REG Reviews- September 2024
REG Technologies
Onboarding and lifecycle solutions for regulated businesses - managing your B2B trading, legal and compliance risks.
Welcome to your September Edition of REG Reviews!
Last month, the FCA published a discussion paper aimed at bettering the commercial regulatory landscape, the average UK home insurance has skyrocketed, the increase in severe weather damages is compelling insurers to think of stronger strategies, and REG’s new module REG Verified is set to revolutionise the insurance market.
Read these articles and many more as we bring you all the important news and views in the insurance and financial services world…
REGULATORY
FCA Guides Crypto Firms on Marketing Compliance
The FCA has recently conducted a review of crypto businesses’ adherence to new financial promotion rules aimed at ensuring that consumers understand better the risks associated with investing in cryptocurrency.
While these rules were launched in October 2023, they’ve seen thorough consultation and legislative modifications.
The review assessed how companies are carrying out key aspects such as personalised risk warnings, a 24-hour cooling-off period, client categorisation, and appropriateness assessments.
Below are the key points to take out of this review:
FINANCE
Average UK Home Insurance Soars
UK home insurance policies have experienced a dramatic increase due to the unprecedented rise in extreme weather damages and related claims being paid out from 2023.
This year, the average home insurance policy has reached ￡400 , which is a 19% jump compared to the same period in 2023 according to the Association of British Insurers (ABI).
These skyrocketing prices are worrying policyholders that consider this product as key and begs the questions whether consumers can afford to pay home insurance policies on top of their other expenses, particularly pricey car insurance.
As reported by the Financial Times, insurers paid out ￡1.4billion in claims to homeowners and firms in the UK between April and June.
Shockingly, this year UK insurers also incurred a loss of ￡573 million in pay outs due to severe damages induced by extreme weather and storms as provided by the ABI.
In response to these climate-related claims, Louise Clark, a Policy Adviser at the ABI recognises the serious effect severe weather can have and said; “Urgent government action to tackle surface water flooding and maintain flood investments and maintenance will help reduce the future impact of flooding.”
The new labour government has pledged to combat these surging insurance prices in its general election statement and is continuously working with insurers to find an optimal solution for both consumers and insurance companies.
The only questions left to ask are when will these come to life and how will both insurers and the government strike a balance between profit and affordability for the general public?
CYBER
Assessing Cyber Insurance After a Global Tech Outage
July witnessed an unprecedented global technology outage that disrupted services across sectors, grounding flights, halting medical services, and interrupting broadcasting channels. While these disruptions were extensive, the cyber insurance sector remained relatively unscathed, bearing a minimal fraction of the overall damages.?
The incident, which originated from an update by cybersecurity firm CrowdStrike, did not extend for a significant duration, partially due to the nature of the error being more manageable than a direct cyber attack. This resulted in a limited activation of insurance policies, most of which have clauses delaying coverage until 8 or so hours after an incident begins.?
Despite the estimated $15 billion in overall damages, the cyber insurance coverage was triggered for less than a fifth of the $5.4 billion losses reported by major corporations. Beazley, a leader in the cyber insurance market, faced potential liabilities ranging from $80 million to $120 million. However, the company maintained its profit projections, indicating a strong absorptive capacity.?
The cyber insurance market remains one of the most volatile areas, with limited historical data to guide risk assessments. However, the recent incidents are likely to become valuable data points, shedding light on the sector’s exposure to cyber threats. Beazley has taken proactive measures to manage risks, including the issuance of cyber catastrophe bonds and enforcing strict underwriting criteria, which includes shedding policies from holders with insufficient cyber controls.?
Insurance policies provide an essential, though limited, safeguard against the rising tide of cyber risks. Nevertheless, the demand for cyber insurance is expected to surge as risk managers grow increasingly wary of cyber threats, a sentiment intensified by the recent widespread system outages.?
This incident highlights the vital role of cyber insurance in modern risk management, demonstrating the industry’s growing ability to handle complex digital threats. As cyber risks increase, so will the demand for comprehensive insurance solutions, with lessons from recent events refining future risk assessments and coverage strategies.
REGULATORY
FCA Discussion Paper Aims to Balance Regulation and Market Growth
The Financial Conduct Authority (FCA) has announced its intention to conduct a comprehensive market study into the sales practices of pure protection insurance products. Scheduled for launch in the financial year 2024/25, this study arises from concerns that competition may not be effectively serving consumers within this sector.?
Pure protection insurance, which encompasses term assurance, critical illness cover, income protection insurance, and whole-of-life policies designed for over 50s, plays a vital role in safeguarding the financial well-being of individuals and families. In 2022 alone, these policies facilitated approximately ￡4 billion in claims payouts.?
These essential financial products are predominantly marketed through intermediaries such as independent financial advisers and mortgage brokers. However, the FCA has raised questions about the fairness and effectiveness of current commission structures. There is apprehension that these arrangements may not consistently yield beneficial outcomes for policyholders. Furthermore, the authority is scrutinising the overall value of these products, particularly in instances where the premiums paid by consumers could significantly exceed the maximum possible benefits.?
The upcoming study by the FCA will delve into several key areas:?
Sheldon Mills, FCA’s Executive Director of Consumers and Competition, emphasised the importance of market integrity, stating; “Pure protection can offer peace of mind and financial security, especially when consumers are most vulnerable. It’s crucial that the products available meet their needs and offer fair value. Should our findings reveal shortcomings in how the market functions, we are prepared to take action.”?
As the FCA gears up for this review, it is actively seeking feedback on its Terms of Reference and plans to consult widely with firms, industry groups, and other stakeholders to gather a broad range of perspectives on the issues at hand.?
This initiative represents a proactive effort by the FCA to ensure that the pure protection insurance market operates transparently and equitably, aligning with the best interests of consumers across the UK.
TECHNOLOGY
Transforming Learning with AI in the Classroom
As the academic year begins, the integration of artificial intelligence (AI) in education is gaining momentum. A notable development is the introduction of “teacher less” classrooms in at least one London private school, where core GCSE subjects will be taught using AI, under the supervision of learning coaches as a pilot group. This shift reflects a broader trend towards technological innovation in education, a topic that has sparked debates, such as in South Korea where plans for AI digital textbooks have met resistance.?
AI’s potential to transform educational practices is significant. It can relieve teachers of routine tasks like lesson planning and grading, allowing them to focus more on interactive teaching. Edtech companies are developing AI tools to support these processes, though accuracy and fairness must be monitored closely.?
AI-powered tutors offer personalised learning by assessing student progress and tailoring support accordingly. This adaptive learning helps both advanced and slower learners, ensuring a more inclusive educational environment. However, these tools should be used alongside traditional teaching methods to provide a balanced educational experience.?
To prevent over-reliance on AI, schools are adopting flipped learning models where students use AI tools at home to prepare, and classroom time is dedicated to discussions, problem-solving, and supervised activities, developing a deeper understanding and practical application of knowledge.?
AI also enables more creative and engaging teaching methods. Students can interact with language-learning avatars, explore virtual environments like the International Space Station, or co-create music and art through AI software. These innovations encourage a shift from rote memorisation to a focus on applying knowledge creatively.?
As AI reshapes education, it’s crucial for teachers, schools, and governments to adapt to maximise its benefits while maintaining educational integrity. The thoughtful integration of AI can revolutionise teaching and learning, preparing students for a future dominated by AI technologies.
ESG
Reimagining Coverage for Climate Damage
Rising severe weather and climate change damages are pushing the insurance sector to rethink and reinvent stronger insurance strategies and policies.
This holds particularly true for property owners in high-risk areas where floods, storms, tornados and fire are more likely to happen. Not only this, but economic factors such as claims cost and inflation are also impacting the price of these types of insurance policies, according to the Financial Times.
Thomas Brennan, an insurance broker and an owner of different restaurants in New Orleans has told the Financial Times that he believes the market is worse than it has ever been before, especially when it comes to finding private flood insurance.
He also adds that; “The limit [of additional cover available through private-sector policies] got eroded, rates went up, deductibles were higher.”
领英推荐
Brennan immediately saw an opportunity to innovate in the global insurance market, but also to make flood insurance available and accessible to other property owners amid extreme weather damages, by turning his restaurants into FloodFlash.
FloodFlash offers what is called a parametric insurance which is a form of insurance that covers a defined amount based on a pre-agreed trigger, such as a water sensor in the policyholders’ property as a proof.
Aon, one of the leading insurance brokers reported that; “With a parametric trigger, uninsurable exposures become more insurable.”
However, experts share the disadvantage of parametric insurance as not being entirely precise and reliable.
While insurance helps cover the cost of claims, it doesn’t prevent the damages from happening in the first place. This is why businesses and property owners must work hand in hand with insurers to build properties that could resist weather damages so that the losses are minimal for both the insurance provider and the policyholder, which FT refers to as an adaptation and prevention strategy.
With new innovative technologies and predictive models, damages can be mitigated as underwriters have access to more reliable data that can help them calculate risks better.
REG UPDATES
REG Verified to Revolutionise the Insurance Market
On September 12th, REG will launch?REG Verified – The Trusted Status for Businesses. With over 15,000 businesses in our network being granted REG Verified status following launch, this new module offers a game-changing solution for quick, cost-effective decision-making about new counterparty relationships.
What is REG Verified?
REG Verified is a free, at-a-glance status check that provides users with immediate insights into the authenticity and viability of businesses. This innovative tool is designed to simplify and expedite the onboarding process, allowing companies to make fast ‘No or Go’ decisions without the burden of detailed due diligence and ongoing monitoring costs. By eliminating these traditionally time-consuming steps, REG Verified empowers businesses to operate with greater speed, efficiency, and confidence.
Key Benefits of REG Verified:
REG Verified is designed with one goal in mind – to make the insurance market faster, smarter, and safer. By offering free access to this powerful module, we are ensuring that both businesses and customers can operate with greater efficiency and security, paving the way for more robust and trustworthy business relationships and a new standard for business interactions.
How REG Verified Works
The launch of REG Verified marks a significant milestone in our commitment to innovation and excellence within the insurance industry. We are excited to see the positive impact this tool will have on our network and the broader market, as we continue to enhance the ways in which businesses connect and collaborate.
Stay tuned for more updates as we approach the official launch date, and get ready to experience the future of business verification with REG Verified on September 12th.
REGULATORY
Shaping the Future of Commercial Insurance Regulation
The Financial Conduct Authority (FCA) has recently published a discussion paper focused on the regulatory landscape of commercial and bespoke insurance. The paper, which invites feedback on balancing customer protection with market competitiveness, represents a significant moment for the industry. David Sparkes, Regulation Director at the British Insurance Brokers’ Association (BIBA), underscored the importance of this development.?
While Sparkes acknowledged the FCA’s initiative, he emphasised the ongoing dialogue between BIBA and the FCA, particularly regarding the regulatory burdens on small brokers. He stated; “What we want is substance over form, and I think to be fair to the FCA, they would like that now as well. And certainly the Consumer Duty is orientated around that sort of thing.” This sentiment aligns with the FCA’s new Consumer Duty, which aims to enhance service quality and long-term client relationships – crucial elements for brokers.?
Driven by the Financial Services and Markets Act 2023, the discussion paper also supports the FCA’s secondary objective of boosting the UK’s economic competitiveness. Graeme Trudgill, CEO of BIBA since July 2023, has been a strong advocate for proportionate regulation that benefits smaller players within the sector.?
The FCA is considering adjustments to better serve various commercial entities, from sole traders who resemble individual consumers to large corporations with in-house insurance expertise. The regulator suggests that refining these distinctions could reduce unnecessary regulatory costs and encourage innovation, thereby fostering a more competitive insurance market.?
Sarah Brook, a financial services partner, remarked on the FCA’s overdue recognition of the challenges in applying broad consumer-focused rules to the nuanced commercial insurance market. She noted that these regulations often clash with the realities of the subscription market, creating ongoing challenges.?
The paper also explores the possibility of adjusting rules based on the size and nature of the commercial customer. This could lead to exemptions for certain large businesses that are less reliant on regulatory protections than smaller entities. The FCA is seeking input until 16th September, after which it may begin consultations on revising its rules and guidelines, potentially leading to a more tailored and effective regulatory framework.?
CYBER
Your Personal Info Is Likely in Hackers' Hands, Experts Say
Following a data breach of the National Public Data, a swarm of identity theft has been triggered.
According to a lawsuit initiated in the U.S District Court in Fort Lauderdale initially reported by Bloomberg Law, hackers known as USDoD have stolen personal information on approximately 3 billion people , including social security numbers, names, email addresses, birth dates and addresses.
The data reportedly affects people in the United States, Canada and the UK and was made available on the dark web.
“This incident is more than just a reminder of how vulnerable our digital world is — it’s a wake-up call for every organisation out there,” reported Techopedia when speaking to the VP of Products at OPSWAT.
When speaking with the Los Angeles Times, Teresa Murray, Consumer Watchdog Director at the US Public Information Research Group said; “It’s enough for bad actors to cause all kinds of chaos, commit all kinds of crimes and steal all kinds of money.”
The good news is that identity theft insurance might help cover some of the financial damages through providing services like credit monitoring, compensation for related costs and fraud assistance.
As Bankrate states; “Identity theft coverage insurance is available from most major carriers as a rider or endorsement to a homeowner’s policy and a few include it in standard home policies. Identity theft coverage varies widely, from reimbursement of stolen funds to a host of services to help repair the financial damage.”
To mitigate identity theft risks and help protect people, PropertyCasualty360 along with cybersecurity experts suggest that everyone abides by the following:
FINANCE
Slowest UK Wage Growth in Two Years
According to the Office of National Statistics (ONS), the UK’s unemployment decreased significantly to 4.2% in the three months to June by 0.2%. However, UK wages growth hasn’t improved.
In that sense, UK wage growth declined so much that it has reached its lowest rate in approximately two years as reported by the Financial Times. Even yearly salary growth has decreased by 0.4% from 5.8% in just three months according to the ONS.
Moreover, The Guardian reports that total pay growth including bonuses decreased by 1.2% to a low level of 4.5% following surveys that show how employers in different industries weren’t thinking of hiring more people.
Inability to work because of deteriorating health among the working population also impact employment levels. In fact, partner at consultancy Barnett Waddingham, Julia Turney, reports to The Guardian that; “The workforce we are dealing with today is older, increasingly remote and more in touch with mental health challenges than ever before.”
She also adds that high levels of stress are a strong factor that pushes staff to retract from work.
When compared to inflation, the wages actually increased by 1.6% and employees saw a positive improvement in their living standards. Also, more positions have been filled proving that the job market is stabilising.
As reported by the Financial Times, Economist at Consultancy Capital Economics, Ruth Gregory, said; “The further easing in wage growth will be welcomed by the Bank of England as a sign that labour market conditions are continuing to cool.” She also adds that; “This lends some support to our forecast that the Bank of England will press ahead with two more 25 bps interest rate cuts later this year.”
The National Institute of Economics and Social Research also reports that wages growth might increase inflation which could push the central bank to keep its interest rates high for a prolonged period.
The institute stated; “The persistence of strong wage growth raises concerns about stickier inflation, which may prompt the Bank of England to remain cautious about further interest rate cuts.”
TECHNOLOGY
Technology Shifts Consumer Preferences in Insurance
Consumer expectations and preferences are changing very fast, with many putting technological breakthrough at the forefront of their decisions.
A recent survey conducted by Insurity, a leader in cloud-based insurance software and analytics, found that 52% of consumers now favour insurers that invest in advanced technologies to improve the claims process following severe weather events.
This represents a shift away from the older focus on cost when selecting insurance policies.
Insurity’s Severe Weather Consumer Pulse Survey released this year dives deeper into how sever weather events are influencing consumer decisions when it comes to insurance coverage.
The survey discovered approximately 48% of Americans trust in their ongoing insurance plans and think that it completely protects them from severe weather’s financial consequences. While 36% would easily change insurance providers for better coverage, despite the cost.
CEO of Insurity, Chris Lafond, affirms that; “Consumers are increasingly valuing the technological capabilities of their insurance providers, especially in the context of severe weather events”.
He also adds that their survey clearly shows how important technology is for policyholders to ensure the best experience and service possible. Particularly, AI, machine learning and predictive analytics are becoming crucial for insurers for servicing consumers better and staying competitive according to Lafond.