The road to recovery for insurers has been saved
The road to recovery for insurers
Conduct, the Royal Commission, bushfires, COVID-19: Meeting community expectations in a time of disruption
Even before the critical regulatory reforms post the Hayne Royal Commission into Misconduct, the insurance industry was grappling with meeting changed community expectations. Then the 1:100-year bushfires shocked both the nation and the industry over the 2019-2020 summer. As we were working through that catastrophe, COVID-19 hit our shores placing the industry firmly in its sights.
Unquestionably, the pandemic drastically impacted insurers as they immediately responded to the needs of customers and shifted priorities and operations in innovative ways to meet the evolving health and economic crisis. As a first responder, the insurance industry, along with the financial industry, needs to act as an ‘ICU’ and help financially support customers throughout this very challenging pandemic.
The Federal Government and Australian Securities Investment Commission (ASIC) provided some relief to the outstanding and imminent regulatory reforms. ASIC also set out its expectations for insurers’ responses to the COVID-19 pandemic in letters addressed to the directors of general and life insurance companies. The letters specified the regulator’s expectations for ‘insurers to handle insurance claims with utmost good faith and to deal with complaints genuinely, promptly, fairly and consistently’.
Preparing for the wave of insurance regulatory changes
On the matter of the changes to the implementation of the Hayne Royal Commission recommendations and other financial service legislation, the Government updated its timetable as a result of COVID-19. It will now introduce some measures associated with the commitments of the Hayne Royal Commission into Parliament by December 2020, instead of 30 June 2020. Additionally, the measures originally scheduled for December 2020 have now been deferred to June 2021. Overall, this is a six-month deferral for the industry to implement some of the regulatory reforms.
Introducing a phased six-month transition period will assist the insurance industry manage the increased challenges from COVID-19 including potential impairment of assets, changes to claim volumes and complexity, supporting customers and managing business operations in a virtual environment.
Importantly this includes supporting vulnerable customers with the provisions of the General Insurance Code of Practice (Code) having been brought forward.
The deferrals on the legislative changes provide an opportunity to re-visit and revise regulatory strategies and re-develop road maps to assist with more effective prioritisation and implementation. However, the deferrals do not provide ample time for insurers to pause their overall regulatory change programs, given the extensive regulatory changes that will require alterations to insurance operations to improve conduct outcomes.
Over the longer term, the regulatory focus is to strengthen insurers’ accountability as a key step in restoring trust in the industry. ‘Fair and suitable’ customer outcomes are a core priority for regulators. In addition, they will focus on ensuring organisations’ processes and controls allow claims and complaints to be dealt with in ‘good faith’, ‘genuinely, promptly, fairly and consistently’. This includes the design of products, distribution and claims. Moreover, many of the insurance regulatory changes interact across the insurance value chain.
The road to recovery focus
As Australia appears to have successfully flattened the first COVID-19 curve, insurers are considering how best to navigate in a post-COVID world. They need to manoeuvre through the economic crisis to support and recover as well as find ways to thrive beyond the pandemic.
To assist to navigate the road to recovery in a pragmatic and balanced way, it will be useful to outline what the ‘next normal’ could mean for insurers, and how to achieve real value creation for the industry’s stakeholders.
Meeting conduct expectations through ‘five Cs’
A valuable lens to consider for real value creation in the recovery phase is the one of conduct, and the need to meet the nation’s increasing and constantly evolving conduct expectations.
To help do this we have developed a simple mnemonic to assist insurers consider five ‘Cs’ across the whole value chain as well as a call to action under each of these.
1. Customer: The customer is central to all the ‘Cs’ across the full insurance value chain. Insurers should ask whether they truly understand their customers and their needs. And how to continue remaining flexible within the new and multiplying circumstances to achieve fair and suitable conduct outcomes.
Post the crisis, the need to constantly accommodate customers will remain, and more importantly the need to do so for vulnerable customers will continue to increase. Recovery will create anxiety among customers as the post-COVID world takes shape.
So, monitoring customer interactions, business procedures that support the early identification of customer vulnerability and providing alternate avenues for those experiencing financial hardship due to reduced income, continuing job losses or closed businesses will remain crucial.
Call to action:
- Do you have a view of what good customer experience looks like in the ‘new normal’ and do you have a way to identify the gaps between current and expected experience for your customer interactions?
- Can you define and consistently identify vulnerable customers in your customer interactions?
- Are you consistently ‘living the Code’?
2. Coverage: As customers want to continue to either access or maintain insurance coverage, they may also need to change their cover over the coming months. They will need to have the ability to opt-into coverage so it remains adequate for their changing circumstances which will require insurers to consider what altered policy procedures will need to be transitioned in the recovery phase, as well how best to manage renewals.
Additionally, the longer-term implications of accessing super benefits and longer-term changes in work conditions will also need to be considered in relation to eligibility requirements under the superannuation and associated insurance policies.
Call to action:
- Do you have a view of how your insurance terms, features and benefits will interact with the issues arising from COVID-19? For example, financial hardship, employment, pandemic clauses.
- What changes will you need to make to product coverage and what alternative measures will you need to take?
3. Communication: Some of the rapidly changing measures currently being employed will need to be extended. Ongoing customer communication through the post, online or the phone must be clear, accurate and proactive. Insurers will need to review what measures will need to continue to make customers aware - from highlighting key policy features, offers and their limitations, to pandemic related exclusions and waiting periods.
Call to action:
- How will you manage various methods of communication with customers across the value chain? For example, at policy issuance, renewal and time of claim.
- How will you ensure your communication is clear, fair, transparent and timely?
4. Claims: The industry needs to continue to meet the key principles of efficient, honest and fair handling of claims in line with the duty of ‘utmost good faith’. Insurers need to consider the impact of the current environment on the effectiveness of their claims operations as well as the appropriateness of the claims decisioning. This will include how to best gather claims assessment information both remotely and virtually, how to assess the impact of COVID on customers claiming and how to do all of this timely.
Given the anticipated increase in complexity or volume of claims across, for example, income protection claims, in the life sector, and certain commercial and liability claims in general insurance sector, this is an important challenge for insurers to lean into.
Call to action:
- How will you evidence that you have remained efficient with claims handling, and remain in line with the duty of utmost good faith and the principles of efficient, honest and fair handling?
- How are you supporting claims assessors both with the potential increase in complexity or volume of claims to deliver the correct claim outcome? This include through leveraging technology accelerators or digitisation of processes.
- How are you capturing the voice of the customer as part of the claims assessment process to ensure that you identify any vulnerability and respond accordingly?
5. Complaints: Timely and fair complaint handling by insurers remains critical. The Australian Financial Complaints Authority (AFCA) has activated its significant event response plan following the Insurance Council of Australia’s declaration that COVID-19 is an insurance catastrophe.
The AFCA provided the industry a short extension of seven days, from 21 days to 30 days, for six months which will ease some pressure. It is important for travel insurers to consider whether they are refunding actual value in relation to customer complaints and the industry to gear up for the revisions to ASIC’s regulatory guide on internal and external dispute resolution.
Call to action:
- Are you achieving a balance between quality and timeliness to achieve fair and suitable outcomes, even for COVID-19 related complaints?
- Does your complaints handling function enable capturing, analysis and reporting of complaints?
- How effective is the complaints process to feedback into rest of the insurance value chain, including product creation and distribution processes?
In a post-COVID world there will undoubtedly be structural, behavioural and societal changes. Insurers will need to anticipate and provide appropriate and tailored products and services to meet these changes. As Australians become more cautious and aware about their health and financial safety, insurers have the opportunity to be a further safety net for Australians. To achieve however they must manage regulatory priorities and tight implementation deadlines while, improving customer experience and conduct outcomes across the full insurance value chain. Are insurers up for this challenge? I think they are…