Tag Archives: pandemic

Roundtable discussion explores COVID-19 implications for UK life insurers

A panel of senior UK insurance investment professionals joined Milliman in late July to share thoughts on the economic implications of COVID-19. The meeting was conducted under Chatham House rules. Below is a list of participants and moderators.

Participants:

  • Joseph Canavan – Head of Capital Management at Royal London
  • Andrew Dickson – Head of Asset-Liability Management at Aegon
  • Michael Eakins – Chief Investment Officer at Phoenix Group
  • Prasun Mathur – Head of Private Assets at Aviva UK Life
  • Corrado Pistarino – Chief Investment Officer at Foresters Friendly Society

Moderators:

To read the summary of key points from the discussion, click here.

How has a slowed deposition process affected claims?

As the number of coronavirus cases continues to increase and many states walk back prior reopening activity, liability attorneys are among those adapting to social distancing over an extended time period. While attorneys have done much to move claims forward during the pandemic, many claims remain stalled as attorneys often cannot, or choose not to, continue depositions under stay-at-home orders.

This review of a Milliman database of defense attorney invoices suggests that, in general, delays in the deposition process are beginning to abate. Defense attorneys have gradually become comfortable with virtual depositions, and this analysis indicates they are soon likely to proceed with depositions over virtual platforms that are lengthier and more complex than the virtual depositions conducted to date.

Milliman’s Susan Forray, Chad Karls, and Joe Mawhinney discuss how the deposition process is affecting claims in their paper “Change of plans.”

FCA guidance on “Product value and coronavirus”

On 3 June 2020, the Financial Conduct Authority (FCA) operating in the United Kingdom issued guidance on its expectations of insurance firms in relation to product value arising from the COVID-19 pandemic. This guidance applied to all non-investment insurance products, including all general insurance and private medical insurance (PMI) products. The guidance is available here.

What does the guidance say?

The main purpose of the guidance is to “identify any material issues from coronavirus that affect the value of [insurers’] products, and their ability to deliver good customer outcomes.” The FCA defines product value as “what the customer is paying for and the quality of the product or service it is intended they receive.” The measures were placed into effect from the day of the release of the guidance and the FCA stated that it would review the response from insurers after six months. At a minimum, the FCA is expecting insurers to review their products and take appropriate actions.

In this blog post, we have put together some further guidance on how UK non-life insurers can go about reviewing their products.

Key highlights
  • If insurers are unable to provide benefits or pay claims in the usual way, they should seek alternatives to ensure that policyholders are getting product value.
  • If the level of insured events is reduced during the pandemic, then insurers should make suitable adjustments to their policies and premium levels to ensure that the value of the policy to the policyholder is not materially worse.
Analysis: Product review process

Firstly, insurers should review the impact of COVID-19 on their claims experience both during and after lockdown. There are many types of insurance products that will have seen lower levels of claims as a result of the lockdown during the pandemic. Insurers should regularly review loss ratios, as a decrease in loss ratios could indicate that customers are getting less value from their products. However, insurers should not ignore the possibility of a spike in claims post-lockdown, e.g., warranty or breakdown cover insurance policyholders might have been reluctant to have a technician enter their homes during the lockdown period, leading to reduced claims. However, as the lockdown eases, and policyholders become more comfortable with such repairs, there may be a spike in claims. Insurers should also be mindful of cross-subsidies within their portfolios, and of their overall solvency, as some lines of business will likely experience claims levels well in excess of normal levels.

Insurers should also analyse the driving factors behind decreased claims experience. The FCA identifies two main drivers of decreased claims experience:

  • The insurer’s own ability to provide claims benefits is reduced, e.g., the reduced availability of repair services for motor vehicles due to lockdown measures. In this case, insurers should seek alternative ways of providing benefits and paying claims. This issue could also affect insurers in other lines such as:
    • Motor own property damage
    • Extended warranty
    • Household contents
    • Boiler breakdown
  • A genuine decrease in the insured activity below the level expected at underwriting. For example, annual travel insurance policies that are no longer useful to policyholders. In this case, policyholder refunds or decreased premium rates may be the ideal way to ensure product value. When the reduction of risk under the policy is such that there is “little or no utility to consumers,” the FCA’s expectation is that firms carry out a product level assessment of value. Lines affected in this way could include:
    • Travel insurance
    • Motor insurance
    • Public liability
    • Marine and aviation policies linked to passenger travel

At the time of writing, the first major lockdown of the UK is easing, although the risk of further waves of the pandemic and future lockdowns, local, regional or national, remains. Therefore, insurers need to be aware of precedent-setting and managing consumer expectations. These considerations remain equally valid for any future waves of the virus, and insurers should take advantage of their learnings from the first wave of COVID-19 infections to enact responses to decreasing product value in a manner that is rapid and more specific to the nature of the outbreak.

Additionally, due to the virus and the ensuing recession, policyholders could find themselves in financial difficulties, and may miss insurance payments. In this case, firms have been instructed to consider the value of the product to the customer when deciding on a course of action. The FCA has also issued some additional guidance on treating customers fairly in this type of situation, which may be found here.

Case study: Private medical insurance in the UK

In the UK, all nonemergency procedures were postponed as hospitals made preparations to deal with the worst-case scenarios. During this period, loss ratios have lowered significantly, as a material number of operations have been deferred. While insurers have ramped up their telehealth coverage, many policyholders have had treatment delayed and, therefore, have received much more limited value from their products than they would expect. One option for insurers would be to provide some form of a refund to customers during the period where hospital facilities were shut, as has happened in Ireland. A number of larger UK medical insurers have promised a future refund if claims remain low for an extended period. However, early indications are that, not only will the vast majority of the deferred treatments occur, but there is a significant potential for the claims cost to be higher than anticipated, due both to delays in treatment and to increased provider costs resulting from new social-distancing and cleaning guidelines for treatment.

Using ORSA to navigate new COVID-19 risk environment

The economic impacts along with the epidemiological aspects of the COVID-19 pandemic will reshape the outlook for the insurance industry over the next three to five years.

Insurance companies will need to adapt their overall operating models, incorporating the effects of the virus to continue to achieve their strategic objectives and goals. These effects will include elevated operational risks like cyber threats related to new remote work environments for employees.

The Own Risk and Solvency Assessment (ORSA) process provides the framework for insurance companies to understand, evaluate and quantify their risk profiles. It is inevitable that the ORSA will form a major part of the backdrop to work in 2020 and likely further into the future.

In this paper, Milliman’s Ian Penfold, Sophie Smyth and George Barrett discuss how insurers can explore their future exposures to COVID-19 through the ORSA.

Critical Point examines COVID-19 and the mortgage credit risk market

In this episode of Critical Point, Milliman consultants Chris Harner and Michael Schmitz discuss mortgage credit risk and market trends in light of the COVID-19 pandemic. This episode is the first in a two-part series on credit risk. The next episode will look at the potential that cyberattacks may increase within the financial sector as a result of the pandemic.

To listen to other episodes of Critical Point, click here.

Innovation and compliance – a balancing act

In an industry not often noted for innovation, COVID-19 has proven that insurers can rapidly innovate to help businesses and consumers manage risks and protect against losses. For example, insurers quickly added benefits for COVID-19 critical illnesses and waived member cost sharing for diagnostic testing related to COVID-19. In addition to COVID-19, other significant changes, such as technological advances and healthcare reform, have fostered innovation in life and health insurance products.

Innovative products and services enable insurers to respond to client needs in new ways that competitors have not considered or been able to provide. However, innovation may be viewed as disruptive in the heavily regulated insurance industry, and regulators charged with protecting consumers might be concerned with ideas that are untested. Even when regulators are convinced that an innovative insurance product or service would greatly benefit a consumer population, they might be constrained by regulatory limitations.

In this article, Milliman consultant Stacy Koron explains why a principle-based approach to insurance industry regulations may be a more effective way to foster innovation.