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The UK General Insurance Market: State of Play

Keynote Address by James Dalton to the Verisk Risk Symposium

22 June 2017


Good afternoon. Thank you for that introduction and thank you to Verisk for the invitation to join your risk symposium today.

The ABI and the wider Verisk Group of companies enjoy a long-standing relationship. We have worked together with ISO to better quantify the number and cost of personal injury claims and the ABI commissioned AIR Worldwide to model future UK windstorm losses in the context of climate change. So being able to participate in today’s conference is a continuation of a long-standing, and hopefully mutually beneficial, working relationship.

When I agreed with Joe that I would participate today, he told me that some of you are from the UK, some from further afield, primarily the US. Some of you have an interest in the UK domestic insurance market, others are more interested in commercial insurance issues and the London market. So no challenge then to prepare some remarks which are of interest to everyone! And then he told me I’d be on in the graveyard slot immediately after lunch. I asked if he was taking the mickey. For our American guests, this is a British expression which basically translates as taking the…. Actually, I’m sure you get it.

So in the time available, I’d like to cover off three key issues which hopefully meet Joe’s challenge. The first is on the challenges and opportunities posed by the digital revolution, the use of data and the role of cyber insurance. Secondly, how UK insurers are leaning in to the regulatory and policy challenges posed by autonomous vehicles. Finally, I will cover some of the challenges of the future, including the domestic political environment here in the UK and Brexit. Inevitably in remarks such as these, I will be touching on a number of subjects lightly and there are other important issues we are working on, so I’m very happy to pick up additional issues in Q+A.

Digital, data and cyber

But first, the biggest macro challenge and opportunity of the future is undoubtedly how insurers respond to the digital revolution. Digitisation is rewriting the rulebook for all elements of insurers’ businesses. Colleagues from the long-term savings sector are seeing this as the industry works to deliver the hugely complex Pensions Dashboard project. And digitisation is delivering huge change in general insurance as well - from customer relationships to underwriting to marketing to claims.

Insurers need to get prepared for a customer base with very different needs and expectations. In particular, ‘big data’ and insights from Internet of Things devices can help insurers gain a better understanding of their customers than ever before and thereby drive innovation and change.  Mobile technology can help insurers put in place customer solutions in real time.

Insurers’ ability to deliver against these changing consumer demands and expectations is fundamentally dependent on an ability to gather, process, understand and use data. Its been estimated that by 2020, 40 zettabytes of data will have been produced by humankind. To put that in perspective, that is 57 times the amount of all the grains of sand on all the beaches on planet Earth.   

More and better quality data will allow insurers to price risk more accurately than ever before. Over time, this should allow insurers to personalise their product offerings so that customers get insurance that is tailored to their individual needs as opposed to a generic policy. But this brings with it controversial debates about the fairness of risk pricing, especially when actuarial decisions are based on data relating to things that people may not be able to easily influence, for example, their flood risk, as opposed to things they can, such as their driving. Insurers cannot decide on behalf of society what is fair, but we do have a significant role to play in assisting with the development of policy responses. For example, one of the reasons we needed to develop the Flood Re scheme here in the UK was because increasingly sophisticated modelling and mapping had resulted in increasingly sophisticated data on an individual property’s flood risk.

And in a world where huge amounts of personal data continue to be generated and held, data protection will, of course, remain paramount. This is a significant focus of the industry’s attention at the moment as Europe’s General Data Protection Regulation is transposed into UK law. But at the same time as protecting individuals’ data it is vital that the industry’s data sharing activity to combat fraud is not hampered by an overzealous interpretation of the Regulation. And cyber issues like the WannaCry ransomware attack are an important wake up call for many Governments and businesses across the globe about the critical importance of effective cyber security. And, indeed, how cyber insurance can act as one of a number of tools in the toolkit of effective risk management.

And insurers need to lean in to the challenges associated with securely storing this data in the context of legacy IT infrastructure. Without an effective IT interface operating between insurer, broker, price comparison website and software house, insurers could write risks that they otherwise wouldn’t. Alternatively, insurers might write the business but at a price that does not accurately reflect the risk.

It won’t be cheap or easy but the industry has got to continue to make the necessary investment to its IT systems. Fixing yesterday’s problems today only stores up further problems for tomorrow. So in addressing its legacy IT, the industry would be wise to ensure new systems are resilient to the consumer needs of the future, offering a seamless interface between the internet, voice, text and social media along with traditional communication channels.

InsureTech is helping significantly. There has been a fundamental shift in the relationship between traditional insurers and a number of new and emerging technology companies. Insurers recognise the benefits of collaborating and investing with these companies given that they offer ways of working that are more efficient for both insurers and their customers. InsureTech firms aren’t trying to become insurers themselves given the significant regulatory and capital barriers. Insurers face significant challenges in changing on their own, not least because of their legacy IT systems. So there is a positive inter-dependence between the industry and InsureTech that will continue for some time.

Autonomous vehicles

Another sector with whom insurers have continued to build a positive inter-dependence is the automotive industry as the concept of insurance shifts from being purely about financial risk transfer to being about preventing claims from arising in the first place. This is why UK insurers have played such a central role in facilitating the roll out of autonomous vehicles in the UK, which is the second theme I wanted to touch on today.

With human error accounting for 93% of road accidents, the development of autonomous vehicles will mean a significant reduction in the number of road traffic accidents. There are also other potential benefits including decreasing congestion in our cities, decreasing vehicle emissions and extending mobility to people with disabilities not currently able to drive.

Ensuring consumers understand the limits of vehicle autonomy will be critically important to the successful roll out and uptake of autonomous vehicles. We know all too well from conventional vehicles that drivers misunderstand what their cars can and cannot do. We know that there are difficulties with programming cars to deal with real world driving conditions. And we know that in-vehicle computer systems are only as good as the inputs they receive. Let’s also not forget that a large number of consumer think that a driver should always be in control of a car, at least for the medium term.

And I’d put myself into that category. When I fly, I expect there to be pilots in the cockpit of the plane who are trained to fly it. I know that the auto-pilot will do the majority of the flying but I want the pilots to take over control of the plane should something go wrong. And I think most consumers take a similar view to vehicles. Which is why, in my view, the use of the term “driverless cars” is not only misleading but it is potentially dangerous. At least until the very long-term, a vehicle is going to require a trained, competent and sober driver to oversee its operation, even if it is operating autonomously.

None of what I’ve just said should be interpreted as the insurance industry not supporting autonomous vehicle technology. Far from it. Insurers have adapted to new vehicle technology in the past, most recently by incentivising the uptake of autonomous emergency braking. And British insurers are working with vehicle manufacturers and Government officials to deliver on the goal of making the UK a world leader in autonomous vehicle technology.

The industry has been closely involved in the development of the Automated Driving and Electric Vehicles Bill announced in yesterday’s Queen’s Speech. If it replicates the legislation that ran out of time to pass in the last Parliament, it will

  • set out that claimants will be treated the same regardless of whether they are injured by an automated or manual car.
  • not automatically place liability onto either automated or manual vehicles as opposed to the driver. That will still be decided based on the circumstances of each individual case, as it is today.
  • provide that where drivers have not used the technology as intended, the manufacturer would not be liable and contributory negligence can apply. However, where it is clear the technology is to blame, a new right of recovery is created. This ensures that where the vehicle was in automated mode, an insurer should settle the claim and can then recover their costs from the manufacturer, providing an important incentive for vehicle manufacturers to address any safety concerns as soon as they appear.

So from a customer perspective, the claims experience should be the same as it is today. And, that should also help underwriters in determining the right price of the insurance cover for vehicles incorporating autonomous technology.

So the legislation is a welcome first step and should give a clear framework for the industry to work from. But there is still work to do. We need to know who decides, and on what basis, where and when automated vehicles can be used and how new challenges will be managed, like for example the ability to significantly change a car’s functionality by downloading an over-the-air software update.

The biggest challenge, however, involves data accessibility. The insurance industry recognises that vehicle owners will be the ultimate ‘owners’ of their vehicle’s data. We also recognise that vehicle manufacturers have legitimate concerns about cyber security and protecting their intellectual property. But, reflecting my earlier remarks, insurer access to meaningful and reliable accident data is a fundamental underpinning of the continuation of a competitive motor insurance market in which a mixed vehicle fleet is operating. So there are still plenty of issues to think about in the context of autonomous vehicles.  

UK political environment

The third theme I wanted to cover today is the domestic political environment here in the UK.

Much as the pundits in US didn’t predict Donald Trump residing in the White House, for the third time in three years, a national vote has defied expectations and thrown the UK political establishment up in the air. As the dust settles and a minority Conservative administration gets down to the business of Government as set out in yesterday’s Queen’s Speech, the policy priorities of the insurance industry are vulnerable to a huge range of variables. The new Government must win votes in Parliament in relation to confidence and supply, which Northern Ireland’s Democratic Unionist Party seems like it will provide. But other than that, all bets are off. By definition, a hung Parliament produces uncertainty and the new Government is likely to tread very carefully indeed as it progresses a domestic policy agenda at the same time as determining its approach to the Brexit negotiations which started earlier this week.

And Brexit is likely to continue to be all encompassing for the Government. With Article 50 having been triggered, the clock is now counting down to the 29th of March 2019. But the outcome of the election now raises questions about the type of Brexit we are likely to pursue. To my mind, terms like “soft” or “hard” Brexit are far from helpful to informed political debate. But like eggs at breakfast time, we just have to hope that we don’t end up with scrambled. Insurers, like the rest of the business community, can use the election result as an opportunity to stress the economic and societal benefits of getting a Brexit deal done. And we need early clarity on the status of our staff from the EU and on continued access to the best global talent. But there are also more insurance-specific aspects of Brexit that are important.

Firstly, to sort out what to do with existing contracts that have long-term liabilities beyond any phased process of implementation. The payment of a claim can only legally be done if you are authorised to operate in many Continental markets. Today, this is done easily through passporting. Post-Brexit, insurers could be left in a position where they have contractual obligations to customers which become legally impossible to fulfil. We need a solution that enables those customers to continue to be best served in the future. That requires both political and regulatory agreement, and work to get to that point needs to begin now. It simply cannot be left until the last minute.

Secondly, dealing with the policy issues raised by the Great Repeal Bill. Given the number and complexity of the issues involved, we see a major risk that the great repeal process will not be complete by March 2019. So, in order to minimise that risk, the Government needs to be open and transparent with affected industries and consult with stakeholders both formally and informally. There are some significant policy issues that it is important to get right including the need for a standalone UK prudential insurance regulatory regime and clarity on the applicable conduct of business rules. But there are also the issues that directly affect consumers to consider, like the Green Card system which allows British motorists to drive in Europe or the future of the EHIC card which currently allows British travellers to be treated by the local health system in Europe as if they were citizens of that Member State.

So the devil really is in the detail. And in an environment where the Parliamentary dynamics are so uncertain, it will be essential for the insurance industry to place consumer concerns front and centre in our dealings with Ministers and Members of Parliament. 

Finally, we need a post-Brexit regulatory relationship with the EU. Whatever the political framework that is ultimately agreed, the insurance market cannot work effectively without regulatory cooperation. From a UK perspective, and particularly for the London Market, insurance relies on a degree of sophisticated regulatory dialogue and cooperation. Part of the political agreement that will ultimately be reached must allow our regulators to maintain a close and engaged relationship with their European counterparts.  


So in conclusion, the world leading UK insurance industry will continue to adapt and innovate in the context of changing business models, changing consumer demands and the changing macro political and economic environment.

There are exciting times ahead. And I hope that the ABI and the Verisk Group will address these challenges and opportunities by continuing to work together in the future.

Thank you. 

Last updated 22/06/2017