Policyholders expect more innovative solutions from insurers after the industry’s Covid-19 BI claims response
While the public understands that “not everything can be insured”, they expect insurers to work on developing solutions related to the systemic risks of all clients and “lean into the challenges posed” by them.
This was according to the Association of British Insurers’ (ABI) director of general insurance policy, James Dalton, who opened the ABI’s webinar on systemic risks last week.
Systemic risks refer to events which disrupt or threaten the whole financial system or the economy, such as a global pandemic or climate change.
Need for state support
Dalton explained that the industry’s recent greater consideration of systemic risks had raised important questions for the UK’s insurance sector, such as the degree that government should be involved in supporting cover.
He said: “An increased focus on the risks posed by these threats to our society has thrown the importance of insurance into the spotlight, but also raises some quite challenging questions for insurance carriers.
“Despite the size and scope of the UK insurance market, providing widespread insurance coverage against all sorts of systemic risks would be virtually impossible without state support.
“The amount of capital that insurers would need to hold against those risks would result in a completely unaffordable price for customers.”
As an example, the UK insurance sector’s response to the Covid-19 pandemic and associated business interruption claims caused confusion around the role of insurance for clients - depsite the FCA’s test case, there remains a slew of ongoing court cases thrashing out whether insurers must pay out on policies.
The path forward
Government involvement in creating pools to help insurers provide cover for systemic risks, such as the UK government-backed terrorism reinsurer Pool Re, has its drawbacks, Dalton said.
“We need to think carefully about how these challenges can best be overcome and how we as an industry can adapt to them,” he said.
“State-backed reinsurance arrangements are an option, but such arrangements come with inherent public policy challenges and trade-offs.
“They require clear political will and a demonstrable and long-term benefit. As always, we are going to have a role to play in managing those risks and how we can best respond to them.”