COVID-19 Re/Insurance Roundup – August 2021
August 10, 2021 Paul De'Ath
Welcome to the second of our monthly COVID updates (for those who have been with us since the start this is actually the 64th update).
As many of you may already know, throughout the pandemic we produced a weekly roundup of insurance-specific COVID-related news. However, as the country and hopefully the world starts to emerge into a post-pandemic normality the level of COVID-related news has reduced. As such we have decided to reduce the frequency of this update to monthly rather than weekly. It will still include all the key articles that you need to read relating to COVID and how it might impact the insurance industry.
For those who would like to receive the new monthly COVID updates straight to their inbox (along with a variety of real-time research notes), subscribe to UK Market Intelligence here.
Summary
- 25% of UK Insurance workers would like to work entirely from home in the future – Insurance Times
- Pool Re reveals new expert advisory group to deter future systemic risks – Insurance Times
- Pandemic causes biggest drop in mileage since 1994 – Insurance Times
- Live events to be protected by £750m state-funded insurance scheme – The Times
- Cyber insurance ‘should be viewed as vital’ due to COVID-related ransomware surge – Insurance Times
- Insurers concerned about COVID-19 discrimination claims as workers return to offices – Reuters
- Greater demand for intellectual property insurance in the wake of COVID-19 – Insurance Times
- College tuition insurance in the U.S. gains attention in pandemic – The New York Times
- Motor insurance premiums reach new five-year low in H21 – Insurance Times
- Direct Line reports 40% growth in operating profit at H1 – Oxbow Partners
- AXA states that half of French restaurateurs are ready to accept COVID settlement – Insurance Business
- Tackling reputation issues are a priority for new Hiscox CEO following BI test case – Insurance Age
- FCA data shows COVID BI claims payments total £875.5m as of July 2021 – Insurance Age
- Reinsurers bear greater life insurance costs due to COVID second wave – Financial Times
Analysis
To office or not to office?
With the summer heatwave now a bit of distant memory we are heading towards a potentially significant date in the calendar that probably means more for businesses than it usually would – the return to school. With restrictions mostly lifted across the UK, infection rates reducing and vaccination rates continuing to increase – should we all be back in the office once the holiday season is over? The return to school in September could be a tipping point in terms of setting out how companies will operate post-pandemic. While many employees have found working from home a benefit and would like to continue to have increased flexibility, this view is not shared by all of those making the decision. What we don’t know yet is where the balance of power lies between employees looking for flexibility and many (particularly smaller) employers keen on getting people back into the office. Will employees leave if they don’t get what they want? The crunch point feels like it is going to be coming soon and insurers, along with many other industries will have to decide on a policy that tries to keep everyone happy.
The Oxbow Partners View
As we are hopefully moving into a post-pandemic situation, we can assess some of the impacts of the last 18 months on the world of insurance. It is interesting to see this month the increased demand for some types of insurance that the pandemic has caused. Cyber insurance is an obvious answer given the huge increase in remote working during and post lockdowns. There has also been an increase in intellectual property insurance as companies have realised that their IP could more easily fall into the wrong hands with the new working patterns of staff. A bit further from home, there has been a surge in demand for college tuition insurance in the US. With a year of college potentially costing over $50k you can understand why parents would be keen to get their money back if a student had to quit for medical reasons. With university fees increasing in the UK, this could be a trend that we see here soon too. Stay safe out there.
Roundup
25% of UK Insurance workers would like to work entirely from home in the future – Insurance Times
New research by Accenture shows that 25% of UK insurance workers would prefer to work from home 100% of the time in the future. The most preferred initiative wanted by workers, however, was a flexible working schedule in terms of days and hours. 72% would like to work in the office for 2 days or less a week with only 6% keen to return full time. More worryingly 23% of those surveyed felt disconnected or forgotten by their company during the pandemic and 34% are considering leaving their current firm.
Read more (requires subscription)
Pool Re reveals new expert advisory group to deter future systemic risks – Insurance Times
Pool Re, the terrorism reinsurer, has launched an expert advisory group to find ways to protect the UK from future systemic risks. Re:New brings together experts from insurance, government, industry, academia and beyond to work out how the country can protect itself from systemic risks such as climate change and cyber terrorism. While not specifically mentioned we expect this will also try to limit the impact of future pandemics as it states, ‘when the next risk comes, we must be ready for it’.
Read more (requires subscription)
Pandemic causes biggest drop in mileage since 1994 – Insurance Times
Vehicle mileage reduced by 27% during the pandemic, the largest fall since records began in 1994 according to the government’s latest provisional Road Traffic Estimates, Great Britain. Car traffic reduced by 31% to 189.1bn vehicle miles with van and lorry traffic reducing by 14.2% and 6.8% respectively. This reduction in mileage is no surprise given the lockdowns but it puts more pressure on motor insurers to reduce prices further for customers. While motor premiums have fallen during the pandemic, they have not moved down as much as mileage and the Association of Consumer Support Organisations believes that customers are being given a bad deal.
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Live events to be protected by £750m state-funded insurance scheme – The Times
Large scale events will be able to purchase government-backed coronavirus insurance to ensure that they can go ahead during the next year. The “live events reinsurance scheme” will require organisers to pay an insurance premium equivalent to 5 per cent of the losses for which they are buying cover. The government will cover the cost of 95 per cent of liabilities, and insurers will pay the remainder. The scheme aims to prevent big events having to cancel because of uncertainty around restrictions and inability to obtain insurance to cover costs, demonstrated by the cancellation of Glastonbury this year. Rishi Sunak has stated that “the lack of the right kind of insurance is proving a problem” for these events but the government aims “to help events providers and small businesses plan with confidence right through to next year.”
Read more (requires subscription)
Cyber insurance ‘should be viewed as vital’ due to COVID-related ransomware surge – Insurance Times
2020 saw the most yearly ransomware attacks on record, with 17% of UK businesses experiencing in increase in cyber-attacks as hackers exploited the government’s work from home orders. There is also evidence that the success of ransomware attacks has grown as home workers have weaker IT controls and are more likely to open COVID-themed phishing emails. As a result, cyber-linked business interruption cover is acquiring an increasing importance as businesses adapt to the prospect of permanent hybrid working. Current cyber insurance policies typically cover network security liability, data recovery and restoration, contingent business interruption and ransom event costs, but improvements in risk modelling mean that insurers can start addressing losses to other intangible assets caused by a cyber peril, such as reputational harm.
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Insurers concerned about COVID-19 discrimination claims as workers return to offices – Reuters
As vaccination rates increase in both the UK and the U.S., “no jab no job” contracts are a growing area of contention for liability insurers, with many insurers scaling back the EPLI cover that they offer to businesses in response to an expected increase in discrimination claims. Marsh have reported that a fifth of notifications by its insurer clients of possible EPLI claims in the UK have been COVID-related in the past six months. Mandatory vaccination contracts pose a problem for employers as they risk discriminating against some employees, such as younger employees who have not yet been offered a second vaccine or employees unable to get the vaccine due to a health condition, but not having these contracts exposes employers to charges of creating an unsafe working environment. For insurers still selling EPLI, brokers have estimated a 25 to 75 per cent increase in premium rates in the past year.
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Greater demand for intellectual property insurance in the wake of COVID-19 – Insurance Times
The pandemic has accelerated the demand for intellectual property insurance as companies consider how their intellectual property can be best protected during remote working. Whilst intellectual property is not generally covered under traditional insurance policies, companies are now recognising the value of their intangible assets and seeking ways to reduce their intellectual property risk. Brokers have previously focused on other insurance lines that were more profitable since standalone intellectual property insurance has been regarded as too expensive with low limits or does not have policy options that do not match company preferences. However, the pandemic has created a new opportunity for brokers to protect clients as the economic repercussions of the pandemic are expected to increase the number of intellectual property disputes.
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College tuition insurance in the U.S. gains attention in pandemic – The New York Times
Whilst college tuition insurance in the U.S. is not new, these policies are garnering more interest as some students were forced to withdraw from education due to COVID-related medical conditions last year. Most colleges and universities offer full tuition refunds if students withdraw shortly after classes begin, but the size of the refund reduces significantly as the semester goes on. According to the College Board, the average cost of living at a private, four-year college was $51,000 last year, leading some students and their families to seek tuition insurance from insurers such as GradGuard and A.W.G. Dewar. However, the coverage of these policies varies significantly: Dewar covers student withdrawals due to epidemics or pandemics but GradGuard modified its existing policies to exclude these circumstances, highlighting the uncertainty about how tuition insurance will be formulated going forward.
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Motor insurance premiums reach new five-year low in H21 – Insurance Times
A new report by the ABI shows that the average cost of motor cover has fallen by £38 in the first half of 2021, with drivers now paying an average of £430 for comprehensive cover. This reduction is partly driven by insurers benefitting from cost savings from fewer claims during lockdown, as the number of motor insurance claims settled by insurers in 2020 fell by 19%. However, the easing of stay-at-home orders suggests that a rise in motor claims will be observed during the second half of 2021 as more drivers return to the road, and the personal lines industry is set to face continuing challenges due to sector-wide regulation changes.
Read more (requires subscription)
Direct Line reports 40% growth in operating profit at H1 – Oxbow Partners
Whilst Direct Line’s gross income from car insurance premiums declined by 6.2% in the first half of 2021 in response to lockdown restrictions, its operating profit has increased by 40% due to strong prior-year reserves, favourable weather conditions and the elimination of excess COVID-related claims in Travel and Commercial. The impact of the pandemic on the business is expected to subside as lockdowns ease and new policy wordings exclude COVID, and this improvement is paired with a continuing low frequency of motor claims despite a return to previous driving levels. However, the business faces the new challenge of growth as the return to normality continues.
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AXA states that half of French restaurateurs are ready to accept COVID settlement – Insurance Business
Half of AXA’s restaurant clients have accepted or expressed interest in accepting their compensation offer. The French insurer previously announced their plan to compensate 15,000 restaurant owners a total of €300 million due to COVID-related business disruption, setting a deadline of September 30 for businesses to accept the offer. AXA is currently involved in 1,500 different court cases in France regarding disputed business suspension policies, with CEO Thomas Burbel commenting in the Financial Times, “if you have one restaurant that has a problem, we can always help. If you suddenly have a problem with all the restaurants, the insurance mechanism will stop working.”
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Tackling reputation issues are a priority for new Hiscox CEO following BI test case – Insurance Age
Outgoing Hiscox CEO Bronek Masojada has remarked that it is imperative for the insurance industry to “get the basics right” to rebuild its reputation following the FCA BI test case. Masojada will retire at the end of the year after Hiscox lost a high-profile BI court case in June, with the court deciding that policyholders had a right to payouts from insurers. Hiscox, who have subsequently re-underwritten its business interruption book with pandemic exclusion terms, have stated that focusing on ‘service, digital interaction and clarity’ will be a main priority this year for Masojada’s successor Aki Hussain.
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FCA data shows COVID BI claims payments total £875.5m as of July 2021 – Insurance Age
The latest payout figures show that insurers involved in the FCA test case have made initial payments for unsettled claims worth £308.9 and final settlements worth £566.6m, an increase of £19.4m and £99.4m respectively compared to last month. This reflects the fact that 23,933 policyholders (out of the 40,531 who have had claims accepted) have received at least an interim payment, in comparison to 20,347 in June. Hiscox has the highest number of accepted claims at 8,600, whilst Axis has settled the most claims so far at 2,729 claims settlements.
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Reinsurers bear greater life insurance costs due to COVID second wave – Financial Times
The second wave of COVID-related deaths has led to a substantial increase in the number of life insurance claims paid by reinsurers. Hannover Re recorded $263m in COVID-related life insurance losses in its second-quarter results, but the increasing rate of vaccination in both the US and the UK is bolstering hopes that the number of life insurance payouts will decline throughout the year. Reinsurance Group of America has already reported a $317m decrease in mortality losses during its second quarter due to “increased population vaccination levels and lower general population deaths”.
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