Insurers Told To Simplify Policies Amid COVID-19 Confusion

By Lucia Osborne-Crowley
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Law360, London (October 12, 2020, 12:49 PM BST) -- Lloyd's of London said on Monday that it wants the insurance industry to simplify its products to help consumers navigate their cover after the COVID-19 pandemic exposed flaws in the system.

The specialist market has published a report that sets out ways in which insurance companies around the globe could simplify their products and help consumers understand the often-complex market.

The report comes amid uncertainty about which policies offer cover against losses caused by COVID-19, which has caused significant disquiet among businesses and consumers.

"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," Lloyd's Chief Executive John Neal said.

Neal added that the COVID-19 pandemic "has reinforced the global industry imperative to accelerate its efforts to build simpler insurance products that are more easily understood by its customers."

The report recommends that insurers review all the documentation they provide to buyers about their policies to make sure that policies are easy to understand. It also recommends that insurers and reinsurers make sure they are constantly rethinking products and adapting their design.

Insurance companies should also consider "more radical" options such as parametric insurance — where an insurer agrees before an event or disaster to cover the losses incurred if and when such an event takes place — the report urged.

The report's final recommendation was that policyholders should be involved directly in the process of designing products to make sure their needs are being prioritized.

Lloyd's said it is acting within its organization to simplify insurance, and publishing guidance to help the global industry move forward after COVID-19.

Flora Hamilton, director of financial services at the Confederation of British Industry, a business lobby group, said the guidance is a welcome intervention.

"The CBI welcomes the focus on innovation and collaboration; this will be needed more than ever as we build back better from the pandemic," she said. "We hope this outcomes-based approach influences wider debates about resilience in the U.K. economy."

The insurance industry's response to the COVID-19 crisis has prompted criticism from consumers and businesses.

The finance regulator took insurers to court this year over the question of which policies cover COVID-19 losses. The Financial Conduct Authority's test case on business interruption insurance sought a ruling on whether an estimated 370,000 companies should be able to claim on their policies for the period of the lockdown.

A judgment on Sept. 15 went largely in favor of policyholders.

Many insurers have introduced total exclusions in policies at renewal, denying any cover linked to COVID-19. The Bank of England's Anna Sweeney warned in September of a growing "protection gap" as a result, saying it was increasingly necessary to introduce some form of government backstop to encourage insurers to offer cover to businesses.

The U.K.'s insurance industry is working on establishing a pandemic reinsurer based on a model used by terrorism reinsurer Pool Re, which is funded by insurers but backed by government guarantees.

--Additional reporting by Martin Croucher. Editing by Ed Harris.

For a reprint of this article, please contact reprints@law360.com.

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