The massive marketplace is re-examining the way coverage products are designed due to COVID-19.
Lloyd’s of London has launched a new review of its insurance contracts, taking a new look at the way products are created and sold. The purpose is to develop simpler products in response to the COVID-19 pandemic.
Insurers have suffered considerable reputational damage due to the complexity of their products.
This complexity in insurance contracts has made it difficult for businesses to understand. The result has been a wave of court cases meant to decide whether policyholders are covered for the losses they suffered in pandemic countries such as the United States, the United Kingdom and France. Even before the outcomes of those cases, insurers have experienced notable harm to their reputations.
“The insurance industry must urgently reassess how it can better serve and support its customers,” said John Neal, chief exec at Lloyd’s, in a statement. He explained that it has become critical to build more straightforward insurance products which are easier to understand. The Lloyd’s insurance market involves over 90 syndicate members. It will now review the way coverage products will be developed and designed as well as how they are sold.
As a part of this effort, Lloyd’s published a report in which it recommended greater product simplicity.
The report was published on Monday and included the recommendation for insurance companies to conduct a “linguistics review” of all their policy documents. Furthermore, it suggested an investment into new products, such as parametric insurance, in which insurers issue immediate payouts when certain triggers are hit. Additionally, the report included the suggestion that insurers involve customers in the new design of their coverage products.
A business interruption insurance test case brought by the Financial Conduct Authority (FCA) regulator in the United Kingdom against eight insurance companies – including several with a Lloyd’s presence – is already on its way to appeals courts. The FCA stated that the initial court ruling was primarily in favor of policyholders.
The lawsuit involves insurance contracts expected to impact more than 60 insurers and 370,000 policyholders. The decision will affect billions in claims and will remain in the international spotlight until a final ruling is made.