3 November 2015
CHECK AGAINST DELIVERY
Good morning everybody.
On behalf of the ABI I would like to extend a very warm welcome to you all and thank you for taking the time to come today.
We have a fantastic line up of speakers for you, and with all the industry expertise sitting in the audience, I’m sure that the day will bring some thoughtful and interesting exchanges.
I also hope that you’ll take the time to read the collection of think pieces that the ABI have published for this conference – “A Brave New World”. It contains a number of articles which focus on the implications of the changing world for our industry - from digitisation and cyber risk, to our role in welfare reforms and in tackling climate change.
It’s a great document - in no small part because I wrote one of the articles! For those of you who have heard me speak before, it will come as no surprise that I chose the topic of ‘trust and reputation’.
NOBLE PURPOSE
I am genuinely passionate about the reputation of our industry. That passion stems from an absolute belief that we have a very noble purpose and integral role in society.
We protect customers as they go about their day to day lives, so that they can reach their full potential without fear for the financial consequences when things go wrong; and we help our customers invest so that they are building their own financial future.
As insurers, we don’t just write a cheque when things go wrong, we provide real personal support to the customer through their moment of need – spending £27 million a day to take care of motor repairs and any injuries from the crash – £13 million every day to repair homes and replace furnishings; helping over half a million travellers who needed help during their holiday; £7 million every day to help customers receive the very best healthcare they need. Collectively, we invest almost £2 trillion on behalf of customers to help them to build and protect their financial futures – that’s around 25% of the UK's net worth.
The list goes on.
And whilst delivering for our customers, we deliver for our country too - around £12 billion in taxes, around £29 billion to UK GDP and jobs for over 300,000 people in the UK.
There are not many industries with such a positive and clear message about the role they play in society.
I’m sure every one of us is very proud of what we do! And in my view we should invest far more effort in getting that message out there. Because despite so many great things that we do every day, despite a reputation untarnished by the 2007 financial crisis, it is frankly horrifying that surveys tell us less than a third of our customers trust us to do what is right.
Less than a third! That means we are trusted less than banks. For heaven’s sake, we’re down with the estate agents!
So – is it perception or reality? Well I don’t think any of us could sleep at night if it were reality. But it doesn’t matter what we think, and we can’t just stand back and complain that it’s unfair –that it’s an injustice; that we’re “mis-understood”.
TRUST
That’s why I have placed ‘trust’ as one of the two central planks of my chairmanship of ABI.
We must do more to understand the root causes of mistrust and take action – action that will more than merely nudge the one third figure in the right direction, but bold and innovative action – and wherever possible, collective action because the reputation of the industry cannot be hostage to the slowest to move.
So the ABI has a clear role to play here. Not a quasi-regulatory role; not as a body which imposes new rules on its membership; but as an association which provides a forum and the necessary support for its member firms to drive the reforming agenda. From my discussion with members, we don’t want to sit and wait for the FCA to reform our markets, we want to seize the agenda, and use the ABI as a forum to debate where we can drive collective actions whilst we individually deliver our own actions to build trust.
Some of it is relatively easy – it’s often a simple matter of improving transparency. A home insurance customer should never doubt whether they are insured for something that’s gone wrong; they should know because we’ve made it so much easier for them to understand their cover. A saver should never worry that their hard earned investment will be eaten up by hidden charges; because we should make it so much easier for them to understand the charges that might apply.
Not in 6 pitch font, using legalistic language – but through videos, FAQs, illustrations of exclusions and charges; case studies; regular reminders through their mobiles. Sharing with them the feedback other customers like them have given about their experience with us - good and bad, because it is through real transparency that we can build real trust.
Because unlike most industries, a customer doesn't get to enjoy the product they've bought from us, and form a fact based opinion on trust, until they come to make a claim - and until they do, their opinions are formed from what they hear about the experience of others - and unfortunately, only bad news sells newspapers - so we have to find a way to get the great story of the vast majority of our customer experiences out there.
In terms of collective action, I am delighted to announce today two ABI member led initiatives which will help the general insurance sector build trust:
Firstly, we are working in partnership with BIBA and aim to publish next month a new ABI and BIBA code on vulnerable customers. This will seek to address the concern that vulnerable customers might be disadvantaged at renewal by simply renewing their policy from one year to the next without checking they are getting the cover they really need at a fair price.
With the full support of the chairman and CEO of BIBA we are now working to find common ground in this and other areas which could improve the reputation of what is, after all, one great industry within which we have a shared accountability for reform.
I am very hopeful that this spirit of partnership and common cause with BIBA will accelerate our collective ability to seize the agenda of building the reputation of our industry and the trust of our customers.
The second collective initiative proposed by our general insurance members seeks to address the perception that insurers don’t pay claims. Having collected the data from our members, early next month the ABI will publish for the first time the overall claim acceptance rate for each of Motor, Property and Travel products together with the average claim cost, and the percentage of customers who were paid a claim in the past year.
This represents a real watershed moment. It will hopefully go some way towards reassuring customers that our intention is not to avoid paying out when they need us most – but that the very opposite is true. It will also demonstrate these products offer great value for money.
Of course the claim acceptance ratios will not be 100%. There are unfortunately fraudulent claims we must reject, and of course there are too many cases where a customer hasn’t actually bought the cover they might, with hindsight, have wished they had. So, alongside disclosure of the industry ratios, the ABI will include explanations of why claims might be rejected so that customers can make better informed buying decisions.
Hopefully, aside from building trust that the vast majority of claims are paid in full, this will also help to re-educate our customers that buying insurance isn’t just about finding the lowest possible price – it’s also about ensuring that what you care about will be covered by the product you buy.
The interactions that customers have with us at the real moments of truth, should not be predicated on an underlying suspicion and, ultimately, misconception that we may let them down. We must do more to let people know that we are here for them, and not just for our ourselves.
Simply put, at a time when consumers are increasingly making buying decisions based upon the trust they place in the companies they do business with, building trust in our industry has never been more important.
MODERNISING THE ABI
The second plank of my chairmanship of the ABI has been to drive a modernising agenda – one which ensures the ABI remains as relevant to its members tomorrow as it did when first formed just 30 years ago.
I never think that a podium is the best place to conduct a performance review, but I should start by recognising the really great job that the team at the ABI are doing, and in particular, Huw Evans, our new Director General. It is hard to believe that Huw only succeeded Otto Thoresen just 9 months ago – the transition was so seamless, and the progress made since so substantial. Huw brings real energy and passion to the role, but more importantly a truly progressive agenda which will ensure the ABI is modernised to reflect not just the changing business models and needs of our members, but also to make the ABI a relevant and attractive trade association to those not in membership today.
The ABI does a great job promoting and representing our industry through regulatory consultations, media work, engagement with officials, elected policy makers and regulators. Of course some of us are big enough to engage independently with those stakeholders, but even for those big enough to do so, it’s crucial not only that we are able to present a collective voice into our lobby, but also that those stakeholders are able to conduct what you might call ‘collective bargaining’ when an industry solution is sought by officials.
Relevance
And to maintain this role, the ABI needs to adapt with the industry it represents.
For example, a year ago, it became evident that the Long Term Savings and Life Insurance Committee – a mouthful at the best of times – was devoting too much of its time looking back over its shoulder to address issues of the past. As a result, the committee of business leaders from that sector just wasn’t able to spend enough time on looking forward. Members didn't therefore ensure that the ABI adapted its value proposition to address the emergence of technology platforms, or indeed the increasing number of participants in the long term savings market who either never had, or no longer need an insurance license to serve customers’ savings needs. Products for saving for the long term - including pensions - are no longer the domain only of insurers and the ABI and its committees must adapt, to appeal to the wider industry participants.
The industry leaders on that committee have now split it into two – one focused on the needs of members with large books of inforce business, and one focused entirely on the future – new business models, new technology, new products, and hopefully, in time, new members who will hopefully see the ABI as increasingly relevant to their business models.
Our aim is that in the future, the ABI will meet the trade association needs of all those who provide risk protection and long term savings solutions to customers - whether they are insurance companies, or not, whether they operate in the retail markets, or the wholesale markets. Whatever our business model, fundamentally we serve the same needs of the same customers and we need to speak with one voice, and act as one industry to promote and protect the Noble Cause we serve.
Property
The modernising programme will also reduce the cost of the ABI. Here, we've decided to move out of the very expensive and rather musty premises in Gresham Street. I am delighted to announce today that in early 2016 the ABI will be moving to new offices in 1 America Square, which offer much improved member facilities for all our members, big and small – at a substantially lower cost to members. The ABI has been at Gresham Street for most of its life – so moving to modern, yet cheaper premises really is the start of a new chapter.
Board
We have also made a number of changes to the ABI Board – we were recently joined by the Chief Executive of LV, and I’m delighted to announce that we’ll shortly be joined by the EMEA CEO of AIG and the UK CEO of Swiss Re – each of them bringing strong voices, and new perspectives, to the debate. I’m also pleased to announce that Andy Briggs from Aviva has taken on the role of Deputy Chairman – I look forward to working closely with Andy over the final year of my chairmanship.
Fundamentally, modernisation is about building on the solid base that we have to ensure that the ABI offers a value proposition that works for a range of firms with different and changing needs, and at a lower cost. In essence, that we are fit for the future.
CHANGE
Make no mistake about the importance of industry unity at this time. The world around us is moving at a phenomenal rate. I have said it before, but it is worth repeating - if as an industry we do not collectively move with the times, innovate and remain relevant to our customers, we will simply be pushed aside by those who will.
In Long-term savings, the landscape has been transformed in an alarmingly short period of time - auto-enrolment, pension freedoms, annual and lifetime allowances, the reform of higher rate tax relief and a new secondary market for annuities would all, individually, be big changes but they are all happening at the same time.
We’ve responded exceptionally well to the new Retirement Freedoms. The ABI has announced today that in the first six months, customers have received £2.5bn from their pension savings as a cash lump sum – averaging £15,000 each. In the same period customers have invested an average of £60,000 each , or £5bn overall to buy an income. As expected, customers are taking smaller pots as cash and using larger pots to secure an income – about 40% with an annuity and 60% with a flexible income drawdown product. Around half are now switching away from the company they saved with to secure the best deal for their retirement income. Overall, customers appear to be behaving rationally, and I think we can all be very proud of the speed with which we responded to help the Government's reforms succeed.
Ultimately, I believe these reforms provide us with an opportunity to deepen our engagement with customers and become more relevant as they manage their financial affairs throughout their lives. In parallel, our industry also faces the opportunity to harness the ‘internet of things’ to become even more relevant to to our customers, more of the time. Connected cars, telematics, the connected home, health trackers, mobile apps, online investment platforms, all offer the opportunity for our businesses to become more relevant to our customers each and every day.
These new sources of behavioural data provide a unique opportunity to reposition the sector’s relevance to customers by providing advice and insights. Not only will we be there to pay their claim when a risk materialises, but we will also be there to help them reduce the risk it happens at all. Not only will we be there to enable our customers to save for the future, but we will also be there to encourage and help them make the right decisions on saving at the right time. Each informed by the richer insights we have about them, and people like them made available by the digital revolution.
WRAP UP
So, to wrap up, before I introduce our first keynote speaker.
As an industry, we have a truly noble purpose, and we should stand proud of the contribution we make to society – and I want to hear more of that pride in our engagement with customers, with Government, with regulators, and with the media. If we truly seize the opportunity to reform, we will secure the trust of our customers just at the time when the revolution in our markets provide us with the opportunity to become even more relevant to them.
And the ABI must reform too. The ABI does a great job for us all today, but it has nevertheless recognised the opportunity to modernise to reflect the changing shape of our industry, and I am confident that under Huw’s leadership, the ABI will be a cheaper, more agile, more relevant trade association that appeals to a wider membership, and speaks therefore with an even louder voice on behalf of the members it serves.
SPEAKER INTRODUCTION
So there you are - an introductory speech that did not once mention Solvency II ! And on that note, I am, once again, very grateful to you all for making the time to be with us today, and for listening to me this morning, and I sincerely hope that you enjoy the rest of the conference. Before I leave you, I would like to introduce our first keynote speaker.
David Gauke MP was appointed Financial Secretary to the Treasury in July 2014 having previously been Exchequer Secretary since the 2010 General Election. His current brief is particularly pertinent to the people in this room containing, as it does, responsibility for personal savings and pensions policy and the Government Actuary’s Department. David is a former City lawyer, and so has a genuine understanding of the world we operate in.
We are delighted, David, that you are able to join us today and we are very much looking forward to hearing what you have to say.