With the Covid-19 crisis causing both financial and reputational detriment to the insurance sector, Aamina Zafar examines how the profession must evolve to meet the needs of a new generation
Insurers must combat the ever-increasing protection gap, accelerated by coronavirus.
Leading independent financial adviser, Aj Somal, argues that the profession must advocate the importance of protection insurance, especially for young people, in a bid to build the public’s resilience in these unprecedented times.
The Chartered financial planner from Aurora Financial Planning says that, although his Birmingham-based firm has experienced an increase in enquiries for life insurance and critical illness cover as a result of the Covid-19 pandemic, more must be done to protect the public.
He adds: “More people are working for themselves, so there is less dependence on the employer to provide various benefits to them. But there needs to be more awareness of the need for protection, particularly for Millennials, as it is not one of their priorities in life, but it is very cost-effective to take out cover at an early age.”
He also highlights the need for greater flexibility within the profession to cater for the UK’s ageing population.
He says: “An ageing population means cover going on for longer. Traditionally, protection has been set to cease at around age 65. People are living and working into later life, so more flexibility by providers is required to offer cover for individuals into later age.”
These worrying risks on the horizon highlighted by Mr Somal follow the publication of a report from Swiss Re, entitled SONAR 2020: New emerging risk insights, which identifies trends that have a potential to shape the insurance profession during the next five to 10 years. This includes how the Covid-19 pandemic has accelerated any existing risks such as exposing structural weaknesses in supply chains, healthcare systems and “intergenerational cohesion”, with the younger generations’ desire to have open economies and to find work versus the need to keep the older generation safe.
It adds that Millennials’ frustration with, and distrust of, government authorities could foster social unrest, with possible property damage and other insurance impacts.
We have a duty as a profession to educate our youth and teach them where insurance fits into their own financial resilience
Interestingly, the report also highlights the growing life insurance protection gap, with the ageing population and Millennials’ requirement to insure longer lives, at the same time as there being reduced demand for insurance.
Patrick Raaflaub, group chief risk officer at Swiss Re, says: “After this global crisis, which shows the importance of forward-looking risk management, society will need to adapt to many changes. At the beginning of the year, the political agenda and discussion in media was dominated by climate change. Attention then shifted to Covid-19.
“The past months have shown the utmost importance of forward-looking risk management. Risk awareness is ever more important as a prerequisite. Maintaining global dialogue on evolving exposures and trends will help us best prepare for the future risk landscape.”
The report also highlights how insurance companies will need to find ways of distributing insurance at significantly lower prices, while also ensuring adequate pricing of risks to be able to pay for future claims.
That need for great flexibility and evolution of insurance policies is also echoed by Dan Elkington. The Chartered financial planner at Lincolnshire-based MT Financial Management says: “The last few months have shown us how quickly the unexpected can happen and the impact that it can have.
“Personal circumstances change over time, so any policies taken out should be reviewed regularly to ensure they are still suitable and unnoticed gaps can be identified and bridged. People are now living and working longer, so insurance provision needs to reflect this.
“Businesses can also support in this area with initiatives such as death-in-service insurance, which can be relatively inexpensive for a business but can provide a valuable safety net for its employees.”
The Swiss Re report adds that the impact of low growth and low interest rates could lead to lower premium income, lower guaranteed returns (especially in the life business), assets moving towards higher returns and changes in the types of products offered.
Worryingly, the report also hints at a growing debt trap, which may encourage more risky investment behaviours, increasing financial market risk for institutional investors such as insurers and pension funds.
Educating the youth
Gemma Siddle, from Newton Aycliffe-based Eldon Financial Planning, says that despite the worrying forecast, the profession can strengthen the public’s resilience during these extraordinary times by addressing the lack of financial education among young people and perceived lack of flexibility within the insurance profession.
The Chartered financial planner says: “Swiss Re’s findings paint something of a bleak picture for the future of insurance. Through the years, we have seen a fall in demand for insurance from the young. The respect the insurance man received from our parents is something of the past. However, this has been driven by a series of changes, as noted in the report. The lack of financial education in our young people combined with insurance that can be seen from the outside as inflexible and built for ‘the old world’ will inevitably drive less interest.
“We have a duty as a profession to educate our youth and teach them where insurance fits into their own financial resilience; teach them the amazing stories of how such policies protected people when they really needed it. These stories are too often missed in the noise of negativity about insurance.”
Aamina Zafar is a freelance journalist