This piece is by Rory Yates, Head of Global Strategy, EIS
AXA UK’s recent call for the Government to collaborate more closely with them and the wider insurance industry on building greater resilience has captured significant attention — and rightly so!
For those who may have been soaking up the summer rather than keeping up with insurance news, the ABI recently published data revealing that insurers have provided over £150 million in support to homes affected by subsidence. In the first six months of the year alone, nearly 9,000 households filed subsidence claims, with the average payout per claim reaching £17,264.
AXA UK has since renewed its call for the Government to appoint a dedicated Minister for Resilience, with a focus on tackling challenges such as extreme heat and flooding. Given that Labour pledged to create this role while in Opposition, and with AXA UK rightly emphasising the importance of protecting homes and businesses from the impacts of climate change, the need is clear. Embedding resilience into future building projects, including the Government’s plans to deliver 1.5 million new homes over the next Parliament, is not just sensible, but essential.
AXA UK itself also conducted extensive research last year, and the results of its public polling about the impact of extreme heat on their properties and public awareness of the issues has highlighted a lack of knowledge and preparedness.
Over half (52%) of respondents said their homes weren’t equipped to handle the effects of flooding or extreme heat. The latter being a lesser-known risk that can lead to issues like cracking and subsidence. Perhaps unsurprisingly, 48% admitted they had never checked whether their home insurance covered damage caused by extreme heat, highlighting a significant gap in both risk awareness and resilience.
About time I’ve long advocated for this engagement. Insurance has always been vital to human progression and sustaining human, civil, and business infrastructure.
When we’re walloped by these risks, insurance is there to help us recover from the economic consequences of our risk exposure. Increasingly, though, insurers are acting to prevent risk exposure and with the right changes in business models and technology risk-mitigation and better resiliency is now possible. We’re seeing in real time the consequences of failing to act, as demonstrated by the catastrophic wildfires in California. These events have exposed several flaws in the current approach and serve as a reminder that even insurers have limits to their financial resilience, particularly when it comes to meeting their agreed risk exposures.
As insurers find it increasingly hard to predict the impact of climate change, they also aren’t willing or even capable of taking on the associated economic burden. So now we see an immediate need to help manage the risk out. This has become an imperative and not just an opportunity for differentiation and competitive advantage.
One way is by working with new data sources to help providers better predict and prevent flood risks etc. We are also seeing insurers acting as data service providers to help farmers understand evolving risks of crop failure and how to minimise it. These are all great examples of how insurance can sit at the centre of climate change adaptation.
Technology has to be an enabler
Right now technology in insurance is a massive legacy barrier to achieving the change needed. From here forward, adaptability has to be the focus – given the reality of climate change and a new business environment – this will be the key to competitive change in insurance.
We are already seeing insurers trying to adapt to customer experience expectations and moving away from “compete-only-on-price” strategies.
Forever, insurance has been referred to as a “people business.” In its first foray into the digital marketplace, insurers themselves seem to have forgotten that, leading to the commoditisation of the industry.
It’s not good for customers; and for insurers, it has become destructive. But as insurance continues to move into cloud-native, ecosystem-enabled technologies – similar to those used by Amazon or Netflix – the potential for personalisation grows significantly. This shift will make it easier to tailor products, bundles, communications, and experiences, while also evolving propositions to be more data-driven, risk-mitigating, and seamlessly embedded into our daily lives and connected devices.
While insurance already plays a vital role in our lives and economy, its ability to take in new data sources, embed insurance into peoples’ lives, reduce risk and its impact, and create new products and services will determine which insurers succeed in this changing environment.
We need to work together
With Government engagement on this topic, the focus will need to shift to making insurance better, more resilient, more relevant, more embedded, contextual, and ultimately an “experienced” service.
To do this, we need to see the ecosystem insurer emerge. Data fluid, intelligent, built around the customer, born in the cloud on sustainable technologies, and capable of rapid change
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