Sharing his insights, Jon Walker (pictured left), CEO of AXA Commercial, highlighted why he hopes collaboration will be a key area of focus as the sector works towards the Consumer Duty deadline in the middle of next year. Firms will need to work together to deliver change, he said, and insurers should be putting themselves in their customers’ shoes to really get to grips with the requirements.
“Within intermediated business, brokers are essential in doing this,” he said. “With an in-depth understanding of their customer base, brokers are best placed to identify, evaluate and communicate a customer’s needs and work with insurers who are, in turn, designing, producing and servicing the products that meet their needs.”
The Consumer Duty rules are entirely consistent with running a business oriented towards the customers it exists to serve, Walker said. Working in partnership towards this end throughout the distribution chain will not only help insurance businesses deliver more value for their customers but it makes strong business sense too. Consumer Duty will enable insurers to further ensure the best possible customer outcomes and we welcome the opportunity to place a greater emphasis on consumer protection.
Adding his perspective, Matthew Edwards (pictured right), consulting actuary at WTW, noted that the FCA’s Consumer Duty has ramifications across all product lines, and it will be important for firms to ensure their approach to this on the in-force is well thought through – it’s not just about new business pricing.
“[Meanwhile], for savings products, demonstrating the ability to cope with high inflation in a way that offers value compared with non-insurance investment alternatives,” he said. “For post-retirement, the challenge is finding a good ‘half-way’ between drawdown and annuitisation. The current higher interest rates help make annuities look more attractive, but the problem remains. Various firms are considering new approaches to longevity risk pooling.”
Will 2023 be a difficult year for the insurance industry?
The winds that buffeted the insurance sector in 2022 did not dissipate with the tolling of the New Year, and Walker emphasised how with the enduring cost-of-living crisis and ongoing uncertainty throughout the UK, 2023 may sadly be another difficult year for many. Following the pandemic, he said, the emergence of new risks and issues shows no sign of relenting and our customers continue to face substantial obstacles.
“I expect rising inflation to continue to have an impact across the insurance sector, from pricing and claims, to repairs and procurement,” he said. “The rise in claims costs across this sector has been driven by a number of factors including COVID-19, the geopolitical situation and Brexit causing global supply chain disruption and skills shortages.
“Unfortunately, there is little sign of this letting up. At AXA, we will continue to work with our customers to manage this impact and ensure our customers are treated fairly and claims are dealt with promptly.”
The outlook for mortality and longevity has remained highly uncertain, Edwards added. Insurers had hoped, during the pandemic, that things would revert to some form of ‘new demographic normal’ post-pandemic, but the mortality experience of 2023 is proving hard to decipher.
“The outlook for future longevity improvements is also more uncertain, especially given NHS and related pressures,” he said. “We’re hoping that, by the end of 2023, insurers will have made whatever changes are appropriate and have found good evidence for such changes.”
Insurance challenges in 2023
Assessing the challenges awaiting the market in 2023, Walker spotlighted the continued issue presented by talent attraction and retention. These are not new challenges for the insurance industry, he said, but the specifics of the issue change year on year.
“We can’t continue to blame the spike in vacancies and rising salary costs on a post-COVID ‘lifestyle’ narrative,” he said. “We’re a people business and, if anything, we, along with our competitors and brokers, have to put extra effort and investment into attracting and developing the next generation of industry talent and leaders.”
Looking at the regulatory challenges facing insurance this year, Edwards noted that for many firms, 2022 has been the year of IFRS-17 preparation. 2023 will correspondingly be the year of making IFRS-17 work as BAU, he said, ensuring all relevant internal and external stakeholders understand the results – and reasons for variation from the previous reporting regime – and thinking through knock-on impacts of the new reporting regime.
Insurance opportunities in 2023
There are plenty of opportunities for the market too, alongside these challenges, however, and Walker emphasised that 2023 has the potential to be a great year for the insurance industry. With the rapid uptake in digital solutions and technology across the personal lines market, he said, he hopes to see commercial lines catch up this year.
“I believe digitalisation of commercial lines is already accelerating and the crux will be to keep pace and maintain the rate of change,” he said. “As we move beyond modernising internal processes, the next step will be to enable more digital interaction, more self-service and more innovative products. The key will be anticipating customer requirements before they have happened as well as upskilling our experts with the tools that will allow streamlined processes to become the norm.”
Looking forward, Walker said, he believes the market will see customer expectations evolve and insurance will increasingly need to focus on personalisation, prevention, sustainability and digitalisation. It’s up to each market player to embrace these opportunities to remain competitive and continue to serve their customers.
“Much of the talk during the late 2010s of the opportunities offered by good use of analytics, unlocking the patterns in data and doing so in a way that helps shareholders and policyholders, was deprioritised due to the pressures of the pandemic and IFRS-17,” Edwards added. “This year could be the year firms ‘re-find’ their ambitions regarding broader use of data analytics, with corresponding systems redesigned to better allow the use of new data-driven insights.”
For Edwards and his team at WTW, the key area of focus in 2023 is supporting clients in navigating the challenges facing the markets while accessing all available opportunities. It’s a similar story for Walker and his team at AXA Commercial and besides continued growth and profitability, they’re focusing on areas such as service delivery, regulatory response, delivering for our customers and change and transformation.
“Over the past few years, we have established an expert Governance, Risk & Conduct function,” he said. “Moving forward, we must continue to build on integrating good customer outcomes into our working practices and business culture. We have a number of regulatory commitments to fulfil, with Consumer Duty as a top priority for 2023.”
Walker highlighted how delivering for customers sits at the heart of the Commercial team’s ambition to help their customers’ businesses thrive today and tomorrow. The business will be focusing on continuing to offer strong service that makes it easy to do business with, he said. This year, it has been working to ensure account managers and underwriters alike are available to brokers both face to face and in a ‘smart working’ setting.
“We want to make sure brokers and business insurance customers have the opportunity to communicate directly with underwriters, giving everyone a more in-depth and detailed understanding of needs and requirements,” he said. “We will also be progressing with our transformation programme.
“We’ll be looking at more ways to ensure decision-making is as close to the customers as possible, making our underwriters more accessible by providing them with improved tools and processes, and use data to enable better customer outcomes.”
What do you think 2023 will bring for the insurance sector? Feel free to add your thoughts in the comment box below.
