The Insurance Industry Post Covid-19
By George Worsley
The coronavirus pandemic is having a disastrous effect on the economies of many nations. The shutdown of consumer businesses and the lockdown of movement in the United Kingdom has impacted the lifestyle of almost everyone.
It is not yet known what the total cost of containment, cure and prevention will be. Where some countries believe that once the spread of the disease has peaked, certain restrictions can be relaxed bit by bit, others, like the UK, are adopting a “wait and see” attitude because they fear a second wave of the disease would be even more harmful than the first.
The British government is having “to employ” millions of people whose employers have put them on furlough, i.e. stopped paying them; the taxman is paying out huge amounts of money which it will have to recoup over the coming decades. In addition, many companies – large and small – are facing the wall. What we know is, that once the spread and the impact of the disease has been brought under control and life is back to normal, some firms will have survived but many will not.
But what is “back to normal”? It is too early to tell but it will not be the same as it was before the pandemic. One of the biggest issues has been working from home. In a relatively sophisticated IT-age, this has worked out quite well. You don’t need to be at your desk in the City of London if your laptop and mobile are available. You can telephone, e-mail, text, Skype and WhatsApp other people to communicate with them and increasingly your files are not large folders in a cabinet in the office but encrypted data files somewhere in cyberspace. In times of adversity, innovation and improvisation flourish and Zoom (although it needs a bit more fine-tuning) is very welcome.
Chances are that many people who were forced to work from home will continue to do so when the lockdown is lifted. This would not only mean fewer commuters and half empty offices but less customers for coffee shops, snack bars, pubs and restaurants in town. Whereas at the moment in the City, snack bars and tall buildings with acres of space are sprouting up all over the place, they may turn out to be bad investments.
There is also a social change being forced on many workers in London: taking the train up to London means an hour’s worth of reading, face to face contact with colleagues, banter, sports analysis, spontaneous responses and guidance to many business-related questions. Some people perform better when they are together with others rather than sitting at home on their own. They may not get the choice, however.
After Lloyd’s closed the Underwriting Room indefinitely on the 19th March it was always assumed that it would reopen. Now some people are saying that seeing as risks placed on the London Market’s electronic placement platform, Placing Platform Limited (PPL), have reached a record high volume of trade with placements soaring, the Underwriting Room will no longer be necessary. That is a poor joke. For many brokers, underwriters, claims adjusters and other experts, the Underwriting Room and associated localities for carrying out business are not just a job but a lifestyle. To be able to go to the market-place and conduct your business with friends and soul mates is something many people working in the City postpone retirement to enjoy for so long as possible.
Besides the manpower aspects of the insurance industry, the product itself is coming under scrutiny – in particular, Business Interruption. Our textbooks will have explained this as financial loss consequent upon an insured peril of material damage such as a fire. Travel and event insurances have wider and often poorly worded definitions of the trigger for an insured loss. Words like “notifiable disease” are used and often it is the timing of governmental communications which can be regarded as the trigger for cover to apply.
In the United States there have been calls for BI polices to pay out even when the wording of the policies specifically exclude this. It must be said in all fairness that there are Congressmen and Senators who do not condone this approach and have written to the President to say so. The only insurance representative on Donald Trump’s Great American Economic Revival Industry Group has said that to force this issue would bankrupt the insurance industry.
In the UK, the Financial Conduct Authority (FCA) has confirmed that it would not intervene and force carriers to pay out on coronavirus-related business interruption claims where pandemics are excluded from the policy, despite mounting pressure from insureds to do so. The Bank of England has said: “insurance firms should not be expected to cover huge things they had no expectation of covering.” Once again the wording of the small print must be clear and the reputation of the industry comes in for criticism when this is not the case.
UK carriers, along with many EU and American insurers are setting up funds to assist policyholders; in total these already add up to billions of dollars. This should go some way in showing that insurance companies do have a heart but there will doubtless be many people and firms who will unfortunately be missed out.
In a further development, UK Insurance industry leaders have combined to form a steering group, which will work with terrorism reinsurer Pool Re, with the primary objective to ensure that, working alongside the industry to support customers and communities in the current crisis, the industry can strengthen its response to future pandemics. The first group meeting was held on the 17th April to agree its objectives.
With Boris Johnson, the prime minister, now back from his illness, he is under pressure to start the process of phasing out the lockdown. It is anticipated that financial services will be one of the first sectors to be reopened. When this happens it will be months before we see what the new normal will look like but there will be many more people working from home than there were before the pandemic arrived.
The Business section of the Sunday Times intimated on the 19th April that it may be Medical Advisers who tell us when the pandemic is over, but it will be in the hands of Corporate Economists as to how the plans for rekindling the economy are worked out: Restarting, Reviving and Renewing. Elsewhere in this esteemed publication, it was pointed out that there are three types of economist: those who can count and those who can’t.