Consumers will be looking to make savings in any way possible with job losses and wage reductions soaring, and cancelling insurance policies could be one approach they take as circumstances change. Insurers will need to be wary that traditional policies and covers may be less relevant in these unprecedented times.
One area that appears to be most at risk is household contents insurance. The main reason for this is that the majority of people are now working from home, which significantly mitigates the risk of theft. Of course there are other risks, including fire and breakages. But with people inside all day and budgets significantly tightened, many consumers may decide that a break from paying contents insurance is a risk worth taking. The risk of fire propagation is also likely to be reduced as individuals spend more time at home.
GlobalData’s 2019 UK Insurance Consumer Survey found that 22% of renters in the UK did not take out any home insurance because they felt they did not need it. This is already a significant proportion, which is a key reason behind any home insurance penetration rates for renters being low (48.1%, compared to 90.8% for homeowners). However, vastly changing circumstances, leading to a large proportion of UK employees working from home, suggests that contents penetration rates are likely to fall over the near term.
Insurers may want to consider offering a similar deal as banks and their mortgage holidays, allowing customers a break from paying premiums while knowing that this way they can retain them as customers. Yet the circumstances are different, as banks have received significant government funding for this. Otherwise, temporary reductions in rates to allow for the fact that theft-based claims are likely to plummet would also be reasonable.
One solution may be to start offering flexible, on-demand policies, which consumers can switch on and off across various lines. This would allow customers to reduce their outgoings and insurers to retain them as customers. On-demand policies and flexibility have been key trends in the industry recently, largely led by startups, although Aviva Plus is an example of how incumbent insurers can offer flexibility across personal lines products.
Either way, it will be a very tough year ahead for insurers across all lines as consumers and businesses look to cut any cost that isn’t absolutely essential. Insurers may need to be more flexible and innovative to keep customers on board.