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Speech by Matt Cullen at the ABI Tax Convention:            “The Future of the Insurance Industry”

Thank you for the welcome and it’s a pleasure to be here in Brighton to open the Convention today. I’ve been asked to provide some introductory food for thought to get your brains working. And this won’t be food for thought about tax – a subject on which I suspect I know less than anyone else in this room. While I’m very much looking forward to listening to today’s sessions on BEPS, US tax reforms, transfer pricing and more, I really do hope you don’t ask me any questions in a few minutes that require me to know lots about them!

While I don’t work on tax, I do spend a lot of my time thinking about the big, strategic challenges facing our sector; the megatrends that are changing the environment in which our businesses operate. So I’m pretty well qualified to talk about “the future of the insurance industry”. But still – what a topic to try and squeeze into a quarter of an hour!

World of Change

So where better to start than first principles. What is the one concept which, above all else, defines the world we are now operating in? Change. Relentless, rapid, disruptive change. Impacting the whole of society. And it manifests, for me, in five broad areas:

1. Political change

It was only a couple of years ago when the Conservative majority in the 2015 UK General Election was one of the great political upsets. Looking back, it seems almost mundane when compared to Brexit. Donald Trump. The rise of the extreme left, right and even the extreme centre in Europe.

Recent history shows that traditional political trends and expectations can no longer be taken for granted. This, some argue, can largely be explained by a surge in anti-establishment thinking driven, ultimately, by connectivity; by the availability at the touch of a button of dissent and critique; by the end of a natural trust in our leaders which has been referred to as the ‘death of deference’.

2. Economic change:

The low interest rate environment which emerged in the West during the financial crisis appears to be here to stay, shifting the basis on which insurers invest, and the long-term products customers buy. In long-term savings, we’ve seen significant implications for the annuity market in recent years, and to keep those of you who work for general insurers interested, the recent controversy on the Ogden discount rate for personal injury compensation has been driven at its very core by a shifting of the economic outlook.

Meanwhile, in the developing world, steady growth continues to increase living standards, and bring more and more people into the middle classes which form a giant untapped market for our sector globally.

3. Social change:

UK and global life expectancies continue to rise, as do predictions for the speed of the trend – making ever more acute the long term challenges of managing and funding ageing societies.

Meanwhile, there is increasing concern about the potential impacts of automation on workforces – with a scary range of health, welfare, and indeed tax implications! This year we’ve even seen a Japanese insurer make highly skilled claims staff redundant in favour of intelligent AI – so watch out – even you might not be safe! 

4. Environmental change:

Scientific consensus is now virtually uncontested that the Earth’s climate is changing faster than it has ever changed before, driven primarily by human activity. Insurers have a key role to play in both adaptation to environmental change – the development of Flood Re by the ABI being a key example, and also mitigation by using our investment power to enable the transition to a low carbon economy.

Interestingly these four areas have all been driven in some way by the fifth, and I think most significant, area:

5. Technological change:

We’re living through a digital revolution that promises to be as transformative as the agricultural revolution – which underpinned the creation of permanent human settlements, and the industrial revolution – which mechanized whole swathes of human endeavour.

An explosion of ‘big data’, the growth of connected devices, the rise of social media, the development of machine learning, are all changing society hugely, and closer to home, are fundamentally shifting the way in which insurance and savings firms operate, right across the value chain.

Together, all this reflects a world changing faster than it has ever changed before, socially, economically, politically, environmentally or technologically.

Insurance Implications

What then does this world of change mean for the future of the insurance industry? I’ll break some thoughts down into three ‘Ds’ – Disruption, Diversity, and Development.


I imagine when I said this, many of you thought of a tech giant turning up and taking over the industry. But actually disruption is a much broader collection of processes than that, carried out by a much broader group of actors.

All of the changes taking place in society create a constantly changing and uncertain reality that insurance and savings firms need to adapt to, in order to survive and thrive. And yes, if they don’t then they will find themselves left behind both by the existing firms that do, and potentially by the insurance Uber or AirBnB. At which point I guess many of you start encouraging the PRA to take a leaf out of Transport for London’s book.

The future of the insurance industry is one in which insurers will need to constantly disrupt their own businesses, because what worked yesterday will not necessarily win tomorrow.

Flexibility in the face of uncertainty and change is the name of the game. Firms don’t need to be accurately predicting what will come next, but they must be able to cope with whatever this uncertainty throws at them.

This means flexible systems. We can’t have insurance companies of 2017 burdening themselves with the legacy systems problems that the insurers of the late 20th century stored up for themselves. I still today try and collect data from General Insurance firms and they tell me that their claims system can’t talk to their underwriting system, so they can’t provide the full picture. In long-term savings the ABI has been putting a lot of effort into creating a Pensions Dashboard prototype. Which is a pretty simple thing when you think about it, but a big challenge for those providers where some information is still only held in paper form. New IT infrastructure needs to not only fulfil its function today, but adapt to the functions it will need to fill tomorrow as well.

And flexibility also means adaptable cultures. Insurers need to be prepared, in this world of change, to move fast and fail fast. It’s fair to say that this doesn’t fit too well with many of the historical business cultures in the insurance sector.

This brings us to one of the classic current buzzwords – InsurTech.

This understanding of the need for incumbents to become more flexible, more smart, more responsive, has led to a much more nuanced perspective on ‘external disruption’ and InsurTech, compared to 18 months ago. Back then, most of the talk centred on an antagonistic set of processes; the start-ups usurping the lumbering incumbents. Now we hear much more talk (and evidence) of partnership and symbiosis between existing insurers and InsureTech firms, reflecting both the realisation from insurers that they often need help being innovative, and from InsurTech firms that partnering with incumbents is the easiest way to get to market at scale in a highly regulated sector. This is a positive state of affairs that I expect to see create real value in the coming 12 months.


I’m going to briefly touch on three ‘diversities’; diversity of the functions of the insurer, diversity of the customer base and finally diversity of the workforce.

Firstly, insurers will increasingly make use of technology to become ‘more than insurers’ – to diversify the business model away from just financial risk transfer towards becoming a real-time risk management partner. We are already seeing this across personal and commercial lines general insurance – from health monitors to home security systems, and long-term savings providers are increasingly able to use their knowledge of a customer’s finances to offer them lifestyle support. The potential reputational benefits for the sector of this shift should not be underestimated.

Second, we must be aware that we are in an era where our customers have extremely diverse wants and needs. Whether this is a desire to buy online with no human contact versus a desire to hear a friendly voice on the phone; a willingness to share sensitive personal data in order to receive more tailored underwriting versus a fear of data being used to exclude; a sophisticated understanding of financial language and concepts, versus a need for simple, straightforward guidance, advice and support. A key challenge for insurance and savings firms is to ensure that customers from all backgrounds feel that the insurance industry offers them something that works for them; and this can only be delivered through a diverse range of solutions and specialisms, rather than everyone throwing all their eggs into the biggest and easiest basket.

Thirdly, operating in such a diverse, changing and challenging environment, highlights the need for insurers themselves to be more diverse. We have seen a lot of positive focus in this space in recent years. Indeed the ABI itself has this year signed the Women in Finance Charter, formed its own member talent and diversity network, and played a key role in the ever more impressive Dive In festival. But progress across the industry comes from a low base, and there is still much to do to ensure that our organisations are truly diverse.


By development I mean the opportunities for the insurance industry to develop into emerging new areas. It’s important to cover this to counterbalance the fear expressed in some quarters – motor insurance analysts in particular – that in the future we will live in a riskless society, leaving insurers’ core purpose basically redundant.

Such analysts are right to consider that risks will change over time. But the truth is that while they reduce in some lines of business and some geographies; in others they will grow.

I’ll just touch on two issues: cyber risk and the global insurance protection gap.

Currently cyber insurance is not a big market. Globally, at just a couple of billion pounds, it is far smaller than the traditional liability market in the UK alone. This is despite the incredible surge in cyber breach events we have witnessed in recent years, and the potential for corporates to face massive costs if they are hit. 

Notwithstanding that underwriting cyber risk does come with challenges – of aggregation of risk, availability of data etc. which the ABI is prioritising in our policy work – the untapped potential of the market long-term is colossal. London is already a key centre for cyber underwriting, and I expect this to continue as the market develops. The future of the UK insurance industry is potentially one where the biggest risks we manage, and the biggest revenue sources, are virtual, not physical.

Cyber is a risk that know no national boundaries; arguably the first truly global risk. And we are also moving towards – at some point in the coming decades – the first truly global insurance industry. “Surely it already is one” I hear you cry! Maybe in the sense that insurance exists all over the world, but right now there are hundreds of billions of pounds of insurable, but uninsured, losses each year. Across the developing world, literally billions of individuals have never seen an insurance policy. As middle classes grow, and technology makes low-cost micro-solutions viable, the opportunity for insurers is huge. Genuinely huge. The key question for us here in the UK, is how much of that pie we will manage to grab.


So three ‘Ds’ – Disruption, Diversity, Development, hopefully give you a flavour of some of the major challenges and opportunities our industry will be confronting in the coming years. We should be optimistic about these. Our sector has survived and thrived over the last four centuries through innovation and an ability to adapt to both technology but also economics; there is no reason that this cannot continue into the future.

There will be many tax challenges too of course, many of them intertwined with the world of change I have spoken about. But discussing those challenges, I shall leave to the experts.

Thank you.  

Last updated 05/10/2017