In this third part of our Predictions 2024 round-up, we take another look at general insurance market trends. From new regulations to price inflation, flood risks, diversity or open ended insurance policies. The future is what we make it.
By the way Predictions Part One is here and Predictions Part Two is here if you want the full information overload before you digest another mince pie.
RADICAL THINKING
OK, let’s start with a radical idea: What if we told you that insurance doesn’t need to be a 12 month policy, you can actually run it as a continuous contract? Mark Costin, Commercial Director at Insurwave sees this flexibility as being a dynamic development next year.
Approaching the future of insurance contracts
As technology continues to transform the insurance landscape, we will see more acceptance from the marketplace towards considering continuous insurance contracts. Traditional insurance policies are often viewed as 12-month policies accurate on the day of their creation and less so after every day that passes. However, by making use of systems and platforms that update data in real time to create a living insurance programme, insurance professionals across the value chain – from risk managers to insurers and brokers – can gain a comprehensive view of a business’s risk profile, allowing them to make better-informed decisions.
Geopolitics and real-time exposure tracking
As the background of geopolitical escalation continues, pressure has been placed on insurers to prove they have a holistic view of their accumulations and aggregate limits. Technology platforms that allow real-time tracking of exposures will be well-placed to help solve this issue.
UNDERWRITING TRENDS – HISTORY IS BUNK?
Underwriting risk is always evolving and has done since the days of Lloyd’s insurers meeting in coffee houses to price hulls and cargoes. It’s worth noting what James Kruger, UK Head of Insurance at Capgemini, sees as key elements of underwriting evolution next year. Historical claims data is always useful, but it isn’t going to be enough when it comes to underwriting future risks, we will need new data sources to be integrated into the system:
“Underwriting and claims processing advancements will be pivotal for insurance profitability in 2024. After years of disappointing underwriting results, the traditional models that rely solely on historical data have proven inadequate as the very nature of risk continues to evolve. This has created a more urgent need for new data sources, predictive analytics, and selective AI applications to strengthen risk assessment. Modern digital workbenches will help underwriters assess risks more accurately and also spend less time on admin tasks, allowing them to focus on more value-adding activities such as deal-making and portfolio optimization.
Use cases from leading insurers validate these technologies’ profit potential. For example, a leading Swiss global insurer leveraged Capgemini’s advanced digital underwriting and broking platform to swiftly launch over 55 tailored products across diverse geographies in just 8 to 12 weeks, reducing time to market and allowing seamless application of tailoring and business rules at the geographic level.
Meanwhile, AI and automation, bolstered by virtual assistants, will help optimise claims operations – improving query responsiveness and customer satisfaction while also reducing costs. Though adoption is nascent, we anticipate integration will accelerate as insurers recognise AI’s service and efficiency benefits. Digitally transforming these functions is crucial for forward-thinking insurers to overcome industry challenges, reduce operational costs, and gain a competitive advantage through decisive action.
UK FLOOD RISK IN EARLY 2024?
IE never wants to fall into the mainstream media trap of being puppets for the latest Project Fear, but there’s no argument from us if you say that it’s been a very wet winter so far. Winter flooding can be costly for insurers, plus it requires re-drawing the flood plain data maps as new housing estates eat up land that previously acted as a handy sponge for excess rainfall.
There have been several floods across the UK already and Dr Paul Ellis, managing director of GeoSmart Information, sees more trouble ahead as water seeps down into the ground in December.
The GeoSmart groundwater forecast from across the UK reveals the recharge season – when water seeps into the ground to replenish supplies in aquifers, which are underground bodies of rock or sediment that store groundwater – has begun early this year, due to recent heavy downpours and floods.
Dr Ellis said: “Aquifers typically don’t reach levels we are seeing now until later in December or early January. This means that river baseflow, which is supported by groundwater discharge, will be higher, leading to an increase in flood risk from river and surface water runoff, and sewer overflows. If the wet weather continues over the next month, then groundwater flooding could start to become an issue.”
“When groundwater levels exceed the threshold level, we know from previous experience that groundwater flooding will start in the surrounding catchments, leading to flooded drainage systems, impacts to road links and potential property damage. Historically, the greatest flooding impacts have been when levels persisted above threshold, such as in 2000 and 2014.”
By the way, GeoSmart Information is already undertaking research into how satellite technology can help water resource management and disaster mitigation after being awarded £42,544 from the UK Space Agency in the summer.
REGS AND DATABASES
One piece of regulation can sometimes change things in a fundamental way, for example new rules on reporting workplace injuries in the USA will have an impact on commercial insurance in certain environments. The risks remain the same, but the compliance issues surrounding writing cover will evolve and change.
John Swigart, Co-Founder and CEO of Pie Insurance explains more;
“2024 is slated to be a year of regulatory developments in which small businesses will need to emphasize training and understanding of the latest reporting requirements. For example, a new rule by Occupational Safety and Health Administration (OSHA) effective January 1, 2024, will require certain employers in high-hazard industries to submit workplace injury and illness information to a searchable digital database.
The timing of this regulatory update is noteworthy given small businesses’ growing emphasis on workplace safety, a trend that I anticipate will continue next year. In a recent survey of U.S. small businesses, Pie Insurance found that 25% don’t feel secure in their understanding of workers’ compensation coverage and regulations. We also found that 21% wish they’d emphasized workplace safety more during the start of their business. Small businesses don’t always have the resources or luxury of having dedicated safety teams and experts, so this data underscores the importance of insurers and agents alike partnering with their clients to ensure they have the right coverage and education needed to protect their clients’ expanding workforce.
Given the public-facing nature of the OSHA database, these new reporting requirements should prompt employers to prioritize safety improvements in progress, as well as empower current and prospective employees to make more informed decisions regarding their workplace’s safety and health in 2024 and beyond.”
THE WATCHWORD WILL BE STREAMLINING
There is little doubt that inflation will still impact the sector next year. Although inflation rates may fall, the pressure will still be felt in every part of the insurance chain, from pricing to claims settlement. That means streamlining systems will be a big challenge, as Sara Costantini, Regional Director for the UK & Ireland, CRIF, notes here;
“From our conversations with clients, priorities across financial services in 2024 will lean towards streamlining internal processes and reducing operational costs in order to remain competitive and meet customer needs.
In the insurance industry specifically, many will want to meet these priorities to stay ahead of the curve and we can expect to see increased digitisation with the adoption of new technologies such as artificial intelligence (AI). Insurers who embrace AI stand to gain a lot as it enables them to confidently and seamlessly make informed decisions and differentiate themselves from the rest of the market.
While being cost efficient, AI can also streamline the daily activities of an insurer by automating and simplifying the underwriting, sales and claims management processes. This helps to deliver efficiency and a predictive accuracy greater than that made possible through manual analysis and traditional algorithms. AI can also allow insurers to better combat the ever-growing threat of fraud and its increasing sophistication. For example, ghost brokers may use generative AI to draft fake insurance policies or insurance certificates for an unsuspecting consumer seeking insurance.
On top of this, in 2024 we can also expect to see the trends of the ‘green economy’ continue to grow. These trends encompass the widespread adoption and use of electric cars and the development and use of renewable energy. And for businesses, it also includes the importance of becoming sustainable, which involves the assessment of supply chains, and ensuring gender equality. In light of the evolving regulatory landscape, this will also make environmental social and governance (ESG) issues pivotal for insurance companies.
That’s why we should also expect to see an increased focus from insurers on using data related to ESG targets for their benefit. For example, data points around ESG can be utilised not only for reputational risk evaluation, but also for assessing insurance risk and claims propensity. Insurers will therefore be keen to source data from alternative avenues, and set new KPIs to enable them to better serve their customers and make better decisions on premiums.”
HEY, WHAT ABOUT NICHE MARKETS?
Pet insurance has seen some major price inflation recently, just like Motor. But what does next year hold in this nich broking sector? Scott Holmes from Quantee offers these insights;
Combined with rising veterinary costs, and costs in general, its pretty imperative now to have sufficient pet insurance and this is resulting in much higher demand for the product which in turn has made this market very competitive with new players coming in to supply this demand.
As we go into 2024 the insurers, MGAs and brokers who operate in this market are going to need the right tools to be competitive and ultimately stand out from the crowd, but the opportunity here is that unlike in Motor there isn’t much technical or operational debt in Pet. Providers have the room and the agility to be innovative in Pet insurance and I think we will see some fantastic propositions coming through that offer the consumer, and their pets, real value.”
DIVERSITY REGULATIONS
Will Reddie, Partner at HFW commented:
“We’re expecting an increased focus on diversity, inclusion and conduct in the insurance sector for 2024. The FCA and PRA are expected to publish the new Diversity and Inclusion regulatory framework in 2024, following on from their 2023 Consultation Paper. The insurance industry is taking conduct more and more seriously, as shown by the regulatory action which has been taken over the last year.
“It will be interesting to see how many people use the PRA’s “mobilisation” regime, which is designed to make it easier for insurers to commence business in the UK. Firms authorised under the regime will have a time-limited authorisation, and there will be restrictions on the business they can write in that period. Our initial view is that the regime seems unlikely to encourage firms to seek authorisation as an insurer rather than as an intermediary, given the much higher thresholds – in terms of time, cost, financial resources, and compliance burden – for the latter.
“We’re also expecting regulatory focus on transparency and public disclosure to continue. The PRA intends to implement amendments to Solvency II reporting obligations by 31 December 2024.”
CLAIMS
Complex claims handling using multi-source data is where the real wins are next year, according to Jennifer Barclay, Global Head of Data Analytics at McLarens.
“Adjusting firms are increasingly working with insurers and brokers, both in the UK and globally, around the use of claims data and the increasing use of data analytics tools to support the likes of predictive analytics and modelling capabilities.
For example, in the real estate market, the hard market conditions and lack of insurance capacity are raising some challenges for brokers and policy holders, and data is playing an increasingly important role in the renewal process.
The same can be said for other speciality lines where there has been a notable increase in demand from insurers and brokers across the globe looking to make data-led decisions.
More broadly, the most forward-thinking adjusting firms are reinventing how they collect and distribute data to clients. McLarens, for example, has doubled the size of its global data and analytics team and is in the process of adopting a cloud based ERP system that will support better data capture and processing across the global business.
Insights gleaned from claims data can improve the speed and quality of client response, and ultimately the outcome for clients, allowing for better risk management, reserve and loss estimates, reducing indemnity spend and allowing for quicker resolution of claims. As such we expect this to be a major focus for the sector in 2024.”
Thank you to everyone who contributed to the Predictions 2024 features and IE wishes you all a peaceful and happy Christmas.
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