It’s a turbulent time for the insurance industry – and indeed, many others, too – as the world around it changes rapidly.
Last week, we told you that the global insurance sector is being forced into a ‘profitability revolution’ as large-scale trends such a technological innovation, complex regulation, and challenging operating ratios take their toll on business.
Now, Fitch Ratings has revealed that the outlook for the London insurance market remains negative in 2018, which it says reflects the expectation that underwriting results “will continue to be pressured by the high cost of doing business, due to high acquisition and administration costs.”
While the less-than-appealing forecast for the London market is underpinned by underwriting losses in 2017 as a result of insurers’ exposure to major catastrophe events, there are a range of macro factors at play that are making the insurance business a tough one to be in right now – or at the very least, a demanding one.
Technology and its effect on the consumer mindset is at the forefront of many insurance companies’ minds today, according to CGI’s ‘Have you Joined the Profitability Revolution?’ report.
“Disrupters from outside of the insurance industry, perhaps most noticeably Amazon’s recent foray into insurance, have had a catalysing effect within the industry by increasing expectations from customers, suppliers and partners alike,” Adam M Savill, director of insurance at CGI, told Insurance Business.
“The huge change in people’s experience of digital servicing in fast moving consumer goods has led to a justifiable rise in expectations in insurance,” he continued.
The rise of the smartphone has been a key disruptor in changing the dynamics of the industry, “in terms of channels to market, pricing and promotion,” Savill said.
“Customers under the age of 30 expect to use their mobile devices for all commercial and personal interactions, and consider letters and shops to be from an analogue age. It’s imperative that insurers provide the optimal digital customer experience (CX) if they are to remain engaged and relevant with their customer.
And while the potential for technology to revolutionise many of the core processes within insurance is much-talked about, there can be a focus on the wrong things, according to Savill.
“The trend that probably receives most publicity is the introduction of disruptive technologies such as blockchain, digitisation, robotics and artificial intelligence. These innovations have not always been developed to meet a specific customer need, and the best commercial uses for blockchain – apart from Bitcoin – have yet to be fully exploited,” he explained.
“However, digitisation, robotics and AI have all been targeted at driving downs costs by automating existing processes to deliver them more effectively, rather than developing new business models.”
Alongside all that change, is the constant pressure to keep up with changing regulation – and the added Brexit bombshell.
“No discussion of trends is complete without a reference to the ongoing, costly challenges of meeting and optimising regulatory compliance,” Savill said.
“This has become more time-consuming and complex as new regulation covering disclosures, fraud, the General Data Protection Regulation (GDPR) and Insurance Distribution Directive (IDD) come into force.
“The ability to retain passport rights to freely underwrite policies and insure across the European borders will be under scrutiny as UK insurers struggle to remain compliant with Solvency II, and the implications of Brexit on the regulatory environment are still unclear.”