The following is an opinion piece written by Rodney Bonnard, UK insurance leader at EY. The views expressed within the article are not necessarily those of Insurance Business.
Low interest rates, intense competition and a more subdued economic backdrop have renewed insurers’ focus on customer proposition this year – a trend set to continue in 2019.
Today’s intense margin pressures mean that cost efficiency, a perpetual goal of all insurers, is more important than ever. Across all segments of the market, insurers are assessing how to design operating models and deploy technologies that deliver short- and long-term cost and performance improvements.
New technologies are featuring increasingly prominently as insurers digitise antiquated customer systems. We expect Artificial Intelligence (AI) to move into the mainstream next year, alongside the increased use of blockchain platforms.
Across the market, AI is streamlining claims management and enhancing cost efficiency across customer engagement, while blockchain is being used to improve data quality in authentication, underwriting and claims attribution. More broadly, we are seeing insurers harnessing the Internet of Things to underwrite policies using real-time data and to reduce or eliminate claims using allied services.
Insurers’ focus on technology and innovation will continue to drive M&A activity, albeit not at the same rate as this year. As firms seek new growth opportunities through acquisitions, insurtech innovators will be a major beneficiary of increasing investment by both carriers and brokers.
In terms of sector outlooks, we expect motor, which accounts for around one third of UK premiums, to record a net combined ratio of 99.8% in 2018 and 102.8% in 2019 as premium reductions this year kick in and claims inflation continues to rise. While reforms to the Ogden rate and the Civil Liability Bill are set to benefit the sector in the medium-term. Pricing practices will be a “priority” for the New Year and the models underpinning UK premiums will come under the scrutiny of the FCA’s market study.
In the household market, we foresee another tough year with continued downward pressure on rates. Rates on new business will increase but average written premiums continue to decline. We predict a net combined ratio of 101.4% in 2019. Aside from preparing for the impact of Brexit, the industry will also be focused on regulation in respect of the recent thematic review on pricing, “Dear CEO” letter and the CMA super complaint.
For speciality, following a costly H2 in 2018, with the impact of Typhoons Jebi, Trami and Mangkhut, Hurricane Michael and the ongoing California Wildfires, 2019 is likely to remain a difficult market. Despite the challenging rating environment and the exit of certain lines by carriers across the market, new capital is still attracted to this market which will limit any rate improvement. We believe the regulator will continue to focus on legal entity performance and governance of specific portfolios, such as delegated arrangements, over the coming year.
Of course, overhanging all of this is Brexit. Regardless of how events unfold over the coming weeks and months, Brexit will continue to dominate boardroom discussions and business strategies over the near to medium term. While political uncertainty continues, companies impacted by the current lack of detail on the future of cross-border commercial operations and regulation will execute their Brexit contingency plans based upon a “hard/no deal” scenario.
Given the challenging outlook, it’s vital that insurers critically assess how they are differentiating propositions and leveraging the latest tech innovations to help drive down costs and improve customer offerings.