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UK Insurance Market – what could the future hold?
May 24, 2016
The UK’s economic performance in the last quarter of 2015 was encouraging, if not mixed. Output increased in two of the main industrial groupings - namely services and agriculture which increased by 0.7% and 0.6% respectively, while construction output decreased by 0.1%
As we know, innovation is a key driver to economic prosperity. In April this year Innovate UK, a non-departmental public body, announced it will be investing £561 million in innovation projects with UK companies over the next year. Its Chief Executive noted: “To be globally competitive the UK must innovate and grow. Innovation is responsible for 50% of all productivity growth.” I understand that the initiative will be focusing heavily on SMEs, which in 2014 employed over 60% of the UK workforce bringing £1,647 billion into the UK economy, and representing a significant percentage of insurance buyers.
So innovation is happening and there is considerable investment to support it.
In the UK and worldwide, never has the imperative been so strong for insurers to look at their existing solutions and products to ensure they are meeting the changing needs of our client base; they are busy innovating and so must we be, if we want to continue to be regarded as a relevant partner. If we take GDP as an indicator of our relevance, we see that between 2002 and 2011 global GDP grew by about 3.8 percent a year but our industries growth over that period was 2.5 percent.
Additionally, premiums in property/casualty during the period went from around $1.1 trillion to $2 trillion. So the reality is we have gone from a global economic activity of 3.4 percent to 2.8 percent.
The point is, we need to reinforce and demonstrate the relevance of our products and quality of our service if we are to survive.
When we consider the changing nature of risk, cyber exposures are at the fore, and the potential for huge systemic risk is one issue the insurance industry has been grappling with in recent years. Cyber is one of the most significant risks facing businesses as risk managers will testify. In the UK, 81% of large businesses and 60% of small businesses suffered a cyber-security breach in 2014 according to the UK Department of Business Innovation and Skills.
In the US, the product and purchasing has been driven by notification reporting legislation, as is well established. This has not been the case in other parts of the world. However, on April 14 the European Parliament voted through new rules aimed at increasing privacy and giving authorities greater powers to take action against companies that breach them.
This will likely result in greater awareness and demand for cyber coverage. Here in the UK, there is a huge opportunity for the London market to drive the innovation required, as last years’ report by HM Government and Marsh - UK cyber security the role of insurance in managing and mitigating the risk – highlighted: “Cyber security is not just a question of threats – it also represents an opportunity for the UK. The UK has world leading cyber security expertise and cyber security services.”
The report, which XL Catlin contributed to, included some important messages, namely that businesses need to properly understand and put a value on their cyber exposures, the importance of risk management arrangements and the role and opportunity for the insurance market to lead thinking.
Today’s challenge is to make sure the product is relevant and sustainable. And being challenged is not a bad thing! In fact many graduates often cite the need to be challenged at work as a key career goal.
If we look closer at what today’s graduates want, a survey published in 2015 by the Bright Network revealed that 28% of graduates from the UK’s top universities said innovation and creativity was their top career goal.
Attracting this talent must remain a priority for the industry; we need to do a better job of selling insurance as an attractive industry in which to build a career because a diverse workforce, with a blend of skills, experience and mindsets, fuels innovation.
I think we are certainly moving in the right direction - the success of last year’s Dive In Festival and the programme for this year shows real commitment from our industry to become more diverse.
Today the need to bring greater diversity to the industry is matched by the need for modernization and we must keep enthused in spite of past failures – the success of these projects, namely the London Market Target Operating Model (LM TOM) will in many respects be defined by market collaboration. This is the case with the Placing Platform Limited and the Central Services Refresh Programme.
The pursuit of efficiencies and automation is critical if we are going to succeed in a market with challenging growth prospects and increased competition.
While these initiatives are hugely important, we must also keep focused on attracting and developing our talent. Not doing these things in tandem is not an option if we want to ensure the long term sustainability of the insurance market. It’s now or never.
This article was first published in Insurance Day