State of the Property Insurance Market
REMARKS FOR DELIVERY
Introduction and Welcome
Good afternoon. Welcome to the ABI and welcome to our conference – Building a Resilient Future for the UK’s Property Insurance Market – something that has never been more important than it is today.
For those of you who don’t know me, my name is James Dalton. I’m the ABI’s Director of General Insurance Policy and it is my pleasure to be chairing today’s event held in partnership with our friends at DAC Beachcroft.
Today’s busy agenda reflects how much is going on in the property insurance market in the UK with a range of important issues affecting both businesses and homeowners.
State of the market
There’s never a dull moment in UK Property insurance!
Looking out the windows as the rain battered London on Monday, like many of you, we were worried that we might be looking at a significant flooding event.
The risk of a large number of claims hasn’t totally gone away given the sodden ground and further forecasts of rain.
And in that context, I’m looking forward to hearing from Dermot Kehoe in just a few minutes who will be sharing the outcomes of Flood Re’s research into the value of flood defences.
Keeping politicians focussed on the importance of defences, despite the lack of severe floods recently, is something we’re keen to do and we’ve been playing our part by promoting this work in the media.
Last year UK property insurers faced total claims incurred of £4.3 billion, attributable to a combination of record breaking events including;
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the impact from the “Beast From the East” in Q1
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an exceptionally dry summer leading to a spike of subsidence claims later in the year and;
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a series of major fires leading to commercial fire and explosion claims of £940 million.
But overall claims volumes were lower – in fact the market faced its lowest number of claims for 12 years.
I don’t need to convince people in this room that property insurance is a vital part of the UK’s world leading insurance sector given the vital cover it provides to millions of homes and businesses up and down the country.
Given its defacto compulsory nature and the number of consumers who purchase property insurance, it still surprises me that it is a product that is quite poorly understood.
As an industry we need to continue to harness digital technology to explain our products to customers better; what is included and what is excluded.
That’s why the ABI has extended our successful ‘Insurance Experiments’ consumer education campaign, launching new digital animations to engage customers via social media in amusing cartoon formats as well as updating our own customer facing webpages.
Our particular focus from a property insurance perspective has been on escape of water in terms of explaining to consumers what to do if they face such a situation and, more importantly, what to do to prevent them incurring an escape of water claim in the first place.
So this is a product that is vital for the way we live our lives and plays a major part in the reputation of the insurance industry.
But conferences like this are not about us patting ourselves on the back.
Instead, we have the opportunity to take stock and to consider how we need to continue to evolve to meet the challenges of a fast-changing world.
With that in mind, I would like to outline some of the regulatory, political and reputational challenges that we are facing in to as an industry.
Regulatory challenge
Firstly, a key regulatory challenge.
Insurance is the first sector to have grasped the nettle and taken positive, industry-led action to seek to address the problem of loyalty pricing through the Guiding Principles and Action Points jointly agreed between the ABI and the British Insurance Brokers Association last year.
This was always intended to improve consumer outcomes pending the conclusions from the FCA’s Market Study on GI Pricing…..,
……… which itself followed on the back of an FCA Thematic Review, Study on Big Data and a super-complaint by Citizens Advice to the Competition and Markets Authority.
There are significant risks facing the industry from the Market Study:
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Reputational - as demonstrated by recent and ongoing media coverage;
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Regulatory – it cannot be ruled out that the FCA will propose a pricing intervention in the home insurance market;
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An increase in FOS complaints;
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Extrapolation of the FCA’s ultimate findings to other GI products; and
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The interplay between the FCA’s work on the Market Study and their work on customer vulnerability.
We remain very clearly of the view that that any interventions made to help one group of consumers will impact on other groups of customers.
A pricing intervention designed to help a customer who is not vulnerable but fails to shop around will come at an increased cost to a low-income customer who diligently shops around every year.
That involves some very difficult judgments and trade-offs and we look forward to seeing where the FCA lands on this issue.
Political challenge
The second area of challenge comes from the political sphere. In the context of a Government whose legislative agenda has ground to a halt, the challenge for us is to keep up the pressure to deliver meaningful change to improve the fire safety regime.
Friday marks the second anniversary of the tragic fire at Grenfell Tower that killed 72 people.
Sadly, it took the deaths of those people for the Government to sit up and recognise what many had been telling them for years – that the building regulations were no longer fit for purpose – something confirmed by Dame Judith Hackitt’s independent review.
For the first time in recent history, we have a meaningful opportunity to improve the protection of people and property from fire.
That opportunity cannot be missed.
So our team at the ABI has been working with many technical specialists from member firms and the Fire Protection Association to ensure that it isn’t.
We will be responding to the consultation released last week on how the Government intends to implement – and indeed go further than – Dame Judith’s recommendations.
And we will continue to put the pressure on Government to pick up the pace of change to ensure that the regulatory regime adequately protects people and property from fire.
Reputational challenge
Finally, the reputational challenge.
Reputation will, I’m sure, be a theme throughout the day and there is no lack of material for the second panel session in terms of some of challenges we are facing.
But the reputational challenge I wanted to mention now is that of climate change.
As an industry, we have a good track record in the UK of addressing some of the challenges society faces as a result of increasing global temperatures.
This includes the establishment of Climate Wise and a strong industry commitment to advocating for temperature rises being limited to no more than 2 degrees as part of the UN’s Paris talks in late 2015.
But policymakers and regulators continue to look at some of the challenges posed by climate change and the Extinction Rebellion protests in recent months have increased the prominence of the issue.
Today’s announcement by the Prime Minister of the aim of the UK being a carbon neutral economy by 2050 is a welcome effort to address the underlying causes of climate change…………..,
…………… and we must be ready for the questions society is increasingly asking of us as an industry in terms of the investment choices we make.
How do we direct our huge investment power in the right directions that can help achieve the low-carbon transition we need?
Broadly speaking, there is an expectation that the insurance industry should be doing more to address the challenges posed by climate change and we need to get better as an industry in terms of telling the story of what we are doing well.
The ABI is dedicating much more internal resource to this issue and you can expect to hear much more from us in the months ahead.
Conclusion
So, there are plenty of challenges ahead. I am confident that by working together we can meet these challenges and the strength through association that members get from the ABI will be more important than ever.
We have a packed agenda ahead, so that’s enough from me.
Please make the most of your time here today by asking questions, providing comment or challenge and getting involved.
So now, I would like to invite to the stage Dermot Kehoe, the Communications and Transition Director at Flood Re to provide our first keynote address of the day on the Value of Flood Defences.
Thank you.