COVID-19 – How the insurance industry got the tone wrong
Stephen Breen, Managing Director of Rein4ce, explains how COVID-19 has shown why insurers and reinsurers must make sure public relations and communications are at the heart of their business following the public backlash over the industry’s handling of the Business Interruption controversy.
I took part in a webinar organised by InsuranceERM last week called: “Reputational risk: salvaging the reputation of insurance after COVID-19.” where the thorny issue of the insurance industry’s handling of business interruption (BI) claims was tackled. My sense after participating? The industry hasn’t grasped the enormity of the consumer backlash and the reputational damage it has suffered.
It is not difficult to see – the headlines tell it all:
Daily Telegraph: “Insurers refuse to pay out virus shutdown claims”
Dealing with an insurance company is in many ways like dealing with the police – you only call them when something has gone wrong and when you are feeling vulnerable – and you need them to make it better. That’s why getting the tone right is essential. Rather than being empathetic, it is apparent that far too many insurance companies took a legalistic approach that made them appear in the eyes of their customers – and in the court of public opinion – as being legalistic and trying to dodge their responsibilities.
The letter from the small hotel owner to the Guardian is probably typical of the fury and frustration many customers feel towards their insurer over BI. “After weeks of chasing, we were then informed in a letter full of legal gobbledegook that I don’t understand, that we cannot claim. This is despite the terms of the policy being quite clear.” The Guardian described the letter from the insurer as “a masterpiece in obfuscation”.
The insurance industry has stated that the “vast majority” of BI policies do not cover pandemics. The Financial Conduct Authority (FCA) is taking a test case to court next month to determine whether the wordings of a number of BI policies include or exclude pandemics. The industry is, understandably, anxious to get a determination on the matter and is fearful of the bill it will face if the case goes in favour of consumers.
Regardless of the outcome of the case, the insurance industry, by failing to take a sufficiently empathetic tone at the beginning, has allowed itself to be portrayed as the bad guys – and it has been on the backfoot ever since.
So, what could have been done differently? A fundamental part of the problem lies in the fact that most insurers don’t seem to take public relations and communication seriously enough. How many major insurers have their communications director on the Board? Not many – and certainly not enough from what I can see. One senior London market comms executive told me: “We are not there when decisions are made and are left to clean up the mess afterwards.”
And it is a mess. The Financial Times reported a survey from consultants McKinsey showing that a third of small companies in the UK could stop buying BI as a result of the controversy over whether the policies will pay out for coronavirus losses.
I get the impression that the industry was in a state of shock about the extent of the losses it could face if the majority of BI policies were found to cover coronavirus. In a separate story , the FT said the industry feared that losses for the coronavirus could dwarf the £100 billion Lloyd’s of London is estimating if BI claims are upheld. They appear to have listened to their chief financial officers and actuaries and took defensive steps to contest their potential liabilities without much thought being given to the PR fallout.
Some insurers are offering to pay claims rather than face their clients in court, the FT reported. It said Switzerland’s Helvetia Insurance is offering to pay some food sector clients even though pandemics are excluded from their epidemic insurance policies. It reported that AXA CEO Thomas Buberl is urging dissatisfied customers to negotiate rather than litigate.
If communications teams were consulted at the very highest levels by insurance companies at the start of the crisis – before decisions were made – I am sure the industry response to BI would have been a lot more nuanced and sympathetic.
The insurance industry can be a wonderful force for social good. Countless companies around the world are doing brilliant work to help the economy recover by quickly paying out on policies for event cancellation and travel cancellation and many others too. Thousands of staff are working for charities, millions are donated to COVID recovery pushes, and the industry has made a major contribution to health and social and mental wellbeing initiatives during the crisis.
Unfortunately, all of this great work has been drowned out – in the mainstream media mainly – by the controversy over BI, and the insurance industry has had to rely on its own social media channels to spread this positive news. The BI crisis has not been the industry’s finest hour, but when the dust has settled, it may persuade insurance executives to recognise the vital importance of putting good communications at the heart of the response to any future emergency.