Resilient Insurance: Tough Enough?

When people say the word resilience, being the political nerd I am, I always hear the famous exchange with the Labour Party’s former leader Ed Miliband in a Paxman interview stating as firmly as he could “Am I tough enough? Hell, yes I’m tough enough.” I think the crushing electoral defeat which shortly followed would perhaps be the exception which proves the rule (sorry Ed).

Yet, resilience really is the watchword of the times. The Covid-19 pandemic has served to highlight the weaknesses in our society and our economy, and the devastating impact it has had on us all proves how vulnerable our society really is.

Enter insurance stage left, the part of financial services which should be in its element when it comes to facing risks and insulating people from some of the outcomes. But as the risks get more severe and the challenges seemingly daunting to even the strongest of state level economies, what role can and should insurance play?

Firstly, it is important to outline what the big risks are. The most often discussed include (but not exclusively) climate change (poignant as we see the heat dome in North America and the devastation it has caused); cyber-attacks and digital terrorism; future pandemics; global economic collapse (the financial crash is a good example of how vulnerable interconnected globalised systems are to a domino effect); and more recently dangerous cladding and other fire safety issues and their impact on building insurance.

We also need to recognise the shift away from traditional risk pooling and as we rely more on disaggregated risk data and pricing, there is and will be a growing contingent of those who cannot get insurance at all. To back these heavy claims up, you only need to read the Institute and Faculty of Actuaries’ recent Great Risk Transfer Report, to understand where these deficiencies lie, as well as some of the potential solutions.

My own experience of this comes through my work with the Cabinet Office sponsored Access to Insurance Working Group. This has often exposed me to the challenges disabled people and people with pre-existing medical conditions face in gaining access to insurance products and services. With ever more granular risk-based pricing, it is not beyond the realm of possibility of seeing even greater barriers to access, unless we solve these deep-rooted issues.

Part of this work has shown there is more the current insurance market can do to meet the needs of disabled people and people with pre-existing conditions. In the last two years we have been able to launch a new signposting system, and an explaining underwriting decisions agreement, which alone will not fix the problems, but highlight how there is more the sector can do to be clear and to support those who need specialist support. This goes for all who are trapped in situations they can’t mitigate against such as those caught out by the ‘poverty premium’ (for those unfamiliar with this would be well served to follow the work lead by Fair by Design and Martin Coppack specifically).

This is not a diatribe against insurance. Insurance is the backbone of society, ensuring work and life can go ahead and if Covid-19 has taught us anything it should be both how important insurance is to societal resilience, and how underinsured we all are to the risks of today, let alone tomorrow. But like all marketplaces and professions, it needs to adapt to challenges ahead if it is to survive another 300 years.

So, those are the problems, but what are the solutions I hear you ask?

Well, I would love to lay out all the answers, but my view is we all really need to get stuck into this question. Throughout the pandemic and serving both in my CII role and with my Insurance and Financial Services All-Party Parliamentary Group (IFSAPPG)* hat on, I have had countless discussions with people about all the different risks we need to provide government backed reinsurance schemes for. The problem is there are just far too many for it to make sense to underwrite them all individually.

*For those who do not speak Westminster lingo an All-Party Parliamentary Group (referred to as an APPG), are informal, cross-party groups formed by Parliamentarians who share a common interest in a particular policy area, region or country. APPGs can be influential because of their cross-party approach to an issue. The IFSAPPG is chaired by Craig Tracey MP and Lord David Hunt, focuses on insurance and related financial services issues.

As a starting point we need to map where the limits of the market are, harnessing the power and ability the market already has whilst leveraging new products and services better suited to people’s needs with these risks in mind, all so we can easily identify what is the upper limit the private sector can do to meet these risks head on. These challenges simply cannot be borne by insurance alone, so this line in the sand is how we can negotiate for public/private partnerships where the sector can work together with the government. Of course, when we reach the limits of even these agreements, there is a need for social policy to fill the gaps itself.

A lesson to be learnt from this horrible pandemic, is there are many people who could have benefited from some or higher levels of protection during this period. Yet, we find ourselves in a situation where people are often underinsured, or uninsured. Whilst some of this is natural for any private market, other reasons stem from a mistrust of or a misunderstanding of what insurance can do for financial resilience, as well of course as those already mentioned who find it too expensive or those who simply cannot find cover at all.

As part of a professional body, I see the role of professionals as fundamental to securing trust and building a relationship with consumers which will bake their views and experiences through the value chain of insurance. I specifically foresee the role of those who provide advice and often have a strong relationship of trust established as being core to reaching out and ensuring we are meeting the public’s needs, whilst also facing those big challenges head on.

We should all strive to build trust in our market and our profession, and to do so will take some very difficult conversations about how we currently operate, especially considering the granular approaches to risk.

To try and re-shoehorn in an earlier thought – resilience is not so much about being “tough enough” to overcome all challenges alone – it is about proper risk management for those we simply cannot cover and how we can play a role in solving them. For a sector whose lifeblood is risk, we find ourselves faced with some of the greatest challenges and at a time when the market has been steadily shifting away from pooled risks.

And I should add we already see action taking place, with the launch of the ABI’s Climate Roadmap; LIIBA’s recent report on the role of Brokers in Net-Zero; and the CII’s joint qualification with other CISI and Chartered Bankers, on Climate Risks, all of is welcome. However, if we are to truly to embed resilience in the market, we cannot solve all challenges in isolation from one another.

Therefore, the conversation around resilience (and there is much I had to miss out from this piece) is such a vital one for everyone to be a part of. Only together can we truly overcome the challenges of today, tomorrow and those further on the horizon.