11 minute read 16 Feb 2021
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How the pandemic has shifted the needs of UK insurance customers

Authors
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.

Tony Sault

EY UK&I Market Leader, General Insurance

Pleased to see his beloved Aston Villa FC back in the top league. Father of two boys. Spends the weekends parenting or careering down hills on his mountain bike.

11 minute read 16 Feb 2021

The EY Insurance Consumer and Small Business Owner Survey reveals how UK insurers can support customers' changing insurance needs.

In brief

  • UK insurance customer behaviors and priorities are evolving as a result of the pandemic.
  • Insurers must adapt their products and distribution methods to remain relevant.
  • Insurers have a unique opportunity to support and provide value to customers.

While the COVID-19 pandemic has financially impacted some parts of business and society more than others, financial anxiety is widespread among insurance consumers and small business owners. What have we learned about how insurers can support customers during this difficult time?

To assess this question, EY Insurance conducted a survey of insurance consumers and small business owners across five global markets (UK, France, Italy, US and Canada) to understand how the pandemic has impacted their lives and affected their insurance preferences for personal lines and life and retirement products.

The survey revealed that three-quarters of UK insurance consumers are concerned about their financial well-being and just over one-half of UK small business owners are concerned about their business’s ability to survive and remain open.

The insurance sector has a clear opportunity to help customers navigate this new environment and restore their financial well-being. Their role entails developing solutions that meet evolving needs, supporting customers by providing a “cushion” to protect against future financial risks as well as harnessing the trend toward digital channels.

Emerging concerns and needs of UK consumers

Our UK survey found that consumers’ fears can be directly linked to the financial impacts of the pandemic, such as concern over financial well-being and fear of losing income. Changes brought about because of the pandemic are also causing a concern for some, especially those most financially impacted by the pandemic (see methodology) . This group’s top concerns were cyber fraud and coverage for home-based accidents, given increased time spent living and working at home, as well as paying insurance for a vehicle they are driving less.

UK consumer concerns

41%

of those most financially impacted are concerned about cyber fraud.

These fears are also influencing potential future behaviors. One-third of personal lines consumers stated they would place greater emphasis on planning for the future, stating they will save more and pay off debts to ensure they are in better shape for future negative life events.

Who’s who: the most and least financially impacted consumers

Consumers most impacted by the pandemic are typically younger, more likely to be renters and have an annual household income of less than US$55,000. The majority have experienced some form of financial impact: either a loss of income, loss of regular work or, in some cases, loss of income from their own businesses.

This has meant eight in ten of those most impacted have felt the need to dip into their savings to make ends meet. Six in ten have missed at least one bill payment and one-half have had to set up a payment holiday on either loan or mortgage repayment. The considerable impact on these insurance customers must be considered in the sector’s response by acknowledging the reality of extensive financial hardship.

Many of those we identified as the most impacted could also fall into the Financial Conduct Authority’s (FCA) category of vulnerable customers, as defined in its guidance for firms on the fair treatment of vulnerable customers (pdf). To adhere to this guidance, insurers must respond appropriately to any customer concerns about meeting premium payments.

Admiral Insurance Group took a step ahead of other UK insurers early in 2020 when it provided a US$34 refund to all motor policyholders to reflect lower use of motor vehicles during the first lockdown. As the pandemic drags on into 2021, other insurers are offering premium deferrals to help customers who are experiencing financial hardship. In doing so, they will be in line with FCA guidelines and can strengthen their reputation among consumers.

Are your insurance solutions in tune with new consumer needs?

EY’s Global Insurance Consumer Survey reveals how insurers can support the needs of those impacted by the COVID-19 pandemic.

Learn more

Consumers’ insurance product appetite

Our survey reveals a clear appetite for insurance products that indemnify against existing and newly emerging risks. This is greatest among those most affected economically by the pandemic but is not exclusive to them. The pandemic may prove to be a catalyst for underinsured and non-insured consumers to review their financial risks and take action.

Future appetite for insurance products can be divided into two different categories:

  1. Usage-based insurance – This can take the form of lower vehicle usage (a policy in which a subscription fee is paid, plus a premium based on number of miles driven) or increased time at home.
  2. Lower cost products – With the focus for many on financial wellbeing and the impending recession, there are also opportunities for insurers to bring down the cost of insurance, with offers to exchange personal data for lower premiums or provide a discount in exchange for installing smart sensors in homes and sharing real-time data.

The environmental, social and governance (ESG) agenda

Our survey revealed that, despite their personal financial situations, consumers show preferences for products and services that meet sustainable criteria. Nearly one-third of the respondents in our survey state they are very likely to choose an insurer that shows a commitment towards sustainability. However, the challenge to insurers is that overall familiarity with ESG is still low in the UK. Only 18% of respondents were familiar with the concept, and the majority of those who were would not pay a premium for it. The industry response must therefore educate consumers around ESG and ensure initiatives are sufficiently tangible for consumers to acknowledge the commitment.

UK consumer ESG-interest

1/3

of respondents are very likely to choose an insurer that shows a commitment towards sustainability.

How can insurance protect the small businesses that need it most?

EY’s Global Insurance Small Business Owner Survey reveals how insurers can innovate to support the needs of those impacted by the COVID-19 pandemic.

Learn more

How the pandemic has impacted small business owners

Small businesses in the UK have faced unprecedented and unanticipated risks as a result of COVID-19, with the pandemic acting as a stress test to their financial resilience. Some of the hardest hit businesses are those that are customer facing, including the hospitality, travel and retail sectors.

The most impacted small businesses in our survey (see methodology) claim to have lost a staggering 30% or more of their annual revenue as a result of the pandemic and are more likely to be younger entrepreneurs with business revenues of less than US$275,000 per year. These businesses are first and foremost concerned with survival, expressed as both being able to stay open (66%), as well as coping with the loss of revenue they have experienced (68%).  

In addition, now that the UK Supreme Court has ruled that business interruption losses resulting from the COVID-19 pandemic are recoverable under a variety of insurance policies, financial loss will be reduced for some small business owners. In our survey, 44% of small business owners have had to partially shut down their operations, which will have an impact on insurance volumes.

Small business owners’ interest in insurance solutions

When asked about their immediate post-pandemic priorities, responses were similar to the insurance consumers surveyed, with the majority saying they are likely to plan against any future crisis through opening a savings plan and paying off debts. However, the intention to consider insurance coverage is less widespread: just 21% said they plan to speak with a financial adviser, 18% claimed they would purchase new insurance products to indemnify them against future risks and 15% claimed they would increase the cover on existing policies.

As a result of their experiences, small business owners are showing interest for policies that compensate for loss of business income. Half of respondents (51%) said they are interested in an insurance product that pays three months of expenses if their business is forced to close due to the pandemic, while 44% said they are very interested in an insurance product that covers them against liability incurred from employees or customers catching a pandemic disease in their place of business.

UK small business owner product preferences

44%

of respondents are very interested in an insurance product that covers them against liability incurred from employees or customers catching a pandemic disease in their place of business.

The way forward for insurers

The pandemic environment presents critical opportunities for insurers to reengage with customers and support them in a time of need. The challenge for insurers is to provide truly customer-centric products and solutions that are tailored to evolving customer needs and budgets. Products must also be delivered through channels that reflect the switch to digital.

The needs of customers are changing significantly in the context of this pandemic and are unlikely to return to pre-pandemic marketplace demands. This is a critical time for insurers to develop innovative products that help to protect against future uncertainty, while restoring customers’ financial well-being.

The pandemic speaks to the very purpose of insurance: protecting individuals, families, businesses and communities against disasters and unforeseen events. Insurers must be bold and dynamic in living their purpose and demonstrating tangible value from their products and solutions. We believe those insurers who commit to strategic change during and after a crisis will emerge as winners.

Special thanks to EY’s Katie Merelie and Emily Baylis for their contributions to this article

  • Methodology

    In late 2020, EY Insurance and EY QUEST surveyed over 2,700 consumers and 1,200 small business owners throughout North America and Europe. The objective was to gather insights about how the COVID-19 pandemic has impacted their lives and insurance needs.

    To better understand their concerns and preferences, we grouped our population of survey respondents into three segments based on the degree to which they were financially impacted: upper third (most financially impacted), middle third and lowest third (least financially impacted).

    Financial impact was measured by a composite scaled score made from seven sub-questions about matters related to financial security, lost wages and reduced employment hours. There is a sizeable difference between the mean amount of impact reported between the most and least impacted groups.

Summary

The financial distress the pandemic has caused will be felt by many UK consumers and small businesses for years to come. Insurers have an opportunity to develop new products and solutions that can help restore customers’ financial well-being and security.

About this article

Authors
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.

Tony Sault

EY UK&I Market Leader, General Insurance

Pleased to see his beloved Aston Villa FC back in the top league. Father of two boys. Spends the weekends parenting or careering down hills on his mountain bike.