Speaking at the FCA’s General Insurance Conference, ABI Director of Policy Huw Evans spoke about future trends that will shape the GI retail market. Huw’s thoughts are outlined in the below Q&A:
What are some of the factors that will define the future for retail insurers?
At a global level, this one is easy; demand. With the long-term changes in global GDP distribution, will come greater urbanisation and the continued growth of the so-called 'consuming classes'. By 2025, an estimated 4.2 billion people from a projected global population of 7.9 billion will have the ability to make discretionary purchases beyond their basic economic needs. Add to this profound technological and demographic shifts and we see a future actually quite near that has the capacity to feel very different.
But with increased demand with come greater risk; risk of increased climate-related natural catastrophes, risk of evermore political and regulatory involvement in general insurance and the risk for today's insurance companies of innovation from outside the sector that takes market share and renders long-held practices quickly obsolescent.
What will consumers want?
Quite simply, it may depend how old they are. Analysts have estimated that in the UK market, it will only be 2019 before the behavioural norms of the digital native dominate the market.
Even before that point, the digitisation of our everyday life will have profoundly altered customer expectations and attitudes. It is impossible to imagine a future where consumers will not require as the norm: 1. Interactivity, especially on dispute resolution; 2. Proactivity, especially on claims; 3. Greater personalisation and 4. Greater transparency, especially on risk factors.
I think we can see evidence of all those trends gaining momentum in the market today with competitive advantage for companies that can gain traction.
How will the use of data play a role in both these arguments?
For me, data is the issue of the future that really brings this together; it exemplifies the fundamentally differing attitudes and life experiences of 'Generation Z' customers and it casts full relief on the range of political, legal, regulatory and consumer trade-offs that are going to be needed to navigate the future GI market. Data is at the heart of so many of the key debates facing general insurers including whether insurers are going to be part of it at all.
What will future customers actually allow?
It is important to consider the following questions: Is there any chance of a workable spectrum between the views of a 19 year old and a 79 year old? And even if there is, how far can customer permissions tally with what legislators and regulators are prepared to allow - especially at EU level where most data protection legislation is primarily devised and where the focus remains on raw data protection, rather than on analytical applications of the data? Which begs the question can regulators ever be forward-thinking enough to enable a regime that allows for innovation?
What happens to the minority whose insurance needs in the future could become prohibitively expensive or unavailable as the result of greater data-driven segmentation?
In the UK, insurance has historically been a powerful binding collective force, facilitating a stronger, economically prosperous and more resilient society as a result. It is very easy to see this fracturing, not through an act of will by the insurance industry but by the ever-more personalised demands of a 'me' generation of digital natives with a political backlash visited on insurers. We can't build a Flood Re for everything, nor is it a given that greater segmentation leads to higher prices but this is a debate that will grow in importance.
How far will customers want to deal with established insurance brands in the future?
The global demand may be significant but the more data and analytics take GI away from traditional underwriting practices into advanced computer-driven analytics and segmentation, the greater the potential opening for the global IT giants if insurer investment and innovation fails to keep up. While ultimately customers and investors will decide who succeeds in the markets of the future, politicians and regulators need to be savvier too that they can't take for granted the relatively cohesive market sector they deal with at the moment.
Huw Evans is Director of Policy and Deputy Director General, Association of British Insurers.