Lloyd’s tells re/insurers to simplify policies in wake of COVID-19

Specialist insurance and reinsurance market Lloyd's of London has called on re/insurers to build simpler products that better protect customers and provide them with enhanced clarity, in the wake of the global COVID-19 pandemic that has led to several complications regarding coverage uncertainty and resulting court disputes.

Lloyd's said that the pandemic has highlighted the need for new insurance solutions and greater protection for customers’ short, medium, and long-term needs. There is an opportunity for the re/insurance industry as businesses start to reopen and recover from the economic and societal impacts.

A new report, developed in collaboration with Lloyd’s Global and UK Advisory Committees, has set out a number of ways the global insurance industry could remove complexity and provide enhanced coverage clarity for their customers.

The report states three important recommendations that the industry should implement to respond to the challenges that COVID-19 has presented.

Firstly, it asks the industry to leverage and build on the application of existing leading practice, including a linguistics review of customer documentation - for both simple and more complex products.

It has recommended re/insurers to invest in continuous product design and delivery innovations, including data-led policies and digital contracts, as well as exploring more radical options like parametric or outcome-based insurance.

And finally, the report urged insurers to involve customers directly in product design to build simpler, more relevant products for their changing needs and post-pandemic risk profiles.

Lloyd's stated that it is taking "affirmative action", which includes reviewing how products are developed, designed and distributed, as well as reaching out to trading partners, risk managers and customers, so it can proactively implement changes across its global marketplace to enhance customer outcomes and more effectively meet their needs.

The report also looks at the steps the insurance industry and regulators have already taken towards addressing issues around insurance product complexity and clarity of coverage, including regulation, guidance and codes of conduct.

John Neal, chief executive of Lloyd’s, said: “As many businesses around the world evolve to withstand the continued impacts of the COVID-19 pandemic, including radically changing their business models, the insurance industry must urgently reassess how it can better serve and support its customers. While the societal and economic impacts of the pandemic are of a scale that has never before been experienced, it has reinforced the global industry imperative to accelerate its efforts to build simpler insurance products that are more easily understood by its customers.”

Flora Hamilton, director of financial services, CBI, added: “In a fast moving, changing market this welcome report from Lloyd’s highlights the importance of simplicity in a complex world. The CBI welcomes the focus on innovation and collaboration, this will be needed more than ever as we build back better from the pandemic. We hope this outcomes-based approach influences wider debates about resilience in the UK economy.”