As the New Year lurks off stage, waiting to burst into the global spotlight, I sit down and wonder about the cast of characters that it will bring with it.
What isn’t going to happen
Here’s my list of things that won’t happen next year:
- Car insurance premiums go down
- Home insurance premiums go down
- Pet/Travel/Health insurance premiums go down
- Ogden reform
- Civil liability reform
Yup, the cost of insurance is going up again in 2018. There are a few reasons for that, to which I will point below, but the pundits who are calling for a fall in the cost of insurance of up to 10% are being a little optimistic.
Ogden and Civil Justice reform
Let’s start with Ogden reform and Civil Liability reform. Let’s be clear, in a year when ALL that we are going to be interested in is Brexit, there is not a hope of anything as macro-economically unimportant as whiplash appearing on the agenda. And even if it does, the pressure to keep a stable majority together in Parliament means that no one is going to take a risk. While it may benefit voters to pay less for insurance, those voters are going to be distracted by Brexit, a royal birth and a royal wedding in the first half of the year. The bottom line is that there is no political capital to be gained by forcing through these reforms. There is, on the other hand, a lot of political capital to be lost; so it’s better to bury the whole thing in committees and send it back to departments for guidance and advice.
Call me a cynic, but put my prediction in your desk drawer and see if I am right this time next year.
“The bottom line is that there is no political capital to be gained by forcing through these reforms.”
GDPR
Turning to the issue of what WILL happen next year. On the 25th May 2018, GDPR rules will come into effect. They are already law — they just become effective on that date.
So what? I hear you ask. Well, the insurance industry has been gorging itself at the trough of big data for several years, getting access to anything it can in order gain a rating advantage over the next guy. We have moved from insurance being an art to it being a science; a science increasingly populated by people who use complex algorithms and artificial intelligence to find new avenues of opportunity.
What if consumers took their data away? What if regulators took their data away? How would the industry react?
There is little or no doubt in my mind that the entire industry has undercooked GDPR on its’ risk radar, but that is not really my issue. I think the entire industry has also undercooked the opportunity of GDPR. Research we carried out this year shows that if consumers believe there is a value to them of sharing data, and if they think you will keep that data safe, they will be happy to share more of it with you.
The problem is that after 25th May 2018 this opportunity disappears, and all that is left is a hangover and a nasty taste in your mouth.
The unforeseen issue I see here is not the regulator. I think the ICO will take a pragmatic approach to enforcement. Although they might be looking to name and shame a few high-profile scalps initially, they won’t be looking to put them out of business. The biggest problem this will cause is that the moment they intervene with a company, that company will have to stop whatever it was doing with data. If that was risk based pricing, well, it might destroy the entire pricing model. Maybe.
“Can we say GDPR and CMC in the same sentence? Yes, I think we can. Where there’s muck there’s brass.”
No, the ICO is not the problem. The problem is the follow-on private claims. Article 82(1) of the legislation gives individuals who have received material or non-material damage the right to bring claims.
Remember the Claims Management Companies the industry has been thumping the table about? Can we say GDPR and CMC in the same sentence? Yes, I think we can. Where there’s muck there’s brass. There’s a lot of mucky data out there.
One of the great joys of my job, working with our customers all over the planet, is that you get to see the world through different eyes. One of the things that may have slipped your notice is that this has been a year of earthquakes, hurricanes and volcanic activity. Most of it didn’t happen here. We have had a few relatively peaceful and quiet years.
So, before I make my prediction for 2018, let me start by saying I am not a meteorologist, a geologist or an environmentalist. I just study patterns and probabilities. I’m not really very good at that, but my call would be that 2018 is going to be a year of more natural event risk than we have seen for a few years: floods, high winds, cold weather, hot summers. Statistically, it’s got to be time for a catastrophe. I say this not to try and be sensationalist, but to just draw your minds’ eye to your contingency plan. When was the last time you took it off the shelf and dusted it down? I’m just saying, we have had it good!
One final prediction for 2018. I think we will see a major general insurance company either fail or sell itself to another company with a stronger balance sheet. Over the last 10 years, general insurers have failed to understand the difference between “price” and “value”. Instead, they have defaulted to finding ways to compete on price rather than doing the more difficult job: finding what their unique value proposition might be. How? By looking at themselves and their customers through their eyes, not their shareholders.
Chasing new rating factors to get a better price is just doing the same. It’s relatively easy. However, asking what consumers want, and how can an insurer better serve that unique space — now that’s challenging. However, there is no time for a thesis on the subject here.
The result is that solvency ratios are being stretched and capital reserves are being depleted. The warning signs are out there.
Generally, I think the macro trends point to some interesting changing dynamics in the industry: AI, driverless cars, IOT, blockchain. All these things fundamentally change what insurance is.
To survive, we need those who decide what ‘good’ means to start thinking differently. Good is not meeting or beating the street. Good is having a strategy, a 3–5 year plan that takes into account these macro changes, and builds a unique market strategy that starts and ends with customers. No plan that talks about transformation or digital is credible unless it starts by talking about customers and what transformation or digital they actually want. The industry already has too much ‘appware’ that no one uses. Get with the program!
Analysts, listen to the plan then look at the numbers; Non-execs, challenge the board about what they are doing that is different; Exec teams, demand that people rise above the mediocrity of the grey, turgid image the industry has.
I work in this market because I am passionate about the difference it can make in the world. Show some passion and you may survive ‘18.
And in the meantime, enjoy it!
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