The insurance industry response to COVID-19

Sharing risk to create a braver world

Building simpler
insurance products
to better protect
customers

Lloyd’s. Building simpler insurance products to better protect customers

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Contents
Foreword 	

03

1. Overview 	06

2. The drivers of complexity and benefits of simplification 09
3. Existing leading practice 13
4. Insurance design innovations 

19

5. Recommendations 24
6. Taking action in the Lloyd’s market 

27Appendix 1: Worked example of simplification levers applied in cyber

31

Appendix 2: How simplification levers could be applied to businessinterruption parametric and outcome-based products 	36

The insurance response to COVID-19

Lloyd’s. Building simpler insurance products to better protect customers

Foreword
The ongoing catastrophic societal and economic impact of the
COVID-19 pandemic continues to demonstrate the significant
challenges ahead, as governments around the world grapple
with the consequences of this devastating health crisis.
While the global insurance industry’s response and recovery
efforts continue to expand through claims payments, charitable
donations, and product innovation, there have been distinct
complications that have arisen from pandemic insurance coverage
uncertainty and resulting court disputes between insurers andtheir customers.
Although insurers have been actively exploring ways inwhich they can remove complexity and improve clarity, thesecomplications have highlighted an urgent need for the
global insurance industry to accelerate and further extend
its efforts to simplify products and promote greater
understanding of the cover it is providing to its customers.
Product complexity is an enduring challenge faced by the
global insurance industry and its customers – from multi-national
corporations, through to entrepreneurs and small businessowners; as insurance products have evolved over time, they
have become more complex in their design and the way inwhich they are delivered to customers.
This complexity can lead to a lack of customer engagementwith the product they are purchasing, alongside a coverage
expectation gap between the insured, and the insurer.
This is a result of a number of influencing and interdependent
factors which are described in this report and that remain front ofmind for the industry as it continues to improve the way it protects
and supports its customers, including through leading practiceand product innovation.
This report has been published to support the global insurance
industry’s efforts to better serve its customers through simpler
products that promote enhanced understanding of coverages.
It provides three important recommendations that the industry
should implement to respond to the challenges that COVID-19 haspresented, together with several actions that the Lloyd’s market
will itself deliver to improve the way in which it provides products
and support to its customers.

The insurance response to COVID-19

03

Lloyd’s. Building simpler insurance products to better protect customers

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Foreword
While product complexity presents a challenge for all customers,
small to medium-sized businesses, who often lack access torisk mitigation advice, are particularly impacted where there iscoverage uncertainty. For this reason, the report focuses firston how the industry and Lloyd’s can further extend leading
practice and product innovation to these customers, and intime implement them across more complex specialty productsbought by larger firms.
The fundamental purpose of insurance is to provide comfort
and confidence to customers in a world full of changing risks
that could threaten their livelihoods. We sell a promise to pay
when the worst happens, based on a trusted relationship andshared understanding between the customer and their insurer.
While the societal and economic impacts of the pandemic
are of a scale that has never before been experienced, it has
reinforced the global industry imperative to accelerate ourefforts to build simpler insurance products that are more easily
understood by our customers. In doing so, Lloyd’s and theglobal insurance industry will remain relevant and trusted bycustomers, creating a braver, more resilient world.

John Neal
CEO, Lloyd’s

Bruce Carnegie-Brown
Chairman, Lloyd’s

The insurance response to COVID-19

Global Advisory Committee
Oliver Bäte, CEO, Allianz
Andrew Brooks, CEO, Ascot
Thomas Buberl, CEO, Axa
Bruce Carnegie-Brown, (Chair),
Chairman, Lloyd’s
Greg Case, CEO, Aon
Brian Duppereault, CEO, AIG
Dan Glaser, President and CEO,Marsh & McLennan
John Haley, CEO, Willis Towers
WatsonAndrew Horton, CEO, Beazley
Bronek Masojada, CEO, Hiscox
John Neal, CEO, Lloyd’s
Scott Purviance, CEO, Amwins
London Advisory Committee
Andrew Brooks, Chair, Lloyd’s Market
Association
Sheila Cameron, CEO, Lloyd’s Market
Association
Bruce Carnegie-Brown, (Chair),
Chairman, Lloyd’s
Chris Croft, CEO, London andInternational Insurance Brokers
Association
Richard Dudley, Chair, London andInternational Insurance Brokers
Association
Andrew Horton, CEO, Beazley
Julian Enoizi, CEO, Pool Re
Huw Evans, Director General,
Association of British Insurers
Sian Fisher, CEO, Chartered
Insurance Institute
Clare Lebecq, CEO, London Market
Group
Steve McGill, CEO, McGill andPartners
Bronek Masojada, Chair, Placing
Platform Limited
Dave Matcham, CEO, International
Underwriting Association
John Neal, CEO, Lloyd’s
Malcolm Newman, Chair, International
Underwriting Association

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1. Overview
The COVID-19 pandemic has set in motion irreversible societal
change, calling for new insurance solutions and greater protection forcustomers’ short, medium, and long-term needs, as outlined in Lloyd’s
Supporting global recovery and resilience for customers report.
As countries and businesses cautiously reopenand start recovering from the immediate economic
and societal impacts, the insurance industry
must take this opportunity to improve the way it
protects its customers.
Insurance plays an essential role globally for society– by providing financial relief to customers during
challenging times, it helps people, businesses andeconomies recover from unexpected disasters. For
many, this worked as intended during the COVID-19
pandemic, and we expect that the global insurance
pay-out will be over $100bn, of which the Lloyd’s
market will pay in the range of $3bn to $4.3bn.
However, in some instances there has been
confusion. While many insurers around the world
believed coverage under business interruption
policies did not extend to pandemics, there were anumber of cases where customers did not agree.
This is a frustrating and disappointing outcome forall. If insurers pay disputed claims where pandemics
were not intended to be included under the coverage,
they will be paying claims for which they have neither
received premium nor reserved capital. If customers’
claims are not paid when they believe they havecover, they may not receive compensation that they
were relying on and may over time choose to insure
less risk – putting them in a more vulnerable position
for when the next disaster strikes.

Earlier this year Lloyd’s interviewed executives
and experts across key global industries tounderstand their priorities as a result of COVID-19.
The research found that some attitudes to insurance
had deteriorated, with the perception that somepolicies have not performed as expected. An
insurance contract is a promise to pay valid claimsas they arise, and all customers – whatever theirrisk needs and sophistication – want clarity about
what they are and aren’t protected against.
These challenges highlight the urgency with which
the global insurance industry must invest and focus
on clarifying and simplifying its products. Doing so
will mean customers have improved understanding of
the cover they have in place and the most relevant
protection for the risks they face.
Whilst we have heard the challenge clearly from
customers at all levels, the need is particularlypressing for small to medium-size enterprise (SME)
customers, who make up a substantial proportion of
insurance policies sold globally but who typically havesignificantly less access and resource dedicated torisk management than larger corporate firms. By
providing greater clarity of coverage, insurers andbrokers can reduce prudential and conduct risk and,most importantly, better protect customers – helping
us to offer customers greater value and fulfil our
purpose as an industry.
Reinsurers also have a key role to play. As theindustry develops new and enhanced ways ofproviding insurance products to its customers,
insurers need confidence that reinsurance capitalwill respond to claims. Availability of reinsurance
capital may also inform what risk transfer innovations
insurers are able to offer customers.

The insurance response to COVID-19

The insurance response to COVID-19

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1. Overview
Much progress has already been made in developing
regulation, guidance and codes of conduct to provide
greater clarity of coverage for customers, with theglobal insurance industry committed to this goal.
Although the core principles already exist and are
actively being applied, we have taken the opportunity
to restate them, as well as to consider new ways toapply them in practice. These principles focus on how
insurance products are worded and distributed today,
as well as providing more innovative options whichchallenge and reconsider traditional insurance
wordings, contract structure and delivery. They areparticularly relevant to insurance products boughtby ‘individuals’ – such as consumers or micro andsmall businesses – but over time should be extended
to more complex specialty products which areoften bought by professional buyers on behalf oflarger businesses.
Whilst this report is not a comprehensive set ofanswers and cannot ensure that customers will
always understand and buy the right cover, it sets out
three key recommendations (see Chapter 5) that the
global insurance industry should implement across all
customer segments to respond to the challenges that
COVID-19 has presented:
1. Leverage and build on the application of existingleading practice, including a linguistics review ofcustomer documentation – for both simple andmore complex products.
2. Invest in continuous product design and delivery
innovations, including data-led policies and digital
contracts, as well as exploring more radical options
like parametric or outcome-based insurance.
3. Involve customers directly in product design tobuild simpler, more relevant products for theirchanging needs and post-pandemic risk profiles.

The insurance response to COVID-19

Alongside these global industry recommendations,
Lloyd’s is taking its own affirmative action. This
includes reviewing how products are developed,
designed and distributed, as well as reaching out totrading partners, risk managers and customers, so it
can proactively implement changes across its global
marketplace to enhance customer outcomes andmore effectively meet their needs (see Chapter 6).
As many businesses around the world evolve towithstand the continued impacts of the COVID-19
pandemic, including radically changing their businessmodels, the insurance industry must urgently
reassess how it can better serve and support its
customers. By simplifying insurance product designand delivery, Lloyd’s and the global insurance industry
will ensure it remains relevant and trusted bycustomers, creating a braver, more resilient world.

Lloyd’s. Building simpler insurance products to better protect customers

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Lloyd’s. Building simpler insurance products to better protect customers

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2. The drivers of complexity and benefits of simplification
Insurers sell a promise to pay valid claims as they arise. This provides
peace of mind and allows buyers to take measured and well managed
risks to achieve their ambitions.
The more complex a product is, the less likely it is toprovide peace of mind to customers. Worse, it may
be the case that if customers do not fully understandthe terms of their product, they either breach thoseterms or believe they have cover when they do not.
COVID-19 provides an inflection point for the
insurance industry to take stock and reconsider
how it can better serve its customers, and indoing so reinforce its critical societal role. Simplifying
insurance products and enhancing customer
understanding have significant benefits for all:– Customers will have the confidence of knowingthat they are protected, with clarity resulting infaster claims payment, shorter negotiation time,and fewer costly disputes.
– Intermediaries need to be able to fully
understand a policy in order to communicate itto their customers. Simpler products make it easierfor them to communicate and for customers tounderstand the coverage.
– Insurers will be able to provide more relevant,trusted products to customers, ensuring that they
have the right pricing for the risk they are taking
on, and the right amount of capital put aside should
the customer need to call on it.
While these and the broad societal benefits areclear, complexity still remains in insurance contracts,
which can lead to an expectation gap between the
coverage insurers believe they have sold, and thecoverage customers believe they have bought.

The reasons for this are interdependent andmust be addressed holistically.
The way products evolve
Insurance contracts are legal documents whichhave evolved over time, often building on existing
structures to maintain legal precedent, whilst
adjusting to an ever-changing societal and risklandscape. This can lead to challenges when thescope of a policy extension does not fit easily into
the structure of the original policy. Legacy technology
systems and regulatory constraints can also be
additional factors in creating complexity.
A prime example of this expansion of scope isbusiness interruption cover, which is commonly
offered to customers as an extension of acommercial property policy. As a result,conventional business interruption policies
typically focus on damage to the physicalpremises and the denial of access that may
result, rather than offering protection against
other events which could disrupt operations
without causing physical damage.
How products are sold and discussedwith customers
Although one party is ultimately responsible forthe product, some customers may purchase theirinsurance through an extended distribution chainof multiple intermediaries, which can increase thechance of a misunderstanding of the cover if the
documentation itself is not clear enough.
Many personal lines products, for example, canbe white-labelled and sold under a retail brand,with separate product administrators andunderwriters. In addition, many retail and SME
customers buy their cover online, and so receive
less support, guidance or advice around thedifferences between policies or their suitability
for their unique operations or risk profile.

The insurance response to COVID-19

The insurance response to COVID-19

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2. The drivers of complexity and benefits of simplification
Consumer or
SME
Mid-market
micro enterprise			A relative lack of societal engagement aroundinsurance is also a challenge. Many customers may
not review their policy wordings in detail or have theexpertise to know what cover they need until theworst happens – particularly in the case of more
remote and extreme risks. In the wake of COVID-19,
many businesses are having to rapidly adapt theiroperating models, so understanding how their risk
exposures have changed and the resulting insurance
implications may not be a priority.
How the policy is documented
Insurance documents often contain complex
technical and legalistic language. While this may
make it easier to comprehensively codify thecover provided, it can make documents difficult
to understand, particularly for customers without
a dedicated risk management function. It is also
important to recognise an inherent conflict, in thatwhat might seem a clear and simple contract toa customer might not necessarily be clear andsimple from a legal perspective.
The design and format of documentation is also key,
with factors such as the use of white space on thepage, font size, paragraph layout and use of colour
which affect the readability of a contract. Many
traditional policy documents can also be hard forcustomers to read and digest on their preferred
devices, for example on tablets or mobile phones.

Scope of coverage
Even when the language and structure of a policy
document is clear and comprehensible, uncertainty
may remain, particularly if the writer is aiming to
reduce the contract’s length. This can create asituation where the language is clear, but the intent
does not match the implied scope. Focusing
on the specific perils or the outcomes that will bemost relevant to customers and seeking to find abalance between brevity and clarity can help. Not
to do so can have significant consequences. Silent
cyber, which arises when policies are not clear onwhether coverage is provided for losses caused
by a cyber event, is a prime example of this. Not
providing affirmative coverage, or clearly excluding
coverage, can lead to insurers under reserving,customers either under or over insuring, andpotentially to costly claims disputes.

Size
No employees		Up to 250
employees

250-5,000
employees

5,000+
employees

Insurance
needs

Typically single
Typically single
Typically locatedLarger and more
location with nonlocation with lessin a single country
complex risks,complex risks
complex risks
with less complex
potentially spread			
but larger risks
across multiple
				countries
Insurance
Individual
Owner or Finance
CFO
Specialist risk		buyer		Director		managers
ServedbyDirect to insurer,
local brokers or
onlineDirect to insurer,
local brokers or
onlineLocal or regional
brokers

Regional or
global brokers

Typical complexity of insurance needs

Low

High

Typical availability of advice and support
Typical sophistication and risk literacy

Customer insurance buying needs
and behaviours
This report highlights the opportunity for theentire global commercial insurance market to
reduce complexity and provide customers withgreater certainty over their cover. All customers,
irrespective of their size or sophistication, areundergoing significant changes and needproducts and industry approaches that respondclearly to their changing needs.
Initial efforts, however, should be focused on
smaller commercial customers. These customers
often have little to no expert resource dedicatedto managing their risks, and less access to advice
and support compared to mid-market and large
corporates. SME insurance buyers account for asignificant proportion of insurance policies soldglobally and are also the group for whom
COVID-19 has highlighted a notable expectation
gap around how some insurance products have
responded to.

Although known as the world’s specialist
insurance market, almost half of the risks
traded through Lloyd’s today are relatively
simple, high volume and low premium.

A substantial number of these risk transfer
products are purchased by retail and SME
customers and through delegated authority
insurance providers.

Consumer products at Lloyd’s

21.5 million 1

Consumers and microenterprise customers

2,070
Consumers and microenterprise products

The top five products
represent 72% of consumer
products being soldHome & property

Based on a snapshot view
taken from Lloyd’s December
2018 ‘Eligible Complaints
Return’27 %Accident & health21%

Travel10 %Specie9%79%
of products sold throughcoverholders

The insurance response to COVID-19

Where consumer products
are sold
UK & Europe
US & Canada
Australia & NZ
Rest of the World

54%
19 %
5%
22 %

81%
Package policies and15%
employee benefit orStand alone products

group policies

1

The insurance response to COVID-19

Large
corporate

Motor

5%

‘Add-ons’ orsecondary sales

4%

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3. E
 xisting leading practice
The industry and regulators have already taken steps towards
addressing issues around insurance product complexity and clarity
of coverage, including regulation, guidance and codes of conduct.
This has created leading practice, much of which issummarised below. Effectively adopting leading
practice for all insurance products can be a challenge
as many insurers operate globally and there are
significant differences between jurisdictions.
However, the principles at the core of simplifying
insurance products can be applied consistently
across the world, and include to:– Provide clear and simple product documentation.
– Summarise key components of the contract
up front.
– Review and rationalise product wordings.
– Enhance customer risk literacy andunderstanding of their cover.
– Improve customers’ experience by monitoring
and analysing the product journey.

Lloyd’s operates to a set of Fair Value
Principles which encapsulate what we
consider to be fair value in consumer businessand how we expect all customers to be treated.
These Fair Value Principles, which form part ofour oversight of the Lloyd’s market, ask the seller
to ensure that:
1. P
 roducts meet a genuine need of
the customer.
2. 	 Products are reasonably priced,
reflecting the level of cover provided.
3. 	 The acquisition costs, fees and charges
are transparent and commensurate withthe services that each party provides.
4. 	 The terms and conditions of a productand the sales process ensure that
customers understand what they are buying.
5. 	Products respond fairly and promptly inthe event of a claim or complaint.
The most relevant principle in terms of reducing
any expectation gap between customers andtheir insurers is principle 4 – ensuring that
customers understand what they are buying.
We have outlined below different examples ofexisting leading practice to demonstrate how thisprinciple is being applied effectively. Many havebeen developed in personal lines, but can also be
applied to SME businesses, and potentially tolarger corporate and specialist risks.

The insurance response to COVID-19

The insurance response to COVID-19

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3. E
 xisting leading practice
Clear and simple product documentation
Increasing the clarity and simplicity of documentation
has been a consistent theme in personal lines
guidance. Recommendations stress the importanceof increasing the comprehensibility of policies (and all
supporting pre- and post-sale documentation) by:– Improving structure.
– Reducing the length of documents and thecomplexity of sentences (for example setting
a target reading age of 13 or less).
– Removing jargon (or briefly explaining any
complex terms which can’t be replaced).
– Clearly signposting any exclusions.
– Using clear design to aid navigation andcomprehension.

The balancing requirement is that policy wordings
also need to make sense in relation to theirjurisdiction in law, which can be difficult to achieve.
For complex risks it may be more challenging tosimplify products and by necessity the focus may
be on clarity rather than simplicity; though thisshould not preclude considering how leading
practice might apply for customers with multifacetedrisk requirements.
The Chartered Insurance Institute (CII) has
launched The Chartered Transparency Forumto drive leading practice across the UK
insurance industry. This group of seniorpractitioners; trade, consumer, and legal
representatives has been established to:

The Lloyd’s Market Association (LMA) provides
practitioners in the Lloyd’s market with
Consumer Wordings Guidance to assist withthe drafting of new consumer products and theadaptation of existing commercial wordings for
consumers.

– Assess the current gap in customer
expectation around their insurance.
– Publish and promote guidance, outlining theprinciples by which all insurance professionals
should take accountability for improving
transparency, engagement and comprehensionof communications relating to policy coverage.
– Identify existing materials and prioritise thedevelopment of future learning materials toimprove the sector’s broad expertise in how
policy wordings work, and how their drafting
can better match brand promises andconsumer expectations.
– Lead a campaign to promote these standards
and learning, with the objective of collectively
improving public trust by reducing the
expectation gap.

The LMA has also begun a project to overhaul
their model Home Insurance Policy to ensure thatthe coverage is as clear as possible. This involves
not only simplifying the content but also
producing a navigable document framework thatwill lend itself more easily to electronic trading.
The aim is to produce an interactive contract,
presented digitally, which includes icons andgraphics that a customer can navigate aroundeasily, using bookmarks and hyperlinks. Once
this framework is in place, the same structure will
be extended to other existing model wordings for
consumer products as well as in the future
development of new model wordings.
The demand for simplicity and clarity in document
wordings can be seen through the increased
adoption of seals such as the Crystal Mark, which
was introduced to encourage firms to communicate
more clearly with its customers and is now being
used by over 2,000 member organisations 1. The
Fairer Finance Clear & Simple Mark was introduced in2015 and looks at both the clarity of language as wellas the simplicity of design. It sets a challengingly highbar, and so far only around ten policy documents
have met the criteria2.
The insurance response to COVID-19

1
2

Impactscore

Customer
value

(for
proposal
described
above)

Medium		Medium

Plain English Campaign
Fairer Finance

Implementation
complexity

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3. E
 xisting leading practiceSummarise key components of a contract up front
The EU Insurance Distribution Directive 3 (IDD)
introduced standardised product information
documents for non-life consumer insurance
products. These documents outline the key
coverage, excesses, limits and exclusions – aswell as common areas of misunderstanding.
This is done in a consistent fashion to help
improve customers’ understanding and ability
to compare different products.
Similar standardised summary documents could
be used more widely for commercial insurance toprovide the same benefits. If they also link to thedifferent sections of the contract where further detailis available, this could provide an easy reference point
to help customers quickly navigate the key contract
components. Where products are purchased online,
the summary should be shown prominently onscreen, or where via a broker, it should be explained
verbally and provided in writing to customers.
It is important to note that simply providing a
product summary document will not fully realise
the potential benefits for customers and the industry.
The underlying policy documentation must also
be reviewed to ensure it is clear, simple and reflects
the intended coverage, so that it too can reduceany misalignment of expectation and provide
clarity to customers.
An example of how a product summary could
be written to give customers greater clarity
around silent cyber coverage is included inAppendix 1: Worked example of simplification
levers applied in cyber.

Impactscore

Customervalue

Implementation
complexity

		High		Low

3

European Commission

The insurance response to COVID-19

Review and rationalise product wordings
Many insurers operate in a large number ofmarkets, across many lines of business and reach
their customers through a variety of distribution
channels. As a result they often offer a wide range of
products, wordings and exclusions which have all
been developed at different times to meet specificcustomer segments, and can be difficult to maintain.
Increasingly, many SME products are being sold andmanaged digitally, where the cover and limits selected
will result in the insurer issuing tailored contracts
using standard clauses. Accelerating this approach
will enable insurers to move towards a modular
approach built around common standards – which will
drive tighter control on the wordings used, while also
limiting alterations which do not add value.
Following this approach will help ensure that leading
practice is consistently applied and supports thecomparability of products, without limiting genuinely
valued points of differentiation between insurers.
Impactscore

Customervalue

Implementation
complexity

		High		High

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3. E
 xisting leading practiceEnhance customer risk literacy andunderstanding of coverage
Ensuring that contracts are easy to read and interpret
so that customers can more easily understand theirpolicies is integral to closing any expectation gap.
Highlighting which risks aren’t covered is also critical,
as is providing support to customers around how to
mitigate or protect against those risks.
Further support can be provided to customers
through supporting materials or educational tools,
such as videos or gamification techniques, that
actively engage them around their risk profile,the value of insurance, and how their policy will
respond to different events. These should not
focus just on the ‘point of sale’ but should support
the customer at all times to keep their insurance
coverage at front of mind.
Industry associations are working together
to find new and engaging ways to educate
consumers and SMEs about insurance.
The British Insurance Brokers’ Association(BIBA), the Confederation of British Industry(CBI) and the Association of British Insurers(ABI) have recently published an SME Insurance
Guide to help small businesses understand theimportance of managing risks, the role insurance
can play, and how to choose the right cover for
their business.4
The ABI has also launched a retail consumer
education initiative, The Insurance Experiments,
which aims to improve consumers’ understandingof general insurance products through a seriesof engaging and colourful animations andpractical use cases.5 These are supported by asocial media promotional campaign to engage
consumers who might not otherwise seek out
insurance education.

4
5

SME Insurance Guide
The Insurance Experiments

The insurance response to COVID-19

These supporting materials should help make theproducts clearer for both customers and distributors.
Customers often buy cover through an extended
distribution chain, relying on the broker or agent
closest to them to communicate the cover and, insome instances, advise on its appropriateness.
Therefore it is important distributors are encouraged
to adopt fair value principles and these are appliedconsistently, together with explaining what risks are
and are not covered, so that the customer can havecertainty in the cover they are purchasing.
Layr is a US-based commercial insurance
platform redefining the way small businesses
purchase and manage their commercial
liability insurance by giving control backto the business owner.
They have streamlined, standardized, andre-written the questions found on applications
for insurance which allows business owners toquickly and accurately apply for coveragethrough a responsive proposal generator. Not
only are the questions asked written in plain
English, but the proposal generator also includes
an integrated educational layer providing
customers with detailed explanations of what
the questions mean, why they are asked,
and how the answers may impact theircover and premiums.
Layr is assisting agents and brokers during
the COVID-19 pandemic by deploying a whitelabelled version of its platform directly to theclients of broker partners.

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3. E
 xisting leading practice
Furthermore, many customers can underestimate thelikelihood and impact of the potential risks they face.
The COVID-19 pandemic has highlighted that evenrisks that seem extreme and unlikely do occur. Where
business is intermediated, it is the role of the broker
to help customers understand the impact of remoterisks and help them to determine whether these arerisks for which they should obtain insurance or retain
themselves – but insurers have a role in supportingthese conversations.
Lloyd’s will be piloting components of aCentre of Excellence to further explore
systemic and remote risks.
The initial outputs will offer customers and theirbrokers a consumable, commercial and practicalview of the types of systemic risks they might be
exposed to – including their likelihood, possible
economic impact and potential insurability –and will help to promote a broader societal
discussion around the need for stronger
mitigation and protection.

Impactscore

Customervalue

Implementation
complexity

		Medium		Medium

Improve customers’ experience by monitoring
and analysing the product journey
The insurance industry must constantly andconsistently find ways to improve the customer
experience throughout the insurance lifecycle –from when they look to buy coverage, through totheir moment of need. To do that, brokers andinsurers must employ dynamic and responsive
measurement tools, using appropriate metrics
to track against fair value principles.

The insurance response to COVID-19

By improving the way that customer experience ismonitored and analysed, insurers and brokers canmore easily identify pain points and quickly takeactions – especially when there are significant
numbers of complaints, cancellations, lapses,
queries or rejected claims. For example, coverage
consistently cancelled within a 14-day cooling period
may indicate that a product isn’t suitable for thecustomer base to which it is being sold.
There are also many ways that the industry canbetter measure customers’ experience and thesuccess of its actions to build simpler products tobetter protect its customers. These include:– Customer surveys: gauging customers’
experience at key interaction points, the fit of a
product to their need and their level ofunderstanding of the coverage provided.
– Customer engagement tools: understanding
how engaged customers are in the purchaseprocess and how they will manage dynamicchanges to their risk profile.
– Net Promoter Scores (NPS): understanding
customers’ willingness to recommend acompany’s products or services.
– Rejected claims analysis: providing a thematic
indication of any expectation gap between
customers and their insurer.
– Complaints analysis: providing insight into
customers’ understanding and interpretationof their cover.
– Cancellation of cover: indicating where
products have not met customers’ expectation.
– Cover ‘Not Taken Up’: identifying productsthat may not be not appropriate for their target
customer segment.
Impactscore

Customervalue

Implementation
complexity

		High		Low

Lloyd’s. Building simpler insurance products to better protect customers

18

Lloyd’s. Building simpler insurance products to better protect customers

19

4. Insurance design innovations
While effectively applying existing good practice would
significantly improve outcomes for customers, carriers anddistributors, there are more innovative ways to make thecover provided clearer.
These include:– Digital contracts.
– Modular contracts.
– Dynamic customer comparison tools.
– Parametric insurance products.
– Outcome-based insurance products.
Digital contracts driven by data-led policies
Today’s insurance contracts are document-led,meaning that the record of cover is often a long,difficult-to-read contract. Moving from traditional
documents to digital contracts – data objects withinbuilt structure and logic, supported by common
data standards and digital connectivity – could
ultimately offer a single interrogable source of
information on the coverage for all parties.
The use of digital contracts would provide a moresophisticated alternative to traditional documentbased contracts and enable new ways of presenting
a contract that offer greater opportunities forcustomers to engage and understand their policy.
This could include the ability to visualise a contract
and test how it would respond in different scenarios,
applying a layer of Artificial Intelligence (AI) allowing
customers to compare underlying clauses or ask
questions about their coverage, or to present thecontract in new, more engaging media such asvideos, images or apps.
Digital contracts are already evolving to be appbased, making them easy to use, purchase andinterrogate. This is particularly true in emerging
markets, such as Brazil and South Africa, where
personal lines insurers often use images of objects
covered, uploaded via mobile phone app, as thebasis for a contract, and as a way to help people
understand what they are insuring.

The insurance response to COVID-19

The insurance response to COVID-19

Digital contracts can also improve customer service
by automating some processes according to theterms of the cover. For example, if they detect thatthe customer, the nature of the claim, the type ofcover and the cover limit can all be reconciled, thena claim could be paid automatically. This type of
automated responsive digital contract (often
described as a “smart contract”) relies on externaland customer data and would typically be delivered
through a purpose-built online platform.
Through the Future at Lloyd’s, we are movingfrom a document-first to a data-first worldthat would enable digital contracts.
The ambition for Lloyd’s complex risk platform
and risk exchange is to develop a data-first
technology platform to enable efficient sourcing
and placing of risks, using common data sets andstandards to improve the negotiation process.
For complex risks the future insurance contract
will be digital, drawing on submission data, quotedetails, a rules engine and selections from clauselibraries to build the contract digitally, ensuringthat the contract is right first time andconsistently for all parties.

Impactscore

Customervalue

Implementation
complexity

		High		High

Lloyd’s. Building simpler insurance products to better protect customers

20

4. Insurance design innovations
Enhance customers’ ownership of their coverthrough modular contracts
One application from personal lines cover that has
been making its way into commercial contracts isa ‘modular’ approach – with individual covers sitting
beneath a master policy.
Encouraging the customer and broker to go throughtheir risk choices and build and update their cover ona modular basis provides the customer with greater
ownership and opportunity to input into their policy.
It also promotes a greater understanding of what is
and is not covered, as well as the relative costs ofeach module of cover.
This approach still ultimately relies on the underlying
contract generated being clear and simple, but canincrease customer understanding by prompting
customers to engage with the details of the insurance
cover they have chosen.
Impactscore

Customervalue

Implementation
complexity

		Medium		Medium

Dynamic customer comparison tools
As insurance contracts become clearer, customers
will have a better view of the different types of coverprovided, under what conditions, and with what
exclusions.
To help build their understanding and inform theirchoices, further support could be provided by
distributors offering interactive comparison tools.
These tools could highlight the extent of cover thateach policy would provide under different scenarios,
or even a check the comprehensiveness of acustomer’s cover across all of their policies.
Developing these tools and services alongsiderisk educator tools would help customers tothink about the risks they face and how different
covers would respond to different events. This could
include “what if” functionality, showing how contracts
are expected to respond under different or
unexpected circumstances.
New technologies could be used to support thesetools and truly revolutionise the way customers
engage with their contracts and compare theproducts on offer to them. For example, technologies
such as Optical Character Recognition, Machine
Learning or Natural Language Processing could be
used to analyse and compare the underlying wording
in different contracts – highlighting key terms,
exclusions and feeding a comparison tool tosupport customer decision making.
Impactscore

Customervalue

Implementation
complexity

		High		Medium

The insurance response to COVID-19

Lloyd’s. Building simpler insurance products to better protect customers

21

4. Insurance design innovations
Parametric insurance products withclearly defined trigger events
Traditional indemnity insurance reimburses acustomer for actual losses that they have incurred.
A parametric product, on the other hand, links thepayment under the policy to a pre-agreed andindependently verifiable trigger (the ‘parameter’).
A parameter could be defined around the magnitudeof a single event (such as a pre-defined rainfall orwindspeed), an index (such as commodity priceindices), or a specific customer outcome (such as
the explosion of an engine). The level of indemnitythat is provided is pre-determined and establishedbased on the chosen parameter being triggered,and should be strictly correlated with a loss
outcome for the policyholder
Parametric products offer several potential benefits
to customers and insurers, including reducing
claims-adjusting costs and enabling prompt claims
settlement. By reducing complexity in the claim’s
adjustment process, parametric products also offer
customers greater certainty around what payment
they will receive and greater confidence around theirliquidity in times of crisis. This might be particularly
relevant where a customer is very exposed to a highlevel of natural peril or catastrophic risk, for example
where a customer’s property is located in regionswith seismic activity, windstorm activity or otheradverse weather. A number of parametric products
are already available in the Lloyd’s market for areas
prone to natural disasters.

However, as the pay-out and trigger is pre-defined,
if they do not perfectly correlate with the underlying
risk exposure, a customer could suffer a loss
without the parametric insurance being triggered –or the pay-out that they receive may not meet thefull cost of their loss. The management of this basis
risk, as well as data quality, model enhancement andconsumer education, remains critical for the further
development of parametric products.
The complexities of developing and managing
parametric products - particularly for retail and
SME customers - and potential good practice toovercome them - are outlined in our recent report
Triggering innovation 6. Notwithstanding this, agrowing number of parametric products arebeing developed, particularly for retail and
SME customers.

Impactscore

Customervalue

Implementation
complexity

		Medium		HighHow traditional indemnity insurance operates

Catastrophic /systemic event
occursCustomer assesses
damage andsubmits claim

Insurer reviews
the claim

How parametric insurance can operate

Catastrophic /systemic event
occurs6

Third party verifies
trigger event andprovides confirmation

Lloyd’s

The insurance response to COVID-19

Claim automaticallylodged andapproved

Adjuster assesses
and validates
the claim

Claim isapproved

Claim payment
is made* Depending on product features and local regulations

Claim payment
made to customer(within 30 days)

Confirm proofof loss within
1 year*Lloyd’s. Building simpler insurance products to better protect customers

22

4. Insurance design innovations
Parametrix: A new parametric businessinterruption product for SMEs’ IT downtime.
This is a new “first-of-its-kind” businessinterruption policy for small and medium sizedenterprises (SMEs) using third-party cloudservices, specifically designed to protect themagainst IT downtime or disruption. Parametrix
Insurance offers simple and reliable coverage byremoving the traditional indemnity trigger thatmost insurance policies use today. Instead, the
new solution uses a parametric trigger, meaningthat the policy aims to automatically pay out if acustomer’s critical IT services – such as cloud,
e-commerce or payment systems – are disrupted.
This significantly reduces the time needed byan insurer to assess a loss or adjust a claim.
This new Lloyd’s product is led by Tokio Marine
Kiln (TMK) and supported by other membersof Lloyd’s Product Innovation Facility (PIF),
including RenaissanceRe, through the Lloyd’s
PIF BETA which is designed to accelerate
product development for technology driven
insurance solutions.

How outcome-based insurance can operate

Specificcustomeroutcome occurs*

Customersubmits a claim

Structuring insurance policies around the outcomesthat customers would be protected against, forexample a loss of revenue, rather than the perils
which cause those outcomes could help givecustomers greater clarity over the cover that
their policy offers.
Insurers could protect themselves against large
aggregations of risk by applying specific limits tothe cover, provided these are visible and clearly
worded. These products might also requirereinsurance support or backing from industry
pooled capacity, with a government backstop,
depending on the outcome being insured.

* In the event of an applicable peril occurring as defined in the policy

Insurer reviews
the claim

In Supporting global recovery and resiliencefor customers we outlined a framework,
Black Swan Re, which could protect customers
from the devastating and long-term impacts ofsystemic catastrophic events, and also offers amechanism through which outcome-based cover
could be provided. The framework would provide
reinsurance for commercial business interruption
cover for black swan events through industry
pooled capital, backed by a government
guarantee to pay out if ever the pool had
insufficient funds.

The insurance response to COVID-19

Outcome-based insurance contracts that
insure against tangible customer outcomes
Insurance contracts are often focused on the causeof a loss (a peril), rather than what the customer
cares most about – the loss itself. All-risk policies,that automatically cover any risk which the policy has
not explicitly omitted, already exist. However, they
typically include a number of exclusions that areoften required to protect insurers against potentiallysignificant exposures which would be hard to reservefor – for example systemic risks. This can lead toconfusion for customers.

Outcome is verified(potentially by athird party)

Impactscore

Customervalue

Claim payment is madebased on pay-out
mechanism

Implementation
complexity

		High		High

Lloyd’s. Building simpler insurance products to better protect customers

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Lloyd’s. Building simpler insurance products to better protect customers

24

5. Recommendations
As businesses around the world evolve to withstand the continued
impacts of the COVID-19 pandemic, including radically changing theirbusiness models, and grappling with the challenges that lockdown
restrictions around the world have brought, the global insurance
industry must urgently reassess how it can best serve its customers.
Importantly, it must work to further simplify its
products for all customer segments and promote
greater understanding of the cover it is providing. The
benefits are significant. If the industry does not takethe opportunity to respond to customer needs andevolve, it will lose relevance over time.
Whilst this paper is not a comprehensive set ofanswers that will ensure that customers will always
understand and buy the right cover, there are three
key recommendations that the global insurance
industry should implement to respond to thechallenges that COVID-19 has presented:
1. Leverage and build on the application ofexisting leading practice including a linguistics
review of customer documentation – for both
simple and more complex products
Reflecting the lessons learnt from personal lines
and effectively and consistently applying the existingleading practice summarised in Chapter 3 would
considerably improve outcomes for customers,
brokers and insurers and strengthen trust in theinsurance industry.
This is likely to be easier and have the most impact
in the short term for more standardised SME
insurance products, where many of the existing
requirements are closer to personal lines products.
Increasingly looking for ways to leverage bestpractice for products aimed at more sophisticatedbuyers could also deliver similar benefits, though
they are more complex to implement.
To illustrate the potential benefit, we havelooked at how existing good practice could beapplied to improve clarity around silent cybercover (Appendix 1).

The insurance response to COVID-19

The insurance response to COVID-19

2. Invest in continuous product design anddelivery innovations including through data-led
policies and digital contracts, as well as exploring
more radical options like parametric or outcomebased insurance
While insurance innovation to improve customer
outcomes is already happening, as an industry weneed to accelerate the pace of change – not just in
product design, but also in how we provide cover
to better protect customers.
The industry will need to focus on product designand delivery innovations, to ensure a consistent
approach that enables customers to more easily
understand the cover available to purchase,and its scope.
This could build towards a framework in which
all wordings (selected by customers) can beunderpinned by common universal standards,
tailored or differentiated through clear
endorsements where necessary.
As outlined in Chapter 4, there are a number ofroutes the industry can take to more radicallytransform and simplify its products. The key
recommendations include:– Investing in developing data-led policies
through digital contracts.
– Enhancing customer ownership and understandingof their policies through modular contracts.
– Building dynamic comparison tools to explore
how policies respond in different scenarios.
– Providing parametric insurance products withclearly defined trigger events.
– Designing outcome-based insurance contracts that
insure against tangible customer outcomes.

Lloyd’s. Building simpler insurance products to better protect customers

25

5. Recommendations
Appendix 2 outlines how business interruption cover
could be provided through parametric or outcomebased products, and highlights some key design
considerations for the insurance industry.
3. Involve customers directly in product design tobuild simpler, more relevant products for theirchanging needs and post pandemic risk profiles
COVID-19 has highlighted the need for the industry
to involve customers more in the design of insurance
products, in order to provide greater value and torespond more dynamically to changing risk profiles.
The changing needs and expectations of customers
will ultimately determine which approaches todesigning simpler products are successful in future.
The more feedback brokers and insurers can get fromtheir customers, the more quickly they can respondand the more successful they are likely to be. Thiscan either be by making better use of the existingcustomer information they have in complaints, queries
and claims, or by finding new ways to engage them.

The London Market Group is establishing a
Client Advisory Panel to put customers at theheart of the market’s strategic decisions
Through its Client Lens programme, theLondon Market Group is engaging withcustomers to understand how their businessmodels are changing, and how the London
Market can best meet their needs.
The research programme started in September
2020, and detailed sector reports on critical risk
developments, insurance implications andassociated service needs will be published in
2021 to stimulate innovation and best practices
in both the supply and demand sides of the
London Market.
The programme will also establish a Client
Advisory Community and a London Market
Client Advisory Panel to bring a customer voice
to the London Market’s strategic initiatives.

The insurance response to COVID-19

Involving customers directly in product design
can help ensure policies are easy to understandand better meet customer needs. Some insurers
are looking to include customer champions within
their boards to make sure they are represented
at the highest levels.
Lloyd’s Reputation Pulse Survey
We monitor our reputation and performancewith all of our global stakeholders, to ensure
we are getting customer feedback to help
us better understand our key audiences.
As part of the Future at Lloyd’s, we have
implemented a new benchmark to measure
our Net Promoter Score (NPS), so we canmeasure our success of the changes we aredelivering and improvements in customer
experience and perceptions.
Next steps for implementation ofrecommendations
Lloyd’s will continue to use its position as a convener
to support progress across the global insurance
industry. We have discussed these recommendations
with a number of trade associations within the UK
and with insurers and brokers in our Global and UK
Advisory Committees. In parallel, we will continue todevelop best practice and product design innovation
within the Lloyd’s market, including how these
proposals might be applied, as well as testing productdesign innovations through the Lloyd’s Lab.
Nevertheless, the global insurance industry must
work together to find consistent ways to simplify
its products to support enhanced customer
understanding of the cover they have in place, andensure they have the most relevant protection for
the risks they face. Lloyd’s will continue to support
collaboration across the industry as it works to
improve customer experience and productunderstanding.

Lloyd’s. Building simpler insurance products to better protect customers

26

Lloyd’s. Building simpler insurance products to better protect customers

27

6. Taking action in the Lloyd’s market
To deliver better outcomes for customers in line with our
Fair Value Principles, Lloyd’s will take action in five key areas
set out in the diagram below.
Lloyd’s proposes to initially work withmarket participants to develop initiatives
in five of the areas outlined

10

9

6

Implementation complexity

3

1

7

8

4

5

Existing leading practice1. 	Clear and simple productdocumentation.
2. 	Summarise key components ofa contract up front.
3. 	Review and rationalise
product wordings.
4. 	Enhance customer risk literacy andcustomer understanding of coverage.
5. 	Improve customers’ experienceby monitoring and analysing the
product journey.
Insurance evolution
6. 	Digital contracts driven bydata-led policies.
7. 	Enhance customer ownership of
their cover through modular contacts.
8. 	Dynamic comparison tools.
9. 	Parametric insurance productswith clearly defined trigger events.
10. 	Outcome based contracts that insure
against tangible customer outcomes.

2

Customer value

This action will deliver increased customer value
in the short to medium-term, with relative easeof implementation, and will provide the foundation
to progress the other solutions over time. We willcontinue to engage with our key stakeholders,customers and the global insurance industry toprioritise further action.

The insurance response to COVID-19

The insurance response to COVID-19

Lloyd’s will take action in five of
the areas – with an initial focus
on personal lines and SME.

Lloyd’s. Building simpler insurance products to better protect customers

28

6. Taking action in the Lloyd’s market
Short term (2021)
During 2021, Lloyd’s will take action in the following
areas, to provide immediate benefit to our customers:– Set up a working group to explore more innovative
ways we can contract with customers and evolve
product wordings, drawing on the applications andlessons learnt from personal lines.
– Enhance the effectiveness of product documents
by making them clearer and simpler (solution 1),
complemented by introducing a standardised
Lloyd’s upfront contract summary document(solution 2). This work will include:– Conducting an active review of wordings
in priority classes of business to identify
leading practice learnings and agree –with direction from market stakeholders
and the legal profession – if we should
expand this approach more widely.
– Exploring, beyond existing regulatory
requirements, opportunities to introduce
a Lloyd’s standardised product summary
document, initially for retail and SME
customers.
– Sourcing expert support andembedding consumer linguist principles
into product design.
– Conducting a thematic review on clear
and simple product wordings.
– These actions can be further supported withadditional materials such as videos, diagrams
and other support content for distributors to use
through various channels in order to improvecustomers’ risk literacy and understanding of
their cover (solution 4). This will include:– Seeking opportunities to partner withtrade associations to develop additional
materials and approaches.
– Introducing additional requirements as part of
Lloyd’s coverholder onboarding processes tounderstand supporting information which
would be helpful to the end customer.

The insurance response to COVID-19

– We will continue our approach to improving
customers’ experience by monitoring andanalysing the product journey by constantly
identifying good metrics to track against the
principles, collecting relevant data
and taking actions.
– Existing
activities to deliver this include:
		

		

		

–C
 ontinuing our work to develop andimplement risk appetites around our Fair
Value Principles. We will establish core
metrics that act as indicators of low value
in products and develop productperformance monitoring, using existingdata received by Lloyd’s where possible.
Insights from this data will help us provide
further guidance to the market and greater
clarity on what is meant by fair value.
–T he recent launch of Lloyd’s DelegatedOversight Manager, a new system tomanage delegated authority approvals,
registrations and compliance. This will
provide greater information about the typeof customer for delegated authority andline slip business, and potentially also
consortium business and master
policies in time.
–D riving increased adoption of Lloyd’s newdelegated authority systems, Coverholder
Workbench and Delegated OversightManager, will continue to improve data
quality and help the market more
effectively monitor their performanceagainst these principles.

– We will also explore further work through Lloyd’s
market oversight activities, including:–P ublishing KPIs and requesting market
compliance, which is already a requirement
for high risk groups.
– Introducing a more structured approachto reviewing and monitoring product value
at Lloyd’s.

Lloyd’s. Building simpler insurance products to better protect customers

29

6. Taking action in the Lloyd’s market
Medium to long term
Digital contracts (solution 6) offer a more radical
way to close the customer expectation gap, providing
differentiated benefits to customers, enhancing therelationship between insurers and customers andradically changing the way insurance is purchased
and managed. However they will be more complex
to implement than the short-term solutions becauseof the fact that there are no regulatory frameworks inplace around purely digital contracts (where the data
object is the only form of contract), as well as thesignificant investment in technology infrastructurethat will be required.
 t Lloyd’s we are already planning to make digitalA
contracts a reality through the Future at Lloyd’s.
The ambition for the complex risk platform is to
move from a document-first to a data-first
technology platform that enables the efficient
sourcing and placing of complex risks, using
common data sets and standards to improve thenegotiation and claims processes.

Into the future
As many businesses around the world evolve towithstand the continued impacts of the COVID-19
pandemic, including radically changing their businessmodels, we as an industry must urgently reassess
how we can best serve our customers and work atpace to ensure we are providing them with the best
service and support.
Whilst this report is not a comprehensive set ofanswers, it highlights the need for a new starting
premise, one that recognises that if we ensure that
customer needs remain at the heart of our industry
and simplify our products, Lloyd’s and the global
insurance industry will remain relevant and trusted bycustomers, creating a braver, more resilient world.

Lloyd’s key actions to better protect and support customers: delivery timeline
Today

Short term

Medium termLong term

Enhance the effectiveness of product documents
by making them clearer and simpler

Introducing a standardised Lloyd’s upfront contract summary document

Improving customer and distributor understanding and comprehension ofpolicy documents

Improving customers’ experience by monitoring and analysing the product journey

Initial implementation of digital contracts

Ongoing review of recommendations and further engagement with Lloyd’s stakeholders, customers and the global insurance industry

Lloyd’s actions

Ongoing activity

The insurance response to COVID-19

Lloyd’s. Building simpler insurance products to better protect customers

30

Lloyd’s. Building simpler insurance products to better protect customers

Appendix 1:
Worked example of simplification levers applied in cyber
COVID-19 is changing the way we live and how businesses operate,and some of these changes, such as increased remote working, havethe potential to increase customers’ exposure to cyber risks.
Historically, property and liability policies have been“silent” on cyber. Therefore, one challenge fortraditional insurance products in recent years has
been a lack of clarity about whether cyber wascovered or not within existing property and liability
policies. This has created uncertainty, resulting inpossible claims disputes, the risk of insurers underreserving, and potentially customers under insuring
or over insuring.
The discipline of summarising key components
of a contract upfront (i.e. either specificallyaffirming or excluding cover for cyber), and bearing
them in mind while designing the cover, could
resolve this challenge by helping prospective
customers see clearly what is and what is notincluded in their policy.
The summary could take the form of an Insurance
Product Information Document (IPID) a two-page
summary of the key information about a product,
originally designed for consumer products, or a
Policy Summary, frequently used by the direct-tocustomer market for commercial products.

The insurance response to COVID-19

The insurance response to COVID-19

Illustrative contract summary document forcommercial insurance policy, highlighting theexclusion of cyber
We have provided an illustrative example of how
such a summary document could more clearlyhighlight to business customers the key terms andexclusions in commercial business cover, such as
to clearly exclude cyber cover.

31

Business Insurance

Insurance Product Information Document
Company: ABC Insurance Company

Product: Business Plus Policy

This document is intended to provide a summary of the main cover and exclusions and is not personalised to your specificindividual needs in any way. Full information on the product is provided in your policy documentation.

What is insured?

We will pay you up to these amounts, following a valid claim:
Property and buildings up to $2 million for:Physical damage to property and buildings, including architects, surveyors, legal and consulting engineers’ fees
Fire damage (for causes specified in detailed policy wordings)
Accidental damage
Cables and underground pipes as a result of insured damage
Business interruption up to $2 million for:
Loss of business income following a claim under the property and buildings cover
Cover for outstanding debit balances where records are lost following physical damage (up to a maximum of$50,000 for any one occurrence and $250,000 in total during any one period of insurance)
Failure of public utilities (up to a maximum of $1 million for any one occurrence)
Public and products liability up to $5 million for:
Compensation payments and any associated legal costs if you’re held responsible for causing injury orproperty damage to a member of the public, including:• Injury to working partners• Accidental damage to employees’ and visitors’ vehicles and personal belongings in your custody and control• Payment for court attendance expenses in connection with a claim you are covered for (up to $500 per day)
• Personal liability of employees and directors working temporarily overseas• Legal costs and expenses for defending prosecutions under health and safety legislation• Corporate manslaughter and corporate homicide act• Acts of terrorism
Employer’s liability up to $10 million for any one occurrence for:Costs of compensating an employee and any associated legal fees if they are injured
or become ill as a result of their work for:• Employees on work experience and government schemes• Cover for employees who are temporarily working overseas• Legal costs defending prosecutions under all relevant health and safety legislation• Court attendance expenses in connection with a claim you are covered for (up to $500 per day)• Acts of terrorism

What is not insured?
Your policy excess of $1000 which will be deducted from each claimYour policy does not cover you for loss or physical damage arising directly or indirectly however so caused by
War, Terrorism, Chemical, Biological, Nuclear, Radioactive or Chemical Contamination
Your policy does not cover you from loss arising out of Pollution or Contamination
For all sections other than Employer’s liability
This policy excludes any cover for:• Cyber losses, as defined in your detailed policy wording• Losses of any nature resulting from any loss of use or reduction in quality of business data, including thecost of replacing the data
Business interruption
We will not cover loss of business income for any reason other than those specified in your property andbuildings coverWe will not cover failure of electricity, gas or water supply cover due to:• your wilful act or neglect• a deliberate act of the supply undertaking in restricting or withholding supplies• weather conditions or drought• any industrial action• any failure of supply lasting for less than four hours
We will not cover any accounts receivable losses under this cover resulting from:• misplacing or misfiling of information• a public supply company deliberately restricting or withholding your electricity supply• deliberate erasure, loss, distortion or corruption of information
Public and products liability
Injury to an employee travelling in or on, or getting into or out of, a vehicle where any Road Traffic Act
legislation applies.
Physical damage to property in your custody or control other than employees’ and visitors’ personal belongings
Liquidated damages, penalty clauses, fines or punitive damages
Products supplied that could affect the navigation, or safety of any aircraft or other aerial device
Pollution or contamination
Products supplied to or work on, or travel to/from any offshore installation or support vessel
Claims arising from asbestos
Physical damage during the fixing/correcting of defective products supplied, or the cost of recalling them
Any advice, instruction, consultancy, design, inspection, certification or testing which you provide under aspecific contract or for which you’re paid separately
Employers liability
Work in or on or travel to or from any offshore installation or support vessel
Injury to an employee travelling in or on, or getting into or out of, a vehicle where any Road Traffic Act
legislation applies.
Liquidated damages, penalty clauses, or fines

Are there any restrictions on cover?
We will not pay any costs we consider are not reasonably and necessarily incurred
We will not pay more than the specified $2 million policy limit towards any one loss
We will only pay for losses incurred from 01/01/2020 to 31/12/2020
You will pay the policy excess of $1000 towards any claim
We will not pay a claim against a loss that is insured elsewhere
We may not make any payment if you have contracts in place with third parties which restrict our rights of recovery
Additional conditions apply, as specified in your detailed policy wording, for:• Security conditions• Special terms for empty buildings

What must I do?
You must provide us with honest, complete and accurate information
You must tell us as soon as possible of any changes:• to the business• in the persons or organisations listed as the insureds• to the information you provided to us previously or any new information that• increases the risk of loss as insured under any section of your policy• You must comply with all applicable laws and regulations in all relevant jurisdictions, as set out in yourpolicy documentation• Timely payment of outstanding premiums••

When and how do I pay?
You can pay your premium annually or monthly by Direct Debit or debit/credit card. Alternatively, call us us on
01234 567 890, 9.00am 5.30pm, Monday to Friday to discuss other payment options• If you fail to make your monthly payment(s) in full by the due date on more than 3 occasions in any period of
insurance, we will cancel your policy immediately•

When does the cover start and end?
•

A period of 12 months from 01/01/2020 to 31/12/2020

How do I cancel the contract?
If you wish to cancel and the insurance cover has not yet commenced, you are entitled to a full refund of
any premium paid
• If the cover has commenced, you can cancel your policy at any time during the period of insurance byadvising us. Provided you have not made a claim, you will be entitled to a refund of any premium paid,
subject to a deduction for any time for which you have been covered•

How do I make a claim?
If you need to make a claim, please email us at claims@ABCinsurance.com with the following information:• Your name and policy details• Details of the injury, loss or damage incurred• Any relevant evidence to help us pay your claim• Alternatively, please call us on 01234 567 890, 9.00am – 5.30pm, Monday to Friday•

Lloyd’s. Building simpler insurance products to better protect customers

35

Lloyd’s. Building simpler insurance products to better protect customers

36

Appendix 2:
How simplification levers could be applied to businessinterruption parametric and outcome-based products
Parametric insurance
Parametric insurance pays out a pre-determined sum
to customers in the case of a qualifying ‘trigger’
event, with claims paid as soon as the trigger isverified - regardless of whether the policyholder
sustains an actual loss.
The amount to be paid out is calculated by reference
to an agreed index or ‘parameter’, although somepolicies fix the amount to be paid out in the policy.
This amount is calculated to attempt to indemnify
the insured for the loss the insured will have sufferedon the occurrence of the trigger event.
The causes of loss that parametric insurance cancover are potentially much broader than those
covered by traditional indemnity insurance. Although
all pure risks – that is, risks with only a loss outcome– can theoretically be considered for the constructionof parametric insurance, in practice there is muchcomplexity in bringing these products to market,
especially when the complexity of these risks implies
multiple possible loss outcomes.
Parametric products are not a new concept, infact parametric cover is offered in the Lloyd’s
market for areas prone to natural catastrophes
and in many other areas. Parametric cover has
potential applications to business interruption
because it focuses on the trigger event, not thecause of the trigger. Parametric products may
also be outcome based.

The insurance response to COVID-19

The insurance response to COVID-19

Parametric contracts are based on clearly
defining a trigger event (or events) which thecustomer is covered for and a mechanism todetermine the claim payment:– Trigger event: One or more clearly defined andmeasurable event(s) or occurrence which isanticipated to cause a loss or disruption for thecustomer. A trigger event could be a natural
catastrophe of a certain severity, such as anearthquake or flood, power or internet failure or
government triggers, such as declaring apandemic or enforcing a national lockdown.
Parametric products rely on using agreed,
independent data sources, e.g. measurementof the location and magnitude of earthquakes,
which means there is the potential for parametriccontracts to operate as smart contracts, payingout automatically, without the usual requirements
for the loss to be adjusted.
Example 1: Government-mandated lockdown andclosure of all non-essential businesses for 2 ormore weeks (resulting in closure and loss ofsales for a retail store).
Example 2: A significant power outage lastingover 1 week (halting production in a factory).

Lloyd’s. Building simpler insurance products to better protect customers

37

Appendix 2: How simplification levers could be applied to Business Interruption Parametric and Outcome Products– Pay-out mechanism: The (often tiered) approachto calculating the customer pay-out once the trigger
event has been verified as occurring, or exceedinga certain threshold. The pay-out level is typicallyaligned with a customer’s business continuity
plan and risk tolerance.
Example 1: 50% of average weekly turnover paid foreach week that a retail store is closed due tolockdown, up to a maximum of 12 weeks.
Example 2: 50% of average weekly turnover paid
power outage lasting up to 1 week or more, reducing
to 25% if the outage lasts for over 3 weeks.

Risk or event occurs e.g. a global pandemic

Trigger event occurs, e.g. a nationwide lockdown

Outcome-based insurance
Outcome-based insurance contracts are definedaround the impact of a risk or event on customers
rather than the cause of loss.
Customer centricity is at the heart of outcome-based
insurance, with the pay-outs resulting from specific,
measurable outcomes which would be defined bycustomers in collaboration with their brokers andinsurers. This represents an opportunity for theindustry to engage with customers around what
their most significant concerns are, and to design
products which respond to these.
However, outcome-based products can be difficult
to price using traditional underwriting approaches,
which typically focus on the expected likelihood andimpact of specific perils. In addition, insurers could be
exposed to large aggregations of risk – for example
from systemic events causing large economic andsocietal losses. Insurers could protect themselves
against such aggregations of risk by applying specificlimits to the cover, provided these are visible andclearly worded. Alternatively, these products could
be supported by industry pooled capacity, with agovernment backstop, depending on the outcome
being insured, due to the potential.

Third party verifies event and provides confirmation

Risk or event occurs e.g. a global pandemic
Claim automatically lodged and approved

Specific customer outcome occurs, e.g. x% loss of revenue
Claim payment made (usually within 30 days)

Claim submitted

Outcome is verified (potentially by third party)

Claim payment madeThe insurance response to COVID-19

Lloyd’s. Building simpler insurance products to better protect customers

38

Appendix 2: How simplification levers could be applied to Business Interruption Parametric and Outcome Products

Outcome-based products insure against a clearly
defined outcome with a pay-out mechanism todetermine the amount paid out. They would typicallybe structured around three key elements:– Customer outcome: A clearly defined andmeasurable outcome which would impact theperformance or viability of a business, potentially
including loss of turnover, a reduction in asset
values or loss of key contracts or accounts.
The outcomes and associated targets will vary
based on the risk appetite of individual businesses
and would likely require some sort of independent
verification in the event of a claim. A suitableorganisation to independently verify the outcome
would need to be agreed to by parties.
Example 1: X% loss in revenue for 1 month or more.
Example 2: X% loss in property rental income in acalendar year.

The insurance response to COVID-19

– Pay-out mechanism: The payment made to
the insured once the outcome and severity havebeen verified. The pay-out level is typically alignedwith a customer’s business continuity plan andrisk tolerance.
Example 1: Reduction in gross profit during
the indemnity period, for a maximum periodof 12 weeks.
Example 2: 50% of average rental income foreach week that a rental property is empty.
– Applicable perils: It is unlikely that the insurance
industry could design an attractive outcome-based
product to cover all potential causes (or perils)
leading to the defined customer outcome without
government support.
For example, a reduction in revenue for a retailstore following an earthquake or terrorist attack
might be covered by an outcome-based product,
whereas a reduction in revenue due to lessdemand for the product would not. Any applicable
perils should be clearly highlighted in the contractand explained to the customer.

© Lloyd’s 2020 All rights reserved
Lloyd’s is a registered trademarkof the Society of Lloyd’s.

The material, information and ideas contained inthis report are for general information purposes.
While Lloyd’s has made every effort to ensurethat the information contained in this report has
been obtained from reliable sources, Lloyd’s is
not responsible for any errors or omissions or forthe results obtained from the use of thisinformation. Lloyd’s and members of the Lloyd’s
community accept no liability whatsoever for any
direct, indirect or consequential loss or damage
arising out of the use of all or any of the material
or information in this report. Nothing in the reportshall to any extent substitute for the independent
investigations and the sound technical businessjudgment of the reader. Any solutions would needcareful competition law consideration in therelevant jurisdiction and discussion with relevant
regulators before any steps were taken to
implement the consultation proposals.

The content of this presentation does not
represent a prospectus or invitation inconnection with any solicitation of capital. Nordoes it constitute an offer to sell securities orinsurance, a solicitation or an offer to buy
securities or insurance, or distribution of
securities in the United States or to a U.S.
person, or in any other jurisdiction where it iscontrary to local law. Such persons should informthemselves about and observe any applicablelegal requirements.

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