Global product innovation in the pandemic - part 1 (non-life)
This blog has been authored by Ed Plowman, IFoA Fellow. The impact of COVID-19 and the response of society and government varies widely around the world. The Pan2 National Narratives workstream has identified some broad categories for analysis of international differences. This blog looks at some of the short-term responses in the non-life sector. Future blogs will cover life and health, and will look a bit further over the horizon at how things might evolve in a post-covid world. This group is working as part of the IFoA Covid-19 Action Taskforce.
Crisis as the crucible of invention
The Covid-19 pandemic and its associated lockdowns is perhaps the greatest crisis the world has faced since the Second World War. Many things in society and the world of work have changed very rapidly, and the insurance industry has reacted to that, with new products and covers targeted at the new reality.
At the mercy of events
One of the lines of business most significantly affected by the pandemic has been event cancellation insurance. There have been numerous insurance claims as a result of the pandemic itself, some very large – the Tokyo Olympics and Wimbledon being notable examples – coupled with a precipitous drop of premium income as most physical events have been put on hold for the foreseeable future. Events have moved online and virtual event products have been developed, Beazley1 for example offers a policy that pays out if a transmission failure cancels or disrupts the event.
Travel insurance has had a similarly torrid time during the pandemic. Insurers were quick to exclude the pandemic risk; in many cases they stopped selling new policies altogether. There have been some attempts since to support the travel industry by offering limited cover – Emirates Airlines2, for example, includes medical and quarantine cover free with the cost of a ticket, and Turismo de Portugal3, in co-operation with local insurance companies, launched an inbound travel insurance that specifically included Covid-19 cover even when travelling against government advice. But this is a difficult problem to solve and the second wave now affecting many countries certainly does not help.
In contrast, the pandemic has been generally beneficial to motor insurers, with marked reductions in claims as lockdowns have reduced the number of miles driven, by as much as 90% in countries with the strictest lockdowns. Even when most restrictions were lifted, there has been an increase in working from home and a decrease in commuting, and traffic levels have only recovered to around 85-90% of the pre-covid levels.
While some insurers in some countries have offered premium refunds, these do not appear to have offset the claims benefits.
This may have sparked greater consumer interest in pay-as-you-go or usage-based models, and anecdotally these propositions have seen significant growth in many markets worldwide. These products existed before the pandemic so it is not innovation as such, but we have seen new products being launched in new markets. In India, for example, both Edelweiss and Tata AIG launched similar products within a month of each other4. Ford also launched a partnership with Metromile in the US that utilises the ‘connected car’ technology in new Ford vehicles5.
An increase in the use of bikes for commuting has seen the launch of some related products – e.g. a comprehensive bike policy with accident cover launched in Japan6.
WFH and Cyber Attack Vulnerability
With many people working remotely from home, and a general expansion in the use of online services, cyber insurance has come under the spotlight. It is certainly true that remote working creates new vulnerabilities. And claims have been rising – notably due to ransomware – although, in fact, that is a trend that started well before coronavirus. So there may be a greater need here, particularly among SMEs, but it is a little unclear how that translates into demand – SME companies are not generally awash with cash to pay for expanded insurance coverage. Insurers have nonetheless been active in developing new cyber products – not just insurance but also security assistance services – targeted at sectors like healthcare.
Pandemic and Systemic Risk
We have not yet mentioned business interruption, and the crisis has spotlighted the limitations of insurance at dealing with systemic event risk. This has sparked some interesting discussions around the world on how to deal with future events that we will cover in a later article.
But the non-life insurance industry is helping in other ways with the global efforts to solve the current crisis – whether through coverage for the many clinical trials now happening, or through innovations such as the Lloyd’s ‘Syndicate in a Box’ coverage for vaccine storage and distribution7. This is a difficult risk to insure because of the need for a temperature-controlled time-sensitive supply chain, made even more difficult by the need to distribute in a short time-frame across the whole globe. But this product will incorporate tech from Parsyl – a US insurtech that uses supply chain tracking devices and data – to help support the global vaccination effort.
 https://www.au.sonpo.co.jp/pc/bycle/byclebest.html (Japanese)