The insurer’s UK general insurance chief executive also admits that Aviva is paying some Covid-related business interruption claims where they fall under broker wordings and coverage is clear
Aviva’s UK chief executive for general insurance Colm Holmes labelled the company’s personal lines H1 results as “disappointing in every respect in terms of the growth and the underlying performance of the business”.
Speaking exclusively to Insurance Times, Holmes was responding to Aviva’s 2020 H1 financial results, which were published this morning. The trading update confirmed that in personal lines, Aviva recorded an 8% drop in net written premium (NWP) for the first half of 2020.
Despite this dip, Holmes continued that “there is a good story within that”.
He explained: “When we started this journey last year, bringing the digital business, the banking business, the broker business, the personal lines back together, we were looking at transforming that business and we have taken 10% out of controllable costs in our personal lines business. We’ve improved the underlying performance of the business through rating ahead of inflation, and we’ve actually achieved growth in the target segments in the first quarter, our direct and own brand products, and then our banking segment, whilst we remediated some poor performing lines of business.
“I expect the second half of the year to show an improvement [on] the first half, but 2021 to show a marked improvement in terms of return to growth and also an improvement in the underlying performance of the business.”
On the flip side, Holmes said Aviva’s commercial lines business “has shown fantastic growth in the first half of this year, continuing on from what we saw last year, with [an] 8% growth in net written premium”.
“We also delivered that at an underlying COR which was 95%, [a] 3% improvement in the underlying COR,” he added.
The commercial lines combined operating ratio (COR) has, however, been impacted by the Covid-19 pandemic in H1, Holmes said – this equates to 18% of the commercial lines COR.
Holmes described Aviva’s financial results as “a story that is one of Covid as well”.
Covid claims
Aviva chief executive Amanda Blanc this morning confirmed that Aviva’s estimate of the impact of Covid-19 on claims is around £165m, which aligns with the prediction it published back in May.
Fleshing this out further, Holmes told Insurance Times: “Obviously, the impact of Covid initially was felt in our travel business, around cancellations, but very quickly that moved into business interruption. We’ve also seen impact on liability and casualty books as well as other classes of business [that have] become impacted by Covid and the shutdown.
“By far the bulk of that impact is as a result of business interruption claims. We’ve reserved for existing claims that [we have] received, and we are paying claims on business interruption, but also [for] future claims that we expect may come through - a number of those claims will be impacted by the FCA case and we’ll see what the impact of that is when we see the results of that test case in September.”
In terms of the business interruption (BI) claims that Aviva is paying, Holmes emphasised that these are under broker wordings and that “our position on our own policies is clear and under broker policies I just look forward to bringing clarity once we get the results of the FCA case in September”.
An Aviva spokesperson added: ”Aviva’s standard terms and conditions for business interruption do not cover claims relating to the current pandemic. However, a small number of Aviva customers may have purchased cover through a broker or scheme that is not on Aviva’s standard terms, which may provide cover.
”These are complex policies, which are typically underwritten by multiple insurers who are responsible for varying degrees of cover. We have been working tirelessly for these customers and brokers to ensure all valid claims are paid as quickly as possible and, where coverage is clear, we have already started making payments.”
Holmes said that Covid-19 impacts on supply chains have also influenced what Aviva has seen in terms of claims severity.
He explained: “We’ve seen a reduction in frequency in motor through the first half of the year, but we are now beginning to see that return to normal levels. We’ve also seen disruption in the supply chain, which has led to some impact in terms of severity.
“When we get to the full year, I think we’ll see the net impact of all of this, but we are definitely seeing frequency of collision coming back and it’s yet to be seen how this will impact fully the supply chain in terms of severity or cost of individual claims.”
Simplified business model
Holmes also alluded to the commitment he made at Aviva’s 2019 Capital Markets Day in November “to take our products from 400 to 40” in order to simplify the business.
“We’ve taken 200 products out of our product suite in personal lines already in 2020 and we’re going to continue to accelerate that work to simplify this business, which will get us back to where it belongs in 2021,” Holmes confirmed.
“Very confident about the future prospects for both our personal lines and commercial lines business.”
Aviva has also dipped its toe into the waters of aggregator websites this half, launching on Confused.com. Holmes added that this has “performed extremely well”.
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