While some economies slowly begin to reopen during the COVID-19 pandemic, high unemployment levels will reduce the uptake of insurance products. Insurance providers will struggle to convince policyholders to keep policies while their disposable income is being squeezed.
Individuals who are employed full-time are more likely to hold insurance products than those who are part-time employed, self-employed, or unemployed, as per GlobalData’s 2019 Banking & Payments Survey.
In the UK, for example, 71% of those who are employed full-time have home or contents insurance, compared to 67% of part-time employees, 68% of self-employed individuals, and 33% of the unemployed.
Those who are full-time employed are more likely to have a higher income, making them more able to afford non-compulsory insurance products. However, uptake of these products will fall as unemployment rates increase across the world and individuals can no longer afford some insurance products.
In the UK, a record number of people are claiming for unemployment benefits despite the government’s furlough scheme. Claims increased by 69% in April 2020 according to the Office for National Statistics, marking the largest monthly increase since comparable records began. The furlough scheme is set to continue until the end of October 2020, but will begin winding down in August. It is likely that there will be more job cuts at this point, since economic activity will still not be back to regular levels and businesses will struggle to mitigate costs.
This problem is not unique to the UK. According to the Federal Reserve, US unemployment rates could peak at 25%, with more people losing their jobs in May and June as a result of the pandemic. Japan, the third-largest economy after the US and China, has sank into a recession due to the Coronavirus crisis, and most countries are expected to follow at some point this year.
Insurers need to be flexible with their customers in order to reduce the impact of rising unemployment. Payment holidays can help for a limited time period. Insurers should also be flexible and allow their customers to adjust their level of cover to one that is more affordable for them. The development of usage-based policies and short-term, on-demand policies with lower premiums will also help insurers retain some of their customers during difficult times.
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