Covid has naturally dominated headlines (and conversations) for months; it’s altered our existences inexorably in ways we could never have envisaged and to date claimed the lives of over 1.5 million people globally1. Yet there’s also been other significant developments in the macro environment, including the ongoing Brexit negotiations, economic volatility and, on a more local level, the FCA test case (more of which below). The industry is facing both a challenging market and increased scrutiny for its actions during the pandemic. However, any learnings can be used to drive further improvements in areas such as customer satisfaction and communication.
by Simon McGinn, General Manager, Commercial & Personal
In my 2017 Full Year Review, I used the word ‘unprecedented’ to describe the rate of change in that particular year. Fast forward to 2020 and this word has taken on a whole new lease of life, having been used prolifically over the last nine months to describe the situation we continue to find ourselves in as a result of the global Covid-19 (Coronavirus) pandemic.
Recessionary trends
Both Covid and Brexit have contributed to widespread economic uncertainty and growing unemployment, and within the industry we’ve started to see a resurgence of risks associated with recessionary trends, such as theft, fraud and fire claims. Inevitably, increases in frequency and the cost of claims leads to claims inflation across all lines of business, which can translate to adjustments in policy pricing and cover.
Many commercial properties are currently sitting vacant during the pandemic meaning there can be increased exposure to certain risks, including theft of stock, vandalism and escape of water, with the latter especially relevant now we’re into the winter months with pipes subject to freezing. Of course, intangible perils can pose just as much of a threat and cyber has secured its place as one of the key threats for businesses, with almost half reporting cyber security breaches or attacks over a 12 month period.2
With many businesses facing increasing financial pressures, there’s a danger that proactive risk management could take a back-seat, arguably at a time when it’s most needed. It’s crucial that organisations take time to review their exposures and their insurance covers, making sure they are not underinsured. It’s important to complete risk assessments and undertake business continuity planning, both for the long and short-term. Allianz’s Risk Management site has some useful information to help with scenario planning including a Business Impact Assessment tool for a wide variety of trade sectors.
Supporting businesses
I’ve been impressed to see the many inventive ways that businesses have adapted their models during Covid-19, from restaurants offering takeaway services to gyms delivering live-streamed classes. We believe that SMEs have been hit particularly hard by the pandemic and as insurers and brokers we share a responsibility to support our business customers and help them navigate the environment we find ourselves in. As such, back in March we communicated a number of changes we’d implemented at Allianz to best support customers through the challenging period. These included a commitment to taking a flexible view on business use where customers were undertaking additional activities to keep their business afloat, or where businesses had repurposed for humanitarian reasons. We also created a dedicated Coronavirus Hub containing a wealth of information and FAQs to support both brokers and customers alongside a number of sector-specific guides to help business owners plan for reopening. On a broader level, we were pleased to be able to donate over £10m to the Covid support fund.
As we know, sadly many businesses have been forced to permanently close during this time. It’s likely it will take years for some sectors of the UK economy to recover and for those businesses which have survived to return to pre-Covid levels of revenue. The insurance industry has a continued responsibility to supporting businesses through this crisis, thereby helping to secure the future of our customers.
Remote working
Back in March, when we moved to full-time home working at Allianz, I don’t think any of us expected to still be doing so ten months later. It’s been encouraging (and surprising) to see how quickly and relatively easily this was achieved. Of course businesses everywhere were faced with managing to move their workforce at short notice and this has introduced both challenges and opportunities.
As mentioned previously, the large-scale move to homeworking over the last year has presented fresh opportunities for cyber criminals, as our lives move increasingly online. This is partly due to the wider geographical spread of employees, each with their own WiFi routers introducing new access points for vulnerability. Video conferencing apps, which have become a mainstay for many organisations, have also been targeted by hackers. There are ways to mitigate the likelihood of a cyber security incident and at Allianz we continually educate our staff about how to recognise and report real or suspected breaches. IT security measures such as VPN (Virtual Private Network) and two factor authentication can prove effective in minimising cyber risk; the latter involves a system user successfully providing two pieces of evidence in order to verify their identity and log in, such as a password and one time access code.
The pandemic and remote working situation has also shone a spotlight on mental health and wellbeing. Whilst working from home has undoubted benefits – less commuting for example - many individuals have struggled with the new situation, experiencing anxiety and stress. This may be due to juggling work and childcare, other carer responsibilities, or simply missing being with colleagues and friends. A survey by Nuffield Health revealed that nearly a third of people have found it difficult to separate their personal and working lives during the pandemic and that 34% believe it’s placed a strain on their relationships.3
Employers retain the same duty of care to their employees (under Section 2 of the Health & Safety at Work Act) regardless of where their staff are based and this extends to their mental wellbeing. There have been reports of companies implementing extremely positive measures to support employees through this time, from allowing more flexibility in working patterns to running online events. At Allianz we’ve put a number of these initiatives into action, plus running virtual physical #TeamAllianz challenges and competitions to keep employees connected. Over the last months, we’ve run a number of wellbeing webinars and other activities in conjunction with our corporate charity Mind, whilst our network of wellbeing champions and mental health first aiders have also been on hand to provide guidance or signpost services to other employees. Personally, I’ve been proud to see the evolution of our eight employee networks, with our ‘Working Parents’ and ‘Embrace (Mental Health) networks fulfilling a particularly apposite role during these times.
FCA Test Case
The insurance industry has been following the progress of the FCA Test Case examining wording surrounding business interruption (BI) policies with interest and now awaits the outcome of the appeals hearing which concluded on 19 November at the Supreme Court. It’s unquestionably been a difficult time for the industry and a distressing time for those businesses, who were not covered under their BI policies for a pandemic.
Whilst Allianz has not been a defendant in the FCA Test we do have policies that may be affected by the judgment. This case is both detailed and complicated and early on in the process our priority was keeping our colleagues, brokers and policyholders up to date with developments and how they might be impacted. We wrote to all of our affected customers advising of our approach and the outcome of the judgement and the impact on their claim. We continue to keep them informed as the situation develops. To date we’ve paid out on 1,600 claims either in full or on an interim basis where it was clear that customers were covered by their policies.
There has been a lot of concern that the industry’s reputation has taken a hit but there’s conflicting information on this either way. It’s right that the industry examines what it can do to ensure customers have a clearer and better understanding of their products and the coverage they do and do not provide. This is no easy task given the complexity of risks covered in commercial insurances but one we will need to address. I think it’s also important for us to talk about the many ways insurers have responded to the needs of customers during the pandemic, from helping key workers return to the road through automatically extending cover for alternative use of vehicles, to paying out an estimated £900m of covered BI losses.
Brexit and multinational solutions
The UK is nearing the end of its transition period and Brexit trade deal talks are still ongoing. As such, the full implications of Brexit on the insurance industry are unknown but one of the key areas of concern is that of passporting rights and whether these will be maintained under a freedom of service (FoS) agreement.
Generally the insurance industry is well prepared for what’s to come, having spent a good deal of time preparing for a hard Brexit. At Allianz we continue to monitor all developments and have worked through a number of potential risk based scenarios. We benefit from having partner offices in all 30 EEA territories and so can leverage our strong global network to continue to provide multinational solutions. No doubt there’ll be some challenges ahead, but we’re well placed to manage the ongoing needs of our customers as we navigate this period.
Summary
Looking ahead to 2021, I’m sure most people will be hoping for a less tumultuous year than the one we’ve just experienced. The trend for greater remote working is likely to continue in some form, meaning a sustained need to review working practices and places when we do go to the office but also the way we interact and service customers.
The insurance industry has some work to do in terms of reinforcing the value it brings to the economy and society by emphasising the contributions its core businesses and its people make. This, aligned with building confidence with customers through greater transparency in its design of products and services to ensure clarity on cover and pricing, will be an important factor. Clever and ethical application of data and analytics will also assist in offering solutions which are anchored to our customers’ changing behaviours and needs.
We’ll need to find ways to address the recessionary trends which look likely to continue into 2021, working with brokers to provide relevant advice on current and future risk, plus advising on the most suitable solutions for our customers’ businesses. This year has proven the resilience of the insurance industry and demonstrated the versatility of our people and technology. This stands us in good stead for the uncertainties which still lie ahead.
1 Information correct as of 19 November 2020. World Health Organisation. WHO Coronavirus Disease (COVID-19) Dashboard
2 Department for Digital, Culture, Media and Sport. Cyber Security Breaches Survey 2020. p3.
3 Nuffield Health. Working from home taking its toll on the mental health & relationships of the nation. June
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