ABI Chair, Jon Dye, CEO of Allianz opened the ABI Annual Conference 2021 on 23 February 2021, with a keynote address reflecting on the year since the onset of the pandemic, how the sector responded through 2020 and looking ahead to challenges and opportunities for the industry in the future, including GI Pricing, Climate Change and Solvency II Reform.
As delivered 23 February 2021:
May I start by extending a warm welcome to our Annual Conference, in association with our friends and colleagues at KPMG. It’s great to have over 450 members, associate members, industry partners and international guests join us for the event, and I would like to begin by thanking all of today’s speakers and contributors for the time they have given up; this year is one of our best-ever line ups of key figures taking part and I am grateful to all of them, especially the Economic Secretary and City Minister, John Glen MP.
It has been a tough year since we last met in Bishopsgate in February 2020, a few weeks before the Covid-19 restrictions came in. The starting point for all of us must be to acknowledge the grief and sadness felt by so many families since then and to pay tribute to the tireless efforts of frontline workers who look after the sick and vulnerable and keep our national infrastructure going. We owe them all a debt of gratitude.
For our sector, this has been a challenging period. All ABI member firms had to work phenomenally hard to move to remote operations within a matter of days, sustaining critical functions to customers whether in paying pensions, processing claims, issuing new policies or dealing with enquiries. As a sector, we have passed this test so far – as our regulators freely acknowledge – but we all know we must stay vigilant to ensure standards remain high and vulnerabilities are supported. So many colleagues across our industry have worked day and night to meet these challenges, often while looking after relatives, children and other responsibilities. To those of you at this conference, I say thanks very much and well done.
In these remarks today, I wanted to reflect on the year that has gone; what we got right, what was difficult and the lessons we must draw from it.
I also want to look forward to the challenges and opportunities that face us all, irrespective of the type of business we specialise in.
Finally, I want to reflect on the importance of common endeavour to meet shared challenges - competing on products, sales and performance, but being able to act collectively as a sector for the good of the economy and society we serve.
Having already reflected on our success in keeping all our key services running, I also want to talk about our sector’s pledges which we agreed in the earliest days of the first lockdown and have renewed throughout the crisis. As a result of our commitments, 20 million motor insurance policyholders and over 16 million home policyholders have had peace of mind about their policy covering them for the unusual travel and home working patterns created by lockdown. All NHS volunteers have been automatically covered for using their car without having to call their insurer and ABI members signed up to a 10-point promise on rapid claims payment.
As a result of our commitments, 20 million motor insurance policyholders and over 16 million home policyholders have had peace of mind about their policy covering them for the unusual travel and home working patterns created by lockdown.
Our sector has also leaned into temporary solutions with the UK Government, with the ABI negotiating a temporary government-backed reinsurance scheme to enable trade credit insurance to continue to protect businesses against bad debts, as well as the agreement with the Department of Health and Social Care on care home insurance and support for the Treasury’s Film & TV scheme. I know from my own discussions with senior government officials how much our sector’s willing contribution of expertise and insight has been valued.
While disputed claims will always make headlines, throughout the pandemic ABI members have been quietly processing claims that we estimate will ultimately total nearly £2.5 billion, paying out to businesses and individuals across Business Interruption, Travel and Events policies and – tragically – over £200m in life insurance and critical illness policies to the families of some of those who have been most affected by Covid-19.
But as a sector, we have always known that paying claims is not enough at a time of national crisis. That is why I am so proud of the Covid-19 Support Fund set up by the ABI with the help of industry partners to support charities and communities hit hardest by the pandemic. I wanted to say a public thank you to all the insurers, long-term savings providers, Lloyd’s of London, brokers and insurance associations that gave so generously. No other sector of the economy has worked together in this way to raise so much money.
However, most people will probably only have seen one set of headlines about insurance during the pandemic and the dispute over Business Interruption cover has undoubtedly been difficult. I have spent much of my industry career in Claims so I know full well how difficult it can be when there is a genuine misunderstanding or conflict about policy coverage that comes to light at a point of crisis for the policyholder.
That is why I and the other leaders of our sector fully supported the Test Case process, which did its job in delivering judicial determination in record time so that insurers and policyholders knew where they stood. It is vital that any valid claims covered by the test case rulings are settled quickly and I know that all insurers and brokers will do everything they can to help their customers complete the necessary steps to get claims settled.
It is vital that any valid claims covered by the test case rulings are settled quickly and I know that all insurers and brokers will do everything they can to help their customers complete the necessary steps to get claims settled.
For me, the lessons to learn are around clarity of contract wording and minimising the expectation gap between customer and insurer. When we get this wrong, we pay a heavy reputational price because it reinforces existing stereotypes of insurers trying to find ways to avoid paying claims.
On clarity, a lesson we have to take away is the importance of explicitly excluding what the policy is not designed to cover and ensuring those selling the policy are clear with the customer on what they are buying. This can mean a more challenging conversation with a customer at the point of sale, but reduce the expectation gap when they come to claim. When a policy is priced cheaply to provide only basic cover, that also needs to be clear. We all have a shared responsibility here; insurer, broker and customer.
Because there is no doubt that when this goes wrong, our wider reputation suffers. While there is no compelling evidence that the BI court case has made the public estimation of our sector worse, that is maybe because it was not in a good place to start with. This is true across a whole range of products, general insurance and long-term savings, where customers complain about lack of transparency, confusing wordings and modest digital capability in many of our customer services.
We must therefore redouble our efforts to build greater consumer confidence in our sector and the ABI will play a key role in this endeavour. Whether it is best practice standards on some products, driving better transparency for customers, tackling wider areas of consumer detriment or working harder to deliver change that benefits wider society, we know there is more to do.
Before closing, I would like to highlight three areas where these changes are especially important; GI pricing, climate change and Solvency II reform.
We know that customer dissatisfaction with GI pricing has been high and unsurprisingly so when new customers end up with below-cost discounts that are not available to existing customers. That is why the ABI Board has been clear for some time that regulatory and industry-led reform was vital to improve trust and fairness. My predecessors Andy Briggs and Amanda Blanc drove the successful industry-led work that delivered 8.5m pricing interventions, saving customers an average of £40 to £150 per intervention. Now we are fully supporting the FCA’s ambitious reforms to end price-walking and introduce a healthier system. We will hear from the FCA’s Executive Director, Sheldon Mills, later on this but he can rest assured of the whole-hearted support of industry leaders for his reforms. With a realistic timetable to deliver the final rules, this is a set of changes we must all get behind.
But, the biggest challenge facing our industry and our world is climate change and sustainability; delivering net zero by 2050 so we can meet the Paris agreement and build a more sustainable approach to sharing and nurturing our planet.
As a sector we have a unique role to play in making this transition happen; we provide insurance for the risks we face from a warming planet, while also commanding over £1.6trn of assets in the UK that can be invested more responsibly to help deliver the net zero target.
As a sector we have a unique role to play in making this transition happen; we provide insurance for the risks we face from a warming planet, while also commanding over £1.6trn of assets in the UK that can be invested more responsibly to help deliver the net zero target.
Key to this are collective industry commitments that ensure everyone is playing their part and for individual leading firms to push the envelope of what can be achieved corporately. The ABI Board has set up a sub-group to drive progress in this area and Andy Briggs and Penny James will be talking in our second plenary panel today about what they hope we can achieve from it, especially in the run-up to the UK hosting the COP26 summit in November.
Critical to our ambitions is reform of Solvency II. Not to scrap it, nor to seek huge capital reduction at the expense of policyholder protection - nobody wants that. Our ambition is for sensible reforms [of Solvency II] that ensure the balance sheets of insurance and long-term savings providers are used in the most effective way to help us invest for the long-term in the renewable energy, infrastructure and economic recovery we need to see. At the moment, the directive forces insurers to invest in an A-rated mining company rather than a 30-year investment in a wind farm. It relies on a Risk Margin mechanism that is fundamentally flawed in an era of low interest rates and results in poor customer outcomes on annuity prices and unnecessary capital that could be working in the real economy. And it requires voluminous reporting designed for a single market of 28 countries rather than the appropriate regulatory requirements of one market.
The independent KPMG report published today makes clear the scale of the opportunity. £60bn of assets in the Matching Adjustment that can potentially be reinvested in assets that help tackle climate change and economic recovery. Reform of the Risk Margin could free up £35bn of wasted surplus capital that could support the annuity market or flow back into the economy. Taken together these reforms would generate £16.6bn in additional annual GDP in the UK by 2051 at no cost to the Government. And the Treasury could receive an extra £1.4bn in tax by 2030 as a result.
So there is plenty of scope for practical reform here that utilises the UK’s ability, post-Brexit, to have a regulatory system designed for the UK market, not the aggregated needs of 28 markets, and that is fully compatible with international standards. If we seize this opportunity, we can make a huge contribution to our climate change transition, help the economic recovery post-Covid and have a reporting regime that will attract more businesses to the UK’s shores.
So there are huge opportunities ahead. But we can only realise them if we work together. Belonging to a trade association should never be a cap on the ambitions of individual firms to make a difference; we all benefit when our competitors succeed in improving customers’ perceptions of the value of our products.
Belonging to a trade association should never be a cap on the ambitions of individual firms to make a difference; we all benefit when our competitors succeed in improving customers’ perceptions of the value of our products.
I continue to believe that the challenges we face; rebuilding reputation, navigating Covid-19 impacts, tackling climate change, achieving lasting reforms to Solvency II and GI pricing and many more critical areas are best achieved when we work together. That has been my experience of engaging with ministers and regulators over the last year and a half as Chair. Strength through Association.
It has been a great honour to serve as Chair of the ABI. We have many opportunities to grasp ahead of us and by working together we will succeed.