At the time of writing this article (May 2020) it’s only been 3 months since Australia activated its emergency plan and ramped up initiatives focused on the COVID-19 pandemic. In that period we have seen unprecedented change in an extremely short time across all aspects of our society and economy.
In this article we summarise Personal Lines insurers’ COVID-19 responses to date, with a particular focus on the largest classes of business (Motor and Home), including a deep-dive into Landlords cover.
Finally, we give some thought to the key questions on everyone’s lips, including “how do the impacts that I’m seeing on my top and bottom lines compare to the rest of the industry?”
Timeline of events
Responses to date
In this article we outline three key areas where we have seen insurers focus their responses:
- Assisting customers financially
- Understanding and responding to changing exposures
- Updating offerings to respond to customer needs
We focus on the two largest classes of business – Motor and Home – which accounted for approximately $19bn of the $42bn total FY19 industry Gross Earned Premium.
Assisting customers financially
Taking the lead from various government support packages, most insurers are now offering some degree of financial assistance to their customers. From a public perception point of view, there was definitely a ‘first mover advantage’ regarding the introduction of these assistance programs – with some organisations benefiting more than others in this respect.
Each insurer has taken a slightly different approach with these measures, but they can be broadly categorised as one of the following:
- A percentage refund (e.g. 15%) of monthly premiums for a period of time (e.g. 3 months)
- Once off refunds or cash back programs (e.g. $50 gift voucher)
- Allowing a deferral of premium payments
- Waiver of cancellation fees or excesses payable on claims
Some of these measures are determined on an ‘as-needed’ customer-by-customer basis, while some are blanket measures for all customers, regardless of particular circumstances. Insurers have been well placed to respond in this regard (particularly given the work done in preparation for the new General Insurance Code of Practice), with insurers committing to fast-track support for customers who are experiencing vulnerability, including financial hardship.
Understanding and responding to changing exposure
A much talked about issue for Motor and Home portfolios has been on understanding both the short term and medium term impact that COVID-19 will have on exposure. These were outlined in our article here.
In terms of insurers’ immediate responses to these impacts the most noticeable relates to landlords insurance. We understand that landlord’s insurance makes up approximately 10% of Home GWP nationally (but this proportion will of course vary across insurers).
‘Rent default’ option
Depending on the insurer, ‘Rent Default’ protection is either included in the landlords policy, or is an optional extra that can be purchased by the policyholder. Prior to COVID-19 that market was evenly split between these two approaches, with:
- 16 brands including 'rent default' in their policy
- 15 brands offering 'rent default' as an optional extra.
This is based on the brands that we monitor in our Market Finesse competitor monitoring tool.
In late March we saw many insurers respond to the potential risk that an economic downturn and rise in unemployment could have on rent default by tenants, and the uncertainty around potential government intervention into residential tenancy agreements.
Based on our monitoring of online insurance quotes (as at the end of April):
- 17 brands are no longer offering Landlords policies online
- 13 brands are offering policies, but without the 'Rent Default' protection
- Some of these brands were part of the 16 above where rent default was previously included in the standard policy.
- 1 brand continues to offer landlords insurance online, including 'rent default' protection (unchanged from pre-COVID-19)
PDS changes for landlords
From our monthly PDS monitoring of landlords insurers in our Market Finesse competitor monitoring tool, 10 insurance brands (of the total 34 that we monitor) issued new PDS’ in March or April 2020. Many of the changes that we detected related to where they have stopped offering optional covers such as rent default and theft by tenant. Also an additional 4 brands have ceased to offer the policy option for ‘Rent Default by tenant’ cover on their websites without issuing a new PDS.
Aside from Landlords, there has been minimal change to other Home or Motor insurance product coverage over this period.
Updating offerings to respond to customer needs
Apart from the direct changes to product offerings outlined above, insurers have responded to changing customer needs in a variety of ways. Some that we have observed, or have heard being talked about, are:
- A heightened focus on products with more limited coverage (and thus lower premiums e.g. Third Party Motor) - to provide a solution for customers who may be looking to reduce their costs in response to personal financial pressures.
- Additional benefits to complement insurance - for example, free Roadside Assistance to customers for a period of time. Though, we understand that there is clearly a marketing benefit to this too.
- Modifications to standard product coverage periods to allow customers to only use their Motor insurance when they are actually using their vehicle (similar to ‘lay-up cover’ that we see in caravan or boat products). Again, we are uncertain about the practicality of this and how insurers would avoid the potential moral hazard.
- Changes to operating models – in particular the provision of additional frontline customer support staff (in some cases to overcome impediments arising from partners being offshore).
Minimal new business price changes
Based on our weekly monitoring of online new business competitor quotes for the vast majority of the market, we have seen a relatively quiet period in terms of price changes – likely because insurers are understandably focused on many other things at this time. While we have observed some price changes throughout March, April and May for Motor and Home we suspect that many of these may have been ‘in train’ prior to COVID-19.
Key questions on everyone's lips
Some of the key questions that many insurers are asking themselves at the moment are:
- What is the 'new normal' in terms of new business and renewal volumes?
- What (if any) are the short-term or medium-term impacts on pricing for new business and renewals?
- Are we getting 'our fair share' of quote opportunities, and thus new business sales?
- Who has more to gain in this time of uncertainty and potential sustained economic downturn?
- Will challenger brands or trusted incumbents come out on top?
- What business models are more or less sensitive to an impact like this?
It seems that it is too early to answer these questions definitively, but close monitoring of key volume and claims metrics is going to be critical (for Motor and Landlords portfolios in particular) as Australia begins emerging from lock-down and settles into a ‘new normal’. These are all serious strategic questions and considerations for insurers – the answers to which could involve significant re-imaginings of current business models.
Finity’s Optima 2020 publication will be anticipated this year more than ever. In our annual review of the industry we will perform a deeper dive into both the top and bottom line industry impacts for FY20 and beyond.
To discuss the above article, contact the author:
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