The demand for UK motor insurance companies to follow the lead of their counterparts in the United States and offer drivers refunds on their motor insurance premiums during the coronavirus (COVID-19) lockdown has been growing in recent weeks. Only last week a group of lawmakers said that, due to the reported drop in claims of almost 50% during the lockdown, British motor insurers should repay all or some of their premiums.
In the UK, the major insurance firm Admiral led the charge among auto insurers when it comes to offering premium refunds, and will return £110 million to its motor customers. Discussing this decision, CEO of Admiral Cristina Nestares, outlined how the decision was made due to the reduction in claims seen by the company and that each customer insured by the company would receive an automatic £25 refund per vehicle.
The question, however, as to why more UK insurers are not yet following the example set by US companies can be attributed to several factors, according to James Hillon (pictured), insurance director at KPMG. One reason is that the US has moved more swiftly to embrace telematic products and these policies are capable of monitoring how customers are driving, and how many miles they are driving in real time. That instant feedback into how behaviours have changed means that it may be seen as more appropriate to quickly award refunds.
“My sense from talking to the UK insurers,” Hillon said, “is that this is a topic that they are very actively considering and that they are also mindful of the need to be prudent and cautious. Many insurers are cancelling dividend payments to shareholders, given the need to maintain financial stability. Against that backdrop, it’s appropriate that people pause for breath before acting too quickly on steps like this.”
This is not necessarily insurers sitting on their hands or not wanting to do things, Hillon said, but is more about making sure they work through this critical time in the right way. It can be easy to get things wrong, and refunding customers their premiums is a very complex topic with a lot of associated practical execution challenges. The approach taken by Admiral of simply giving the same rebate back to every customer is notable but, for other insurers, a different approach may need to be considered.
Hillon believes that insurers are genuinely looking to do the right thing in these extremely unusual circumstances and that most insurers are looking at how to financially assist their customers during the pandemic, whether this is through premium discounts or alternative means. Many insurers are seeking to be as flexible as possible in order to accommodate their customers in a variety of ways. In the same way that some mortgage companies are offering payment holidays, so too are some insurers offering customers facing financial hardship the option of deferring premiums payments, or waiving administrative fees when a customer’s circumstances have changed due to them being furloughed or having to work from home.
A spokesperson from Direct Line Group (DLG) detailed how the organisation is allowing customers to be refunded under certain conditions if they wish to update their mileage as being substantially lower than originally estimated at the start of their annual policy. Also, depending on the circumstances of the customer, the business will support them, often through a deferred payment system, or through a tailored range of supports.
DLG’s spokesperson said: “We encourage customers to call us to discuss their financial situation and not to cancel payments through their direct debits, as this may have an adverse impact on their policy with us and potential future credit score.”
For LV=, the challenge of the pandemic has been a serious consideration and the business is working with customers facing financial hardship across the UK under several initiatives designed to ease this burden. These include helping customers reduce their premiums by temporarily changing the cover they possess by reducing mileage or changing their cover to fire and theft where the car will not be used at all.
“For those hit the hardest,” a spokesperson for LV= told Insurance Business, “we’re also not charging for admin or cancellations and waiving excesses on claims, as well as offering free enhancements to cover for customers who are NHS and key workers.”
For Aviva, supporting its customers during this time has involved the launch of a package of measures including allowing customers who are driving significantly less to review their annual mileage and providing up to three months of payment deferrals for those experiencing severe financial hardship as a result of coronavirus.
“We’re also seeing examples of insurers stepping up and doing the right thing in terms of supporting the NHS and even making donations to the NHS directly,” Hillon said. “There is clearly an opportunity for companies to demonstrate what a force for good insurance can be. The industry does have to be very mindful of doing the right thing and… think very carefully about any potential impact on reputation.”
The work insurance companies throughout the UK are doing to support their wider communities has really come to the fore during the coronavirus outbreak, with every day seemingly bringing news of a new initiative launched by an insurance company to support the NHS, its local community, or its vulnerable customers. For Aviva, this has included free breakdown assistance for NHS workers, and enhanced home and motor insurance for NHS workers that are Aviva customers, as well as a donation of £15 million to NHS Charities Together and the British Red Cross to support those on the front line.
Both AXA and By Miles are also doing their bit to support key NHS workers and volunteers by automatically upgrading their cover to include using their cars to transport patients or for delivering food or medicine. Admiral has pledged an additional £80 million on top of the rebates offered to its customers to reducing prices and supporting customers, NHS staff and the local community. Among several other campaigns LV= has launched Green Heart Difference whereby its people can support local communities by becoming a pen-friend with people in local care homes, and given the Royal College of Nurses a donation of £85,000 as one of its key partners.
“These measures are less about the financial hardship dimension, and more about making sure that businesses are doing the right thing to support the challenges the UK is facing. Ultimately this is about being flexible and sympathetic to customers,” Hillson said. “And hopefully there will be an opportunity to look back on these challenges and see that, from a customer perspective, there were some really good things driven out of adversity.”
