Insurers are finding new ways to keep up with their clients’ ever-changing demands, says Simoney Kyriakou
Insurance disruptors in the past few decades have driven changes in the market around them.
For example, Vitality’s focus on wellness and wellbeing, with incentives to join gyms or eat healthily, were originally seen as gimmicky but every insurer now offers wellbeing and wellness support, and value-added services.
Or take companies such as Guardian, with its flexible way of providing life and critical illness insurance, or DeadHappy, with its often contentious but unmistakably eye-grabbing advertising. All these have disrupted traditional market models and ways of doing business.
But what comes next on the S-curve of innovation? And how can insurers keep up with what their clients want?
New tricks
Part of the answer lies in greater personalisation of protection. Oliver Werneyer, chief executive and co-founder of Imburse Payments, says: “Personalisation is key in the future of insurance plans around the UK.”
Arguably, in health and life protection, personalisation has already been a core part of individual cover, taking into account a client’s medical and personal history to provide cover specific to their needs.
However, in recent years, insurers have started to offer more personalised services around the value-added benefits that come with protection policies, giving people wellness and wellbeing support, alongside incentives more tailored to their needs.
Certainly there has been a much sharper focus on wellness and wellbeing during the pandemic, such as GP services and mental health support, and providing more information to brokers to explain these added-value propositions to group and individual clients.
New trades
There is an argument that innovation can only go as far as regulation allows. Nobody wants to be the first to stick their head above the new-product parapet, only for the regulator to take a well-aimed potshot at it.
This is why insurers need to know they have the capital buffers and underwriting in place to allow that innovation – and protect themselves should something go wrong.
One way in which insurers have been underwriting their own operations and providing scope for new developments is in the use of captives.
A captive is an insurance or reinsurance company set up to insure or reinsure the risks of the parent group. A captive may also be a direct-to-customer business, which insures the risk of the group and buys reinsurance on the commercial market.
Captives allow the parent company to underwrite new business lines, with the captive carrying the risk, so any potential loss is transferred to the captive and not the parent.
According to AM Best’s latest report on the European insurance market, captives are an example of innovation in the insurance space. “They were created to provide insurance solutions not readily available in the open market, to develop flexible risk coverage and to improve the risk management and loss prevention capabilities of their parent groups,” the report states.
This has helped parent companies to combat potentially expensive events, such as increased claims levels during Covid-19.
According to AM Best: “The pandemic resulted in significant financial market volatility, generating increased claims activity and reducing [2020’s] earnings for a large number of insurers and reinsurers. However, the pandemic has proved to be less of an issue for most AM Best-rated European captives.”
As for regulation, European regulators are assessing Solvency II to give more flexibility to small insurers, such as captives.
The European Commission also proposes to increase the exclusion threshold related to gross written premiums. In its impact assessment, the EC estimates this proposal would take 186 insurers out of the scope of Solvency II.
This should help provide the necessary capital to the parent companies to press ahead with innovations and technological upgrades that can help reach new consumer segments.
Capturing the non-advised
So how will insurers (or their captives) capture the non-advised?
Not easily. The pandemic has been a great talking point but insurance is still a ‘sold’ product, not a ‘bought’ one. According to the Office for National Statistics, Britons saved £190bn during Covid-19 lockdowns – but this went into cash, not cover.
Alan Lakey, founder of CI Expert, warns against such ‘self-insuring’: “With life/critical illness/income protection, it’s a dubious option. The logic of these insurances is to provide funds when needed so, to my mind, the only people that do not need these funds would be those who already have significant sums.”
Naturally, most people do not have significant savings and these are the people insurers will need to capture. And with potentially more flexible regulation, rising corporate capital buffers and clever use of underwriting, insurers have a strong platform for meeting the needs of tomorrow’s customers.
Advisers and insurers need to better educate around the need for longer-term financial protection. As an industry, we need to encourage greater client engagement to seek bespoke advice
Yet perhaps the starting point should be to educate people about what is available.
Jiten Varsani, mortgage and protection adviser for London Money, says: “Advisers and insurers need to better educate around the need for longer-term financial protection. As an industry, we need to encourage greater client engagement to seek bespoke advice.”
He adds: “Then this should be complemented by equally great products that meet these needs.”
Simoney Kyriakou is senior editor of FTAdviser
