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Jul 2020

Is insurance art or science?

Source: Asia Insurance Review | Jun 2020

There are plenty of instances of bizarre and arcane laws that are still (technically) in force in some parts of the world – particularly the UK where many of the world’s legal systems have their roots. 
 
As an example, it is still a criminal offence to beat a carpet before 8am in London - according to section 60, subsection 3 of the Metropolitan Police Act of 1854.
 
In reality, laws are changed and adapted to suit developments and changes in society. It’s one of the things that lawmakers do – although sometimes they are less good at revoking old laws that are no longer relevant.
 
Insurance cover should be equally flexible and should be changed and adapted to suit developments and changes in society too. Since the current pandemic offers the perfect environment to review how we live and go about our business – it might also offer the perfect environment to review the scope of insurance policies and how these policies are applied.
 
This will involve buy-in from insurance lawyers as well as underwriters and actuaries – proving that insurance is very much an art and not a science – since it is as much about the blending of important components as it is about the nature of the components themselves.
 
Work from home alone presents a whole new universe of problems - and opportunities - for which insurers may need to tackle and design products.
 
Imagine, for instance, that the CEO of a large company is working from home and is on a conference call with his team in disparate geographies. He is pacing his living room during the call (to get his steps up, of course) and fails to see a loose rug and falls and breaks his hip and is hospitalised for months.
 
He also knocks his kid’s laptop and ‘phone off the kitchen table on the way down – rendering both useless.
 
How much of this is covered by the insurance provided by his employer?
 
Or what about the head of marketing of a medium-sized toy manufacturer. She is working from home and is at her wit’s end because her kids are playing up for the fifth day in a row because they are missing school and their friends. In a fit of pique she posts an ironic tweet about ‘horrible children’. The tweet is picked and shared widely and the share price of the toy manufacturer tanks.
 
Is she covered? Is the firm covered?
 
Or what about the deputy editor of a magazine working from home (as many good journalists are at present) but he is using his own laptop because lockdown came on so quickly that he couldn’t go back to the office to pick up his work machine. He has insufficient anti-virus protection on his laptop – gets a virus and his personal laptop becomes a brick. All other devices on his home network are also compromised.
 
What kind of cover would be most appropriate for these kinds of scenarios? The longer we consider the potential liabilities the more we see that working from home could be a real game-changer for insurers around the world.
 
The reality is that COVID-19 may be extreme, but is not unique in shifting the patterns we follow in our everyday lives. These changes happen all the time. 
 
The difference is that the changes we are seeing now are sudden and massive – and in some cases, underwriters have not yet had time to react and devise new products. Yet.
 
But that’s what the industry does: Interprets what cover is required, estimates the risk, prices it and sells cover. Insurers don’t do this alone, of course, and many wise reinsurers try to make themselves indispensable by providing intellectual input into the whole process.
 
There is undoubtedly science involved in the whole alchemical process of new insurance products but the packaging, the marketing, the singularity of vision are pure art. A 
 
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