Certus recently interviewed an insurance services client to look back over the previous year and understand some of the emerging trends in the insurance industry during the next 12-18 months. The answers are pertinent to many businesses in the insurance sector. Certus has assisted this client grow its profile in the UK insurance trade media, as expert commentator, as an informed contributor to key debates, and to illustrate how the business is continuing to deliver its long term aims.
What have been the biggest threats to your business in the past year?
Regulation continues to challenge insurers and supplier businesses, especially on the claims journey, where the quality of the customer experience is firmly under the microscope. This trend is set to continue into 2014. BIBA figures show that the cost of UK regulation is five times that of many of our competitors, including Germany and France.
With the number of thematic reviews in double figures this year and set to continue into next, there is a danger that management teams spend more ‘treasure’ managing their regulatory agenda, and seek to reduce regulatory risk by insourcing claims and other services. As regulatory costs increase, they eat into revenues. Businesses that are finding growth hard in this super-competitive market will face the threat of a disproportionately larger cost base as a result.
What will be the biggest threat over the next year?
The 2015 General Election promises to be as ideological as any since the days of Mrs Thatcher and ‘Old Labour.’ Financial services has proved to be a useful whipping boy for all the political parties since the Global Financial Crisis, and there is a danger that, if the election is as close as the polls predict, the Parties will adopt populist policies that attack our industry and seriously damage our future prosperity.
Neither is the economic recovery guaranteed, not only within the narrow parameters of the UK but also existential threats from the current global economic uncertainty, caused by various crises in the Middle East and Eastern Europe, as well as other macro-economic factors such as stasis in the Eurozone, that could threaten the global economic recovery.
What are the significant trends or big issues for the industry looking ahead.
As the economy emerges from recession, customer behaviour is changing too. Companies that have standardised to deliver the promise of scale will be challenged by customers who wish to be treated as individuals, with different types of requirements and using different channels of delivery.
Segmentation will, therefore, be a key market development, and as traditional providers struggle to keep up, niche and specialist providers who really know their market will be in more demand.
The industry should remain concerned at the ongoing lack of public trust. Non-insurance brands which garner levels of customer advocacy and brand loyalty traditional insurance brands can only dream about will be able to eat our breakfast, lunch and dinner too.
What are the biggest opportunities/how will businesses in our sector grow?
Confidence in M&A is starting to return. Over-leveraged businesses and businesses that have been held on to for too longby private investors will be seeking a new home. On the buy side, there are massive latent funds within venture capital to buy businesses, and many corporates are sitting on large cash piles. They need to buy or hand that capital back to shareholders.
We also see further opportunities in the Lloyds Market, servicing those risk carriers who want to grow by not doing everything themselves. Traditional ‘do everything ourselves’ models won’t serve tomorrow’s customer. All senior insurance executives should be asking themselves what in their fixed cost base can they move to a variable cost base.
Technology remains another significant opportunity for our industry, both upstream and downstream. Ten years ago, insurers were largely held to ransom by software houses. Simple pricing changes took months to implement, while insurance mergers were and continue to be held back by the dead hand of legacy systems.
Mobile tech has changed all this – products can be developed, tested and implemented via apps at a fraction of the cost.
Customers now demand a tech-led claims or sales experience which meets their own high expectations from using the best app technology themselves. It’s a great opportunity for insurers, but they need to think differently about their offer and ensure customers get what they actually want, as opposed to what providers think they want.