At the JPMorgan European Insurance Conference on 18 June 2019, the Director General of the Association of British Insurers (ABI), Huw Evans, delivered a keynote speech on the strategic issues facing the insurance and long-term savings sectors, against the backdrop of a looming Brexit, new Prime Minister, and potential General Election in the not too distant future.
The Director General discussed the following key issues:
“Loyalty pricing” is currently under the spotlight and has been vilified by the Secretary of State for Business, Greg Clark MP, and by the Chair of the Competition and Markets Authority (CMA), the Rt. Hon. Lord Andrew Tyrie. Based on current market conditions, loyalty pricing seems to benefit new customers more than existing customers. The Director General reminded the audience that the ABI and British Insurance Brokers’ Association (BIBA) jointly launched a set of guiding principles in respect of general insurance pricing and that ABI members do not support excessive price differences between existing and new policyholders. The CMA will soon publish its interim report on the issue of loyalty pricing, with the final report due out in early 2020.
Pricing and (Big) Data
90% of all the data in the world has been created in the last two years. Much of it is thought to be pointless but is nevertheless collated and stored. There are now more connected electronic devices in operation than there are people on the planet, and it is estimated that this could rise from 20 billion devices to 50 billion in the next decade, particularly with the advent of 5G and artificial intelligence. The Director General noted that not all of this data will be pointless as it will likely contain personal data. With that in mind the ABI has commissioned a major research project in order to understand consumer appetite in this area and will use the findings to inform the ABIs approach to premiums and long-term savings.
Green Initiatives and Sustainable Finance
Like loyalty pricing, green initiatives and sustainable finance are also currently under scrutiny from regulators, politicians and the media. Insurers in the UK manage approximately US$1.9 trillion of investments, which need to be transitioned into cleaner assets and could therefore be heavily impacted by any inaction in this area. It is estimated that, by 2025, we will require a tenfold increase in the amount of GDP per equivalent unit of carbon emitted. The Director General welcomed the increased regulatory focus and the European Insurance and Occupational Pensions Authority’s (EIOPA) consultation on this issue on 3 June and suggested that more could be done to highlight opportunities for investments into renewable energy infrastructure.
The Director General took a thinly veiled swipe at Solvency II, but noted that it was broadly fit for purpose. The review of Solvency II provides an opportunity to refine what works and what doesn’t work or isn’t necessary. The general consensus is that the European insurance industry is adequately capitalised so there are not likely to be any changes to aggregate capital levels. The “ridiculous” reporting and disclosure requirements in Pillar 3 are what the Director General considered needs to be looked at most. There is evidence to suggest that policyholders were not reading the compulsory annual disclosures that firms are required to make on their websites and that the Solvency and Financial Condition Report does not actually provide a suitable view of the firm’s solvency or financial condition. He suggested that this called for an overhaul of the reporting and disclosure requirements, particularly the burdensome reporting obligations of the regulator and EIOPA, the costs of which are significant for smaller firms.
The Director General reiterated, however, that public policy and financial regulation constantly evolve and underpin the work of the ABI and that the key issue facing these two sectors was the imminent threat of a no-deal Brexit, which he believes would be an act of immense self-harm that damages the UK economy, its reputation and international relationships.