At a time when people and small businesses need coverage the most, insurers are denying coverage. The industry's practice of working-the-fine-print to bury what-is and is-not covered is rearing its ugly head.
Travel insurance customers are being told to “read your insurance policy thoroughly” or to comb through their policies to find a list of reasons for trip cancellations and interruptions covered. Many travelers are also learning the hard way, that when the World Health Organization declared COVID-19 a pandemic, it also meant their travel insurance companies could void coverage and fall back on clauses in policies that exclude cancellations out of concern or fear of travel associated with a pandemic. This goes against the most fundamental rules of meeting customer expectations: to offer products and services that demonstrate an understanding of our customers’ circumstances and what they value as important.
The insurance industry is messing up. Responding to the COVID-19 crisis by sending customers to read the fine-print in their policies and poking holes in coverage with exclusions and clauses are the very thing that has ruined the industry’s reputation for the last 20 years.
Last week, the U.S. House of Representatives subcommittee hearing launched an effort to examine travel insurance practices for Coronavirus related cancellations. The subcommittee has requested that the CEOs of General Global Assistance, Travel Guard Group and Allianz Global Assistance USA produce documents on their products including trip-cancellation insurance and cancel-for-any-reason coverage, expressing concern that by denying reimbursements to consumers who choose to refrain from travel, these companies may worsen the coronavirus pandemic.
The fine print is also leaving small-business and restaurants owners who bought business interruption insurance high-and-dry. There are multiple reports of insurance companies denying business interruption claims from small businesses. Meanwhile, a restaurant chain in Louisiana has filed a lawsuit against underwriters at Lloyd’s, London to pre-empt any attempt by Lloyd’s to deny coverage for business losses arising from measures ordered by the governor to stem the spread of COVID-19.
It all stems from a fundamental business shortfall: insurance companies have failed to create a compelling willingness-to-pay and differentiation for their products and services. This has in turn created a marketplace where they are competing on price. This commodification, where one offering is indistinguishable from a similar one by a competitor, means many insurers have to resort to punching holes in their coverage to stay viable.
The way insurance companies respond to the COVID-19 crisis is indicative of how the industry will meet the biggest challenges going forward: the disappearing retail customer, over-regulation, shrinking product margins, low customer loyalty and public distrust.
Insurers must reassess their revenue and pricing models, and find ways to radically transform the way they deliver products and services to customers. They must take the steps towards becoming a customer-centric organization where they are introducing products that are transparent, easy-to-understand, valued-by-the-customer and above all fair. Research shows, insurance consumers are willing-to-pay a premium for better products and service. They see value and convenience in having one insurance provider. By stepping up to meet customer expectations, insurance companies have an opportunity to compete on value instead of on price.
For now, insurance companies must find ways to accommodate claims arising from the pandemic crisis. This includes offering to pay a percentage of claims that it wouldn’t otherwise like trip cancellations and emergency medical care for customers who fall ill with the coronavirus. They must also step up and do the same when it comes to business-interruption claims for small-business owners and restaurants impacted by COVID-19.
