbility chairman Ashwin Mistry defends the insurance industry amid a flurry of bad press
I am writing this piece because I believe the media and online backlash against insurers over coronavirus claims is a serious threat to our industry.
We are in danger of becoming the focus of a popularist blame game just as the banks were during the 2008 financial crisis - though with considerably less justification. But I’ll come to that later.
Most people acknowledge that we are living through the most extraordinary time of their lives and it is in this context that I believe we should view the recent criticism of the sector.
I would be the last person to say that new and emerging risks such as cyber, directors’ and officers’ (D&O), employment practices liability (EPL), fidelity guarantee and supply chain disruption, to name a few, are issues in the current market.
I have been talking about these changing and unforeseen risks for the past 20 years. Unfortunately, no one has been listening, because everyone everywhere has been chasing the bottom line.
Not even the most pessimistic think-tank guru or financial journalist was conjuring up the prospect of a global pandemic
In the insurance world, that has meant selling on price or not selling at all.
Comparison insurance sites, MGAs, direct selling, unregulated insurers, they are all part of the same story: cutting costs and reducing premiums.
Anthony Hilton, one of the harshest critics of the insurance industry, recently wrote in the Evening Standard: ”We have the biggest single random event which is clearly insurable, but boards have focused on cost-cutting… while the insurance industry is sitting on the sidelines, thinking it is not its problem.”
Benefit of hindsight
To which I say, ‘Oh, to be blessed with the benefit of hindsight!’ Let us imagine the clock turned back 12 months, when not even the most pessimistic think-tank guru or financial journalist was conjuring up the prospect of a global pandemic, and envisage what would have happened if insurers and brokers had proposed that all commercial policies should include pandemic cover.
On my rough calculations, this extension would have resulted in a 50% hike in premiums. How many small business owners, I wonder, would at the time have accepted an increase of £500 on their annual £1,000 premium?
Balance sheet or asset protection insurance has evolved greatly in recent years, partly under pressure from the regulators. Insurers are now required to specify and quantify individual risks within the policy.
Consequently, insurance buyers, answerable to their boards and trained to look at the bottom line, will opt out of certain risks, which are not deemed a high priority.
In the long run, of course, this tendency towards an a la carte risk-management menu dictated by cost will result in policies which fail to respond to unprecedented events.
In spite of the misleading impression given by Downing Street that business interruption cover would bail out SMEs if they were asked to close because of coronavirus, very few companies have appropriate contagious disease cover.
That’s partly because no business can afford to insure every risk. Interestingly, the Wimbledon Championships - only recently cancelled - are so far the only single global sporting event to announce that they have full pandemic cover.
In the interests of transparency, it would be fascinating to know how much they paid for the extension, why they decided to take it out and who is insuring them.
In the current crisis the government is to be applauded for its measures on rent, VAT, grants, etc. But over the coming months, corporations large and small will need every bit of support they can get.
Above all we need to create a spirit of co-operation, inspired by the self-sacrifices of the NHS, all pulling together rather than getting mired in some unproductive blame game.
On one aspect, however, I agree totally with our critics. Businesses can’t afford to be caught out as is happening now. They need to be able to scan the horizon with confidence in the risk provisions they have in place.
It is vital that over the coming months, the insurance industry speaks with one voice about how we can stand up for our clients both now and in the future.
That means getting back to the basic principles of insurance in weighing the balance of probability and risk and covering the losses of the few by the many.
At the end of this crisis, the relationships of brokers and insurers with their clients will have changed forever. We certainly need more education about the nature of risk and what provisions are in place.
We may need measures akin to Flood Re for the pooling of risk for pandemics.
Frankly, it’s too early to say. But it’s clear that our business clients need calm, sensible advice at this time. And pointing the finger of blame will achieve nothing.
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