14 minute read 17 Jun 2020
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COVID-19: How insurers can meet the evolving needs of their customers

Benedict Reid

Ernst & Young LLP UK Partner and Specialty Insurance Leader

Advisor to the specialty insurance market. Focused on its modernization and growth. Passionate about developing inclusive & innovative culture. Married with two kids.

Mark Forman

Director, Life & Pensions, Financial Services, Ernst & Young LLP

Distribution and product strategist. A specialist problem solver and solution provider. Passionate about financial planning.

14 minute read 17 Jun 2020

To support recovery and generate new business coming out of the crisis, the industry must focus on customers, products and distribution.

As the COVID-19 pandemic has played out, insurers have rightly focused on the needs of their policyholders, intermediaries and employees. There are financial and operational implications to the customer-focused actions insurers have taken, which senior leaders must consider as they begin to think about the long-term outlook. Indeed, the most material risk may be that in mitigating the immediate-term impacts, they miss out on the considerable long-term opportunities the pandemic may present.

While thinking about long-term growth and new business flows may seem premature a few months into a situation that could have implications for many years, insurers must pivot toward product development and distribution strategies if they are to meet changing customer needs. Customer centricity, with a supporting focus on distribution and products, holds the key to future success. This becomes even more important in an environment where insurers increasingly face smaller InsurTech startups and tech giants while fighting for the customer interface.

The industry’s purpose – protecting individuals and families, businesses and communities – is also critical. In demonstrating their commitment to supporting a full economic recovery, insurers can be seen as living up to their purpose. Given the industry’s critical role in underwriting risks, providing protection and supporting savings and investment, insurers’ responses are being closely observed by regulators, the press and the general public. Specifically, they are watching how insurers treat their customers and intermediaries (including brokers and agents) during the crisis. “Doing the right thing” is the measure by which insurers are being judged. Those that do so now stand to benefit from increased loyalty and stronger brand value in the months and years to come.

But to take advantage of those positive sentiments, they will need to develop new products, enhance distribution channels and launch new business models to meet new customer needs. We therefore believe the strongest firms to emerge from the crisis will be those that:

  • Recognized, and acted early on, the impacts of COVID-19
  • Demonstrated a clear, customer-centric purpose 
  • Moved decisively to seize the unique opportunities it presented

This article will present a range of recommended actions for insurers in different lines of business – retail, life and pensions, and specialty and commercial. It will also examine the impacts and opportunities for brokers and other intermediaries.

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Chapter 1

The impact on retail lines

As digital adoption accelerates, insurers should be ready to manage long-term reputational risks.

Insurers are rightly prioritizing the needs of existing customers and the impacts on live policies. Those efforts include lifting exclusions for certain policies (e.g., unoccupied properties), easing restrictions and offering flexibility relative to policy changes, cancellations and fees. They’re also relaxing conditions for breach of policy terms [e.g., MOT (Ministry of Transport) requirements].

For retail insurers, the focus on customers has a direct link to market and competitive positioning. However, the reputational risks are potentially severe for insurers that can’t or don’t demonstrate visible support for customers who are struggling. If the public doesn’t see retail insurers making such efforts, this could result in long-term brand damage.

Business interruption (BI) and pandemic exclusions have generated many headlines (mostly negative for the industry) about how they affect small- and medium-sized businesses. Regulators are getting involved too, with the Financial Conduct Authority asking for insurer involvement in the high court test case relating to BI policy wordings. They have announced a set of temporary measures to assist insurance customers who are suffering financial difficulties because of the COVID-19 situation. Small commercial lines will be a top priority for insurers, though they must aim to achieve (and document) fair outcomes for all their customers, no matter how long the crisis persists.

Looking ahead, insurers will also face an uphill battle related to policy renewals, many more of which are likely to be handled online. Small businesses damaged by the COVID-19 situation may choose not to insure and will likely question the need for ancillary policies. Personal lines are likely to see an increase in churn as well, with customers looking to reduce household expenses. New pricing and payment plans are already in place for policyholders whose incomes have been affected. Some insurers are also deferring many renewal and policy end dates. Others may follow the lead of some US insurers by extending premium holidays or offering premium discounts as a further incentive to renew.

The economic impact will spark demand for new types of policies and services, as businesses seek to become more agile, digital and resilient. The transition to online and digital channels will only accelerate. For instance, more brokers will offer online quoting and purchasing capabilities. Questions related to COVID-19 symptoms will be added to the underwriting process for certain policy types. Insurers must anticipate this digital shift and align their own digital capabilities to meet these needs.

A rise in startups and micro-startups is to be expected, as furloughed and unemployed workers try to start over. These new businesses will be looking for new policy options tailored to their specific needs. Thus, it is expected that more insurers will launch subscription-style products, offering a modular array of features and more flexibility to add and delete coverages as risks change and businesses evolve, which will also support the needs of the growing gig economy sector. Demand for business interruption and cyber security policies is likely to rise, thanks partly to the dramatic increase in remote working and lessons learned from previous exclusions.

Looking at their risks, insurers must develop a joint approach with their intermediary partners to develop new products and upgrade their value propositions. They must continue to invest in more robust online and digital capabilities, aligned with intermediaries needs, starting with smarter, faster and easier claims procedures that eliminate unnecessary contact.

  • Recommended actions for retail and property and casualty (P&C) insurers

    • Communicate clearly to policyholders how the COVID-19 pandemic will affect their policies and what adjustments or options they are offering; seize the opportunity to engage meaningfully with customers and build strong, trust-based relationships
    • Design and launch a support package for partners and start to co-develop new propositions for customers’ post-pandemic needs, such as supporting the gig economy
    • Seek greater online connectivity with customers and intermediaries, through more robust systems, streamlined processes and more digital services
    • Engage with other industry players and regulators around possible “pandemic reinsurance” arrangements, such as those for flood and terrorism insurance in the US
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Chapter 2

The impact on life insurers and pensions

Life insurers must respond to changes in customer behavior and rising demand for real-time support.

Beyond immediate impacts on protection products, life insurers must be ready for changes in customer behavior pushing increased demand for real-time support across all their distribution channels via digital solutions and call centers. This pressure will further accelerate the trend toward automation across the value chain. An increase in income protection claims is likely due to the large numbers out of work, though the methodology for validating symptoms and authenticating them remains unclear given that in-person medical examinations are not currently feasible. On a more positive note, the current challenges with face-to-face contact has seen the move toward providers accepting electronic signatures gathering momentum, and an industry standard for this should be agreed shortly.

From a life underwriting perspective, some free cover limits have increased, and GP practices have adopted email to send reports through. There have been examples of self-service kits being sent out to clients with blood and saliva tests for measurements, and these efficiencies are likely to remain in place post crisis. Clearly there will be a small number of cases where an examination is required that have not been possible to underwrite yet.

Many people will likely consider deferring retirement as pension pots decrease to a point where their income targets would not be met. For those already in retirement, drawdown strategies are being tested against real market drops; the success, or failure, of these tests will lead to meaningful discussions between client and advisor. The weakened stock market could see advisors recommending clients to increase contributions to their pensions to defray losses and maximize any buying opportunities while asset prices remain low.

Smaller distributors may be at risk of failure if prolonged disruption sees clients lapsing policies they can no longer afford, triggering providers to claw back commissions, hitting the distributor hard at a point when income is low or none-existent. This could lead to a rump of orphaned clients falling to the provider to maintain.

Advice and onboarding are likely to become further automated to facilitate greater client access whilst protecting provider margins. Finally, there will be a push to develop truly automated financial planning, making the complete product suite accessible to as wide an audience as possible.

The transformation of the life insurance sector will only increase in scope and pace as a result of the COVID-19 pandemic. There is clear opportunity for insurers as the value of life coverage in general and income protection become clearer to customers in the post-pandemic world. Demand looks very likely to increase.

  • Recommended actions for life and pensions providers

    • Ensuring the product suite is reviewed and re-designed to fit the new normal
    • Enabling digital self-service for all channels
    • Communicating with pension clients on a bespoke basis to offer support and counsel against panic selling and other adverse outcomes
    • Automating and “robotizing” onboarding and servicing as far as possible to help ensure that the broadest possible range of clients have maximum access to as wide a range of protection and savings products
(Chapter breaker)

Chapter 3

The impact on specialty and commercial insurers

The global and intermediated nature of the specialty market requires a joint approach.

Specialty insurers face a daunting range of immediate challenges resulting from the COVID-19 pandemic. Considerable losses in specific classes (e.g., entertainment, trade credit and directors’ and officers’ liability) have led to immediate capacity constraints and new terms. There are inconsistent approaches to customer support across countries and between organizations. All these issues require a joint approach among trading partners and market participants.

Significant increases in queries across the value chain are exacerbating inconsistencies and leading to bureaucratic hurdles. There is demand for policy extensions for certain coverage (e.g., training and medical-certification deadlines for insured pilots) and renewal extensions. Increasing tensions across the value chain threaten to do long-term damage to trading relationships. Widespread use of new trading protocols to replace business-as-usual processes may create substantial administrative backlogs.

The impact on renewals is also significant. Distinct planning requirements are crucial for major renewal dates. Pricing and terms may change substantially for specific classes in direct and reinsurance. This will increase the complexity of negotiations and reduce the likelihood of renewal. Some classes and carriers may likewise be unavailable for renewal, sparking the need for future remarketing. Still, retention rates are likely to increase significantly compared to new business. Renewals into captives, rather than on the open market, have the potential to increase.

Pandemic coverage is likely to become a requirement for customers and governments, with higher sub-limits likely. Government-backed initiatives could build momentum and support pandemic coverages and capacity in constrained classes. However, an economic downturn could reduce demand as some industries or segments shrink. New coverage is now required for risks such as cyber where the customer base has widened, and the risks have evolved – this potential should be addressed by insurers with corresponding and innovative products. Intermediated distribution models may also change if recent increases in electronic trading become standard operating procedures.

Regarding distribution risks, insurers must be ready to provide evidence and rationale for denial of business interruption claims, as regulators look increasingly likely to require such documentation. The ongoing threat of regulatory or government action to force payment of business interruption claims looms large. Intermediaries and carriers moving to primarily digital models for specialty lines should plan to double down on their efforts. Accelerating commission payments to distribution partners to ease liquidity concerns is another important step but will not eliminate the risk of widespread financial failure among intermediaries.

  • Recommended actions for specialty and commercial insurers

    • Develop joint teams with intermediaries and carriers in order to plan and execute virtual renewals
    • Establish a dedicated team focused on customer support actions, including assessing operational implications and variations by territory
    • Identify and pursue new business opportunities and options to develop new products (e.g., those that provide more coverage for digital companies and intangible assets)
    • Plan responses to potential regulatory shifts and rules that may have disproportionate impacts on specialty lines (e.g., government requirements to pay business interruption claims)


What insurers should do now, next and beyond to meet customers’ evolving needs

Doing the right thing for customers during the crisis will be good for insurers in the long run. The same is true for investments in new product development, new distribution channels and streamlined processes. Insurers of all types can – and should – take the following actions now (the immediate term), next (the coming months) and beyond (for the longer term) to help themselves emerge from the crisis stronger.

Now: protect business continuity, customer experience, risk management and controls

  • Establish dedicated teams to develop action strategies for impacted customers and distributors, ​ensuring capacity to respond quickly to customer inquiries
  • Implement revised customer support actions, including product terms and premium holidays​
  • Ensure that conduct risk and appropriateness controls are in place​ across the business
  • Assess the long-term health and wealth of the company to protect employees, customers and distributors – and make difficult decisions and adjustments if necessary
  • Reboot new business flows through enhanced digital offerings
  • Engage with regulators and government authorities to demonstrate leadership in facilitating economic recovery
  • Consider accelerating commission payments to ease liquidity concerns among distribution partners
  • Plan to collaborate with intermediaries on “virtual renewals”

Next: enhance new product revenues and optimize pricing

  • Develop new products to reflect customers’ needs during and coming out of the crisis​
  • Revisit pricing to reflect new demand and changes in customer preferences and behavior
  • Operationalize and execute customer support capabilities​, for example setting up new teams to focus on these actions
  • Rapidly prototype post-COVID-19 customer journeys to integrate with those of distribution partners​
  • Develop direct-to-consumer ​channels and other distribution options that the crisis has always made necessary and think about smart omni-channel concepts while smoothly integrating data in order to get a 360 view on the customer 
  • Seek opportunities to create joint technology solutions with intermediaries to lower costs and increase resilience but also to enhance exclusive access to certain target customer groups

Beyond: seek new revenues, reduce distribution costs and explore new business models

  • Reach out proactively to identify unmet customer and intermediary needs
  • Run scenario planning sessions to identify and address post-crisis customer needs and behaviors and derive a solid view on the required internal capabilities
  • Redefine the insurance renewal cycle, perhaps moving away from annual schedules
  • Continue to expand service offerings and enhance products for the post-COVID-19 era while redefining purpose and positioning to stay ahead of competitors and new market entrants
  • Explore the implications of horizontal and vertical integration including smart ideas to build out selected ecosystems or participate in relevant ecosystems as insurance partner
  • Continue to engage with governments and regulators to deliver post-crisis changes to industry
  • Expand new distribution channels and technology support for distributors
  • Embrace robotics and automation to enhance and streamline key processes 

Meeting the moment by focusing on customers, products and distribution

Before COVID-19, insurers were already faced with rising customer expectations, a clear need for new products and profound shifts in distribution strategies. The pandemic has reinforced and accelerated the need for proactive change in these areas. An enormous amount of change will happen in the coming months, as well as the next few years.

As the circumstances change and new issues inevitably emerge, the industry must be ready to think creatively and act nimbly. By focusing its action plans on its customers, products and distribution networks, insurers can facilitate broad-based economic recovery and help promote their future success. 

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Insurers’ customers, products and distribution networks may be fundamentally changed by COVID-19. A proactive response to support customers and facilitate wider economic recovery is essential for the industry’s ongoing vitality.

About this article

Benedict Reid

Ernst & Young LLP UK Partner and Specialty Insurance Leader

Advisor to the specialty insurance market. Focused on its modernization and growth. Passionate about developing inclusive & innovative culture. Married with two kids.

Mark Forman

Director, Life & Pensions, Financial Services, Ernst & Young LLP

Distribution and product strategist. A specialist problem solver and solution provider. Passionate about financial planning.