Insurance sector response to coronavirusoutbreak

As of 15th April 2020

Insurance Sector Summary

lansons.com | Insurance Sector Summary 15/04/20 2

Summary and backdrop

Media and Commentator Sentiment

Policy initiatives impacting Insurers

Major announcements

Individual company summaries are available on request

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Summary and backdrop

The level of media and regulatory attention of the insurance sector remains high,however the last seven days have not seen the same amount of press scrutiny on insurers as in previous weeks.

Despite the PRA’s softer line with insurers, last week saw a number of insurers suspend dividends, against a backdrop of external pressure, with Aviva, RSA, Direct Line and Hiscox all announcing they were scrapping plans to pay dividends. The PRA welcomed the “prudent decision from some insurance companies”. The announcement was widely covered in the business pages while some speculated how this move would impact L&G’s decision to press ahead with their dividend payment, and whether Prudential, Admiral or Phoenix would follow suit.

Though new guidance from the FCA on temporary financial relief for customers excluded premium finance for the time being, Aviva launched a payment referral process, which will offer financially vulnerable customers a 90-day payment break on their car and home insurance to ease pressures.

Meanwhile, moves by insurers in the US brought attention to relief on insurance premiums, such as motor insurance where usage is so low, that no longer reflect present-day risk of accident or loss. Geico, Allstate and American Family Insurance, all announced they would return insurance premiums to customers ahead of new mandatory action from California's Insurance Commissioner. The Insurance Bureau of Canada similarly has said its members would lower costs for auto insurance to reflect reduced driving during the pandemic.

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Summary and backdrop

However, in the UK the announcements have received limited media coverage so far, and the focus has yet to be on UK insurers to follow suit. Instead drivers have been encouraged by personal finance and motoring correspondents to make small changes to their policies to save money during the lockdown, with pieces appearing in the Sun, Express, Times and Mirror where Aviva and Admiral confirm that customers who have significantly changed their annual mileage can reach out for a refund.

This week has also seen a number of insurers step up their CSR efforts, with AXA announcing a donation to Business in the Community and Aviva building on its previous donation to the Red Cross with a commitment to NHS Charities together. Aviva and Admiral have also announced they are offering extra support for NHS workers.

Social media interaction reveals that many insurers are still struggling to cope with the volume of queries to their call centres and online chat services. Admiral, in particular, have been slow to pick up customer complaints leading to ire from customers on social channels.

In the broader financial service landscape banks have taken a proactive stance on executive pay, with Virgin Money, HSBC, RBS, Lloyds Bank and Barclays all announcing they would give up some of their pay or bonuses and make significant donations to charities fighting COVID-19.

And finally some of the challenger insurers and insurance price aggregators have stepped up their outreach. Comparethemarket.co.uk used internal data to demonstrate a month-on-month decrease in insurance premiums for some age groups, while insurer ByMiles, used the discussion on cutting your insurance premium to highlight the benefits of their flexible business model.

Individual company summaries are available on request

4lansons.com | Insurance Sector Summary 15/04/20

Media and commentator sentiment

Overview

As with the media coverage, this week we have seen less scrutiny of the insurance industry by media commentators and attention has been on on providing insight and education for consumers, with an particular focus on car insurance.

Media commentators:

[15.04] Money Saving Expert, Martin Lewis, has this week shared his tips on how consumers can look to save money on their insurance, in the current situation. Martin Lewis will be hosting a new TV special for 6 weeks offering the latest advice on everything from bills and debts to benefits and furlough as people face the impact of Covid-19.

[09.04] Commenting on how COVID-19 could affect car insurance premiums, Dan Hutson, Head of Motor at Comparethemarket.com, that insurance premiums are likely to go down in concert with the number of claims.

“The Government has reported a near 70% reduction in motor vehicle use across the country,” he said. “The full effect of this on the price of car insurance has yet to be seen, however we expect premiums to be pushed down even further. If you are no longer commuting and are going to be working from home for the foreseeable future, there is a chance your provider could reduce your premium,

“If you’re not going to be using your car and want to keep it somewhere different to the place specified on your insurance policy (for instance, moving it from the street to a garage) you should let your insurance provider know, as storing your car off the street could reduce your risk profile.”

[04.04] Oliver Gill, Chief City Correspondent, Daily Telegraph, said on Twitter: “Here’s a thought: fewer cars on the road will surely mean fewer accidents and a sharp fall in #insurance payouts. That should mean dramatically lower insurance premiums next year - if what the industry claimed all along is true”

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Media and commentator sentiment

[02.04] Gareth Shaw, Head of Money at Which?, in a Which? report widely covered by national publications: “Coronavirus has had a huge impact on the travel insurance market, with dozens of providers amending policies or pulling them altogether. This is creating confusion and uncertainty for consumers, who may feel they simply can not make plans for future trips in the circumstances. The government, insurers and the travel industry must work together to tackle the huge challenge posed by coronavirus, to ensure people feel confident enough to travel in the knowledge that they will be covered.”

[02.04] Nigel Barton, Insurtech UK chairman and Wrisk executive chairman, said in Insurance Age: “While we’re seeing unprecedented support from the state in this time, we need to see some signals of unprecedented support from the incumbents for the small businesses. The UK insurance market will be stronger as a global insurance sector for having this innovation community. We’ll be stronger together.”

[31.03] Kate Burgess, Lombard editor said in the FT, “We are all in it together, according to the PM. Not the insurers though. That was clear this month when the Association of British Insurers slapped down hopes that small firms were covered for the interruption caused by the coronavirus pandemic… It is not as if insurers are weak. They have plenty of capital. Solvency ratios are high. The industry boasts of its ability to withstand once-in-200-year events. There is no mention of freezing or cutting dividend payments, unlike in many other sectors.”

[w/c 30.03] Travel insurance continues to be a focus with the media as more customers who are claiming come forward as case studies. Guardian journalist Anna Tims, this week has placed heavy scrutiny on insurers looking to find loopholes in their policies via small print.

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Media and commentator sentiment

[26/03] Lee Griffin, CEO of Go Compare warned against short term policy alterations as these can add up in the long run. “The continuously changing situation has left many people confused and worried about how or whether they can use their cars and how working from home will impact on their home insurance. Likewise, policies of employees who are required to drive to work will not be affected, nor will the insurance of people using their own car to deliver medicines or groceries to support others. If you’re about to renew cover or buy a policy for the first time it is important to arrange cover suitable for your normal life – rather than the current restrictions. Otherwise, you will probably have to pay an increased premium and amendment fee for altering your insurance when life gets back to normal.”

[23.03] In terms of media; online personalities and personal finance commentators Caitlin Moran from the Times, Will Kirkman from This is Money and Simon Gompertzfrom the BBC all took to Twitter to initially to question the industry wide decision to temporarily suspend the sale of travel insurance for new customers.

[12.03] Gareth Shaw, head of money at Which? said : “The government, insurers and the travel industry must immediately tackle the huge challenge provided by coronavirus, as the industry depends on people having the confidence that they can travel with the knowledge that they will be covered.”

[17.03] Martin Lewis, founder of MoneySavingExpert has noted the difficulty to keep his readers properly informed of changing insurance, banking, regulatory and governmental policies in this challenging period. MSE originally published a guide tracking the travel insurance developments yet removed it due to the need for constant updates and monitoring. “We want banks and firms to show people patience, compassion and forbearance. Yet equally, when our entire economy and way of life is under threat, we must try to return it. Many firms are struggling to cope, change policies, or even just get their staff settled in new ways to work - so be patient. And for those who can afford it, even if you've a right to a full refund for a ticket, travel or more, if the firm is in a struggling sector and asks if you'll take vouchers instead, it's worth considering.”

7lansons.com | Insurance Sector Summary 15/04/20

Policy initiatives impacting Insurers

At the end of March the ABI released a document outlining any key policy updates for insurers. The ABI have continued to followed the guidance of the FCA and PRA in order to support consumers and businesses, and have updated its guidance accordingly. The ABI has provided regular comment on multiple issues as the situation escalates. It has suggested that insurers expect to pay out at least £275 million to travellers from coronavirus. Below is a roundup of key announcements and policy updates:

Pet Insurance

► Pet insurance members will be offering enhanced help and support through a number of pledges to customers who may understandably be concerned about the health of their pet during the Coronavirus outbreak.

► The commitments include insurers taking a flexible approach on policy terms and conditions, such as any requirement for pets to have routine vaccinations, as many vets may only be open for emergency treatment.

Travel Insurance

► Most travel insurance policies already automatically extend so that people can continue to be covered against the risk of emergency medical treatment when they are stuck abroad due to ongoing travel restrictions.

► Travel insurance extensions have a limit of up to 30 days, however, given the exceptional circumstances leading ABI members will look to extend this protection to cover the risk of emergency medical treatment for up to a minimum of 60 days, provided customers are making every effort to return home.

► The ABI welcome the Government’s announcement to assist with repatriation given the challenges that many people stuck abroad are facing.

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Policy initiatives impacting Insurers

Business insurance

► The ABI outlined that the majority of standard business insurance policies will not include cover against “local closure due to infectious disease”. They encouraged business owners to check their policy to confirm the type of protection they will receive.

► The ABI later updated its response after the Prime Minister and the Chancellor advised businesses to close, stating that the government’s advice could certainly help SME owners make a claim, provided they purchased the correct cover.

Motor and Home insurance

► The ABI have announced an extension to existing motor and home insurance commitments in order to support taxi and private hire drivers seeking alternative sources of income.

► The ABI has pledged to ensure customers are support through five commitments.

► Support those who need to make a claim

► Support those working from home

► Support those who can’t work from home

► Support those who use their cars to support their communities

► Support our key workers (NHS)

Private Hospitals and the NHS

► James Dalton, Director of General Insurance Policy, Association of British Insurers, said that the private health sector will assist the NHS any way it can via offering virtual online health services to free beds in private hospitals and ease the pressure.

► He urged private medical insurance holders to speak to their health insurer for more information.

9lansons.com | Insurance Sector Summary 15/04/20

Policy initiatives impacting Insurers

There have been a number of updates over the last three weeks from the ABI, FCA and the PRA which will impact insurers. A summary of these is found below.

► [15.04] The Financial Conduct Authority has ordered insurance companies to pay out claims to firms "as soon as possible" or explain themselves to the watchdog. The FCA has told insurers if there are reasonable grounds to pay part of a claim but not the full claim, they must make an interim payment. If not, insurers must tell the FCA how they reached the decision and how it is "a fair outcome for customers". In a Dear CEO letter sent to insurers the FCA said it was collecting information from companies to assess how they are interpreting business interruption insurance policies amid the international lockdown and market turmoil caused by the coronavirus pandemic. However, the FCA has warned SME’s that they are most likely not covered by their insurance for COVID-19, but it does not intend to intervene. They have set up a dedicated small business unit intended to support regulated firms through the current crisis, with a team sheet featuring executive director of supervision Jonathan Davidson and interim executive director of strategy and competition Sheldon Mills.

► [15.04] Following the release of the terms of reference: flood insurance review 2020. James Dalton, Director of General Insurance Policy at the ABI, said:“Despite the challenges that Covid-19 has posed, insurers are continuing to help people get their lives back on track following the recent series of devastating floods that damaged thousands of homes and businesses. We welcome the Independent Review, announced by the Government, to be led by Amanda Blanc.

► [10.04] The ABI has warned people to be on their guard against scammers looking to cash in on the financial hardship that Coronavirus is causing for many families and firms. Fraudsters could offer bogus insurance products and high-risk investment and pension products. Attempts to scam personal data and monies from individuals and businesses are likely to increase when there is an economic downturn as fraudsters look to exploit people’s anxieties and fears.

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Policy initiatives impacting Insurers

► [09.04] The ABI have announced an extension to existing motor and home insurance commitments in order to support taxi and private hire drivers seeking alternative sources of income. Licenced taxi or private hire drivers that have hire or reward insurance in place, will not need to contact their insurer to extend their existing cover while driving this vehicle to carry parcels, medical supplies, household goods, groceries or takeaway meals during the Covid-19 restrictions or until 31 July 2020, whichever is sooner.

► [09.04] The FCO has today published further guidance for UK nationals who are stuck abroad and experiencing a range of issues, and references the ABI commitments on automatic extension of single trip cover policies by 60 days and links to our COVID-19 travel insurance guidance.

► [09.04] The FCA have announced a delay to the implementation of their signposting rules for travel insurers. The ABI have been pushing the FCA to strongly consider delaying implementation of the rules in light of the extraordinary pressures firms have been under in recent weeks and welcome this decision although they are pressing for urgent clarification on when implementation is delayed until so insurers can plan effectively around a new timeline.

► [09.04] The PRA has published a short statement welcoming the decision by some insurers to temporarily suspend dividend payments due to Covid-19. Although the PRA continues to refer to the letter sent to insurance CEOs on 31 March, which said that the payment of dividends should be an issue for Boards to consider, we are concerned that today’s statement sends mixed messages to firms and investors and will seek further clarification on this from the PRA.

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Policy initiatives impacting Insurers

► [06.04] In response to questions regarding business disruption insurance, Huw Evans, director-general of the Association of British Insurers, said: “These covers were written to protect, say, a restaurant against an employee getting norovirus, coming into the restaurant, spreading the norovirus around the premises and then the premises having to be shut for a period to be deep cleaned and the loss of business that would follow. Some people have argued they should cover a global pandemic which affects everything, but that’s not what these policies are for,” he added.

► [06.04] A fortnight on from the introduction of the Government’s lockdown measures, The ABI published a blog from James Dalton, in which he explores some of the steps taken to offer enhanced support to customers during the lockdown and measures to adapt to the government’s wide reaching policy response to the crisis.

► [03.04] Joint FCA-PRA statement on Senior Manager Certification Regime (SM&CR) and coronavirus (Covid-19) expectation for dual-regulated firms: This statement recognises firms affected by coronavirus will need to keep their governance arrangements under review and have made specific provisions for firms in these circumstances. It also provides an update on expectations around submitting relevant re-submitting statement of responsibilities, updating PRA and FCA on any temporary allocation of Prescribed Responsibilities to unapproved individuals acting up as SMFs under the 12-week rule, allocating responsibility for coordinating firms’ responses to coronavirus among SMFs, furloughing senior management functions and certification requirements.

► [03.04] The ABI took part in the weekly FCA roundtable conference call for trade associations, chaired by Andrew Whyte, Director of FCA Communications. The session provided an opportunity for discussion on some of the most pressing and frequently encountered coronavirus issues across the industry. The ABI has stated it will continue to raise members’ concerns though our regulatory channels.

► [03.04] The FCA has confirmed that all premium finance products are in scope of the proposal on financial relief for customers impacted by coronavirus. Therefore, the FCA expects the proposal to cover insurance products sold through finance too.

12lansons.com | Insurance Sector Summary 15/04/20

Policy initiatives impacting Insurers

► [03.04] Huw Evans and the ABI have continued to respond to criticism and media and regulatory requests, and have stated that they are “ready to talk about how it can be an effective partner in building more widespread protection against pandemics than we have seen with Covid-19.” The ABI has taken a highly proactive response to media and is quick to respond to any articles it deems to be unfair and unhelpful to the industry. The most notable example this week being Huw Evans’ letter to the FT in response to a Lombard column. Following Kate Burgess’s Lombard column “Insurance groups turn a deaf ear to reputation risk at their peril” (April 1). Huw Evans wrote a letter in response which has been published in the FT. He outlines the amount of claims the insurance industry is expected to pay out as well as highlights that, insurers cannot pay out for claims where customers have not paid for the cover; this is a shortcut to insolvency. “We do, however, have to build a better future solution to ensure more widespread business insurance cover for pandemics.” FT

► [02.04] In line with its announcement of 17 March 2020, stating that some FCA activity and publications will be delayed to allow firms to focus on their response to coronavirus, work on General Insurance Pricing Practices will also be delayed. No date was provided but the FCA will provide an update at an appropriate point.

► [31.03] In a letter to insurers PRA chief, Sam Woods wrote they should “satisfy themselves that each distribution is prudent and consistent with their risk appetite”

► [27.03] The Chair of the Treasury Select Committee Mel Stride MP has written to the ABI regarding the industry response to the Coronavirus outbreak. In response to the letter, an ABI spokesperson has said: “We are addressing the questions raised and will be responding to the Committee. The insurance industry recognises this is a very difficult and worrying time, and insurers are doing all it can to help and support customers.” Read the full ABI response here.

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