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13 October 2020
Lloyd’s has called on the industry to work on building “simpler insurance products” in response to the challenges thrown up by the pandemic - or run the risk of becoming irrelevant.
It says COVID-19 has highlighted the urgent need for insurers to address the long-running issue of product complexity, a matter that is currently in the spotlight because of disputes over whether pandemics are covered by business interruption policies.
“Product complexity is an enduring challenge faced by the global insurance industry and its customers,” Lloyd’s says in a report released overnight in London. “As insurance products have evolved over time, they have become more complex in their design and the way in which they are delivered to customers."
The report outlines ways in which insurers can reduce complexity and provide customers with greater certainty over their cover.
Prepared in collaboration with Lloyd’s Global and UK Advisories, the report makes three key recommendations for insurers to consider, including involving customers directly in product design to develop less complex coverage that is relevant to their risk needs in a post-pandemic world.
Lloyd’s says the challenges must be addressed as a survey it conducted earlier this year found attitudes to insurance have deteriorated because of COVID-19, with “the perception that some policies have not performed as expected”.
“An insurance contract is a promise to pay valid claims as they arise, and all customers – whatever their risk needs and sophistication – want clarity about what they are and aren’t protected against,” the report said.
“These challenges highlight the urgency with which the global insurance industry must invest and focus on clarifying and simplifying its products.
“Doing so will mean customers have improved understanding of the cover they have in place and the most relevant protection for the risks they face.”
Lloyd’s will next year begin work to provide “clearer and simpler” product documents to improve client understanding of policies. This will be complemented with the introduction of a standardised Lloyd’s upfront contract summary document that will initially be available for retail and SME policyholders.
Lloyd’s says the work is part of its own affirmative action to address the “distinct complications” that have arisen from pandemic insurance coverage uncertainty and resulting court disputes between insurers and clients.
“This includes reviewing how products are developed, designed and distributed, as well as reaching out to trading partners, risk managers and customers, so it can proactively implement changes across its global marketplace to enhance customer outcomes and more effectively meet their needs,” Lloyd’s says in the report.
Other work that Lloyd’s intends to carry out includes a thematic review on clear and simple product wordings and establishment of a working group to explore innovative ways to deal with customers.
Despite some complications, Lloyd’s says insurance has worked as intended during the pandemic. Insurers are expected to pay out more than $US100 billion ($139.4 billion) in COVID claims globally and the Lloyd’s market $US3-4.3 billion ($4.2-6 billion).
Click here to access the report.