Challenges and Opportunities for Insurers in 2018

by Mike Davies, Director at Norman Broadbent Interim – Insurance

As we move into 2018, the only thing that is certain is the level of uncertainty about where we will be at the end of 2018! A number of issues which have challenged Insurers in 2017 will continue to dominate, but with a fresh set arriving, predominantly surrounding the forthcoming uncertainty facing organisations with Brexit and continued Regulatory initiatives including GDPR.

The IoT and Connected homes, autonomous devices and the rising threat of Cyber Attacks are transforming the way people engage with Insurers and their products. Therefore, insurers will need to continue to adopt new technologies in order to identify opportunities as well as challenges. What should Insurers be aware of as we head towards 2018?

ECONOMIC OUTLOOK: UNCERTAINTY WILL IMPACT INSURER GROWTH PROSPECTS IN 2018

The UK economy is heading into unknown territory. 2016 saw Britain voting to leave the EU, bringing to the forefront an array of challenges and highlighting key considerations for insurance providers, many of which were heightened further with the announcement of GDPR set to be implemented in May 2018.

• Brexit

No one knows where this will end up or what the macro societal effect will be. Furthermore, there are legislative challenges of passing European laws into British law. Uncertainty can breed fear and the economy’s ability to grow may be impaired.

• Low but rising interest rates

This is a hard one for Insurers – higher interest rates will slow spending, but these will allow increased flexibility in commercial and margin calculations as well.

• Housing market slowdown in certain areas

The housing market bubble has been slowing down throughout 2017 and with the recent rise in Interest rates – the first for 10 years – will inevitably affect both confidence and disposable spending.

• Cultural shift – telematics / autonomous / UBI (Usage Based Insurance)

This is the largest challenge by far as it affects the core foundations of how Insurers engage with their clients going forward. This is where Insuretech has the ability to revolutionise certain aspects of Insurance, through initial customer acquisition all the way through to claims and renewals.

GENERAL INSURANCE OUTLOOK: CUTTING COSTS AND MODERNISING OPERATIONS

Despite the above issues with uncertainty, organisations are presented with a new set of opportunities to not only differentiate themselves from competitors, but to also implement a transformative operational strategy which can allow insurers to adapt to the ever-changing landscape.

Growth opportunities

• Telematics and usage based insurance

Data has a key part to play here and using it wisely (and legally – GDPR!) will decide who wins and who loses. If customers can be convinced of the benefits and allow data to help them get more relevant and potentially cheaper products, they will continue to buy from the Insurer.

• IoT and connected Insurance

This is an area which provides insurers with limitless possibilities – the connected home will allow prevention rather than cure and Insurers will increasingly find themselves adapting their products to be more proactive rather than reactive.

• Cyber Insurance

A growing market for B2B as well as B2C. If data is the new gold standard, then firms and individuals must be ready for a level of criminality yet unseen. Indeed, an unintended consequence of GDPR may be a massive increase in organised criminality, even potentially state-sponsored.

Operational transformation opportunities

• Operational effectiveness

The push to streamline Insurers to make them fit for purpose in a connected world continues – only those which can successfully lower their cost/income ratio will survive in their current form.

• Back office rationalisation using AI, analytics and robotic process automation

A truly exciting aspect, this is where Insuretech can make a significant impact for organisations – claims, compliance and pricing are just three areas which will be disrupted in 2018.

• New distribution channels

The way that culture has evolved and the methods used by Millennials to access services means that new marketing channels have to be found, whilst existing routes are evolved continuously. In the age of aggressor sites, getting the customer first with an effective, relevant and price-sensitive product will become essential.

LIFE INSURANCE AND PENSIONS SECTOR OUTLOOK: DRIVING GROWTH THROUGH TECHNOLOGY MODERNISATION

Organisations will have a real opportunity to utilise the rapid growth of technology within the insurance landscape throughout 2018. We’re already seeing many traditional insurers adapting to recent trends within the industry such as Insurtech, wearable technology and gamification to name a few.

Regulatory disruption

• Annuities legislation

The continued effect of the change in legislation still has companies evolving their products – ironically the new products are born out of the ashes are compelling and a strong case is now being made for their inclusion in Life planning.

• Robo Advice

2018 will see the continued roll out of Robo-advice with organisations both large and small coming back into the arena of Advice for those with less to invest. Strong regulatory backing will be required for consistent advice reasons and to redress the unintended consequences of RDR as well.

• Solvency II

Solvency remains at front of mind for the industry, especially as low economic growth and interest rates persist. The drive for capital efficiency is still high on the board agenda.

Growth opportunities

• New customer centric products via new connected channels

The Life and Pensions providers have much to gain in this area as well – the advantages that UBI will deliver on Health, Critical Illness and life assurance itself will ensure organisations will remain competitive, and be seen as a positive contributor to the health debate.

• Gamification in the insurance sector may help increase customer engagement

Trends ranging from behavioural science and social networking to the Internet of Things and wearable tech, gamification will continue to be a powerful lever for insurers seeking to enrich digital experiences and adopt new customer-centric business models, such as pay-as-you-live offerings and Usage Based Insurance (UBI).

• Simplification of L&P products for consumers and regulators

As the regulators place products under reviews which are more scrutinised than ever before, there is a risk is that the product sets becomes ever more Vanilla in nature. Proposition-based innovation through new channels, using AI, machine learning or predictive analytics will allow organisations to create products which stand out from the crowd.

Operational transformation opportunities

• Ongoing legacy systems using advanced analytics and robotic process automation

The push to modernise back office systems by moving into the cloud and away from legacy systems continues, but at a slow pace. The reliability of legacy infrastructure is still strong, but it can only go so far in supporting new app and cloud-based platforms.

• InsurTech applications for core operations to streamline sales and underwriting

Strong advances in this scenario mean this is true for consolidation – actuarial, claims and compliance can be streamlined, with a huge headcount reduction and increased governance.

• Better UX through increased channels

User experience will be enhanced with new channels, easy to access at the point the customer wants to buy. Can legacy support this transition, or is the switch to more modern platforms essential if organisations are to remain competitive?

CROSS-SECTOR INSURANCE TRENDS

Mergers and Acquisitions will continue to disrupt and rationalise the market in 2018, with the UK market expected to remain a global force.

• The UK and European insurance market remains one of the the largest globally on a premium basis and it offers more growth potential than any other market, making firms attractive to foreign buyers.
• M&A activity could be spurred both by insurers looking to divest non-core assets for both regulatory and competitive reasons and by those seeking acquisitions to increase scale and capabilities.
• Disrupting InsureTech firms will also be front and centre, both working with Insurers and being a target for Venture Capital or Private Equity.

CONCLUSIONS

Insurers will need to balance a myriad for challenges in 2018 whilst aiming towards becoming a completely customer centric business. They need to constantly assess how they are performing, but also look at large transformation programmes which will position insurers better from a customer, operations and Technology perspective. So what are the some of the key actions for insurers in 2018?

• Developing new products to meet emerging coverage needs in a sharing, connected economy.
• Expand digital distribution and virtual service to cut costs and gain competitive advantages.
• Enable technology modernisation.
• Develop Connected Insurance and IoT propositions, allowing usage based pricing.
• Find ways to access both new and existing customers first, before they shop on Price comparison websites.
• InsureTech is your friend – invest and find out which organisations look best suited to help your business.

If you would like to find out how Norman Broadbent Interim can help you, please contact Mike Davies director at Norman Broadbent Interim, for an initial confidential discussion.

Email: [email protected]

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