Save-to-thrive: what next for UK general insurers?
UK general insurers once more find themselves at a crossroad. They have reacted to the significant challenges associated with the initial waves of the Covid-19 pandemic. Now that many of them have bailed out the water and plugged the holes, the key question they now face is how they can steer from a state of recovery to a position where they are set up to thrive in the future.
Falling consumer demand and the continued rise of InsurTech firms have led to prospects of revenue growth not looking particularly promising for a majority of insurers. According to the 2020 Deloitte Cost Survey, the number of European insurers who project a positive revenue growth outlook has reduced by 58% compared to pre-Covid-19 expectations. This gloomy outlook is further compounded by a set of wider macroeconomic factors. The pending supreme court ruling which is likely to rule in favour of small business policy holders in the Business Interruption case brought by the FCA will further inflate claims and negatively impact losses. Continued low interest rates and an uncertain investment environment will further intensify scrutiny on underwriting performance and capabilities.
In turn, we have witnessed some favourable outcomes for insurers in recent months with the hardening of commercial and specialty market rates and reduced levels of household and motor claims due to the pandemic. Whilst this may give rise to optimism in some corners, we should be cautious of the fact that these positive outcomes may in turn mask underlying inefficiencies which will impact sustainable growth and profitability.
As a result, many insurers are looking to tighten their belts in 2021. 55% of European insurers are likely to undertake a cost programme within the next 12 months, with the percentage of respondents pursuing cost reduction targets greater than 10% increasing by almost half compared to pre-COVID-19 levels. However, it will prove to be no easy task. Around a third of the largest carriers in the UK have experienced a growth in expenses, which has contributed to worsening underwriting performance over the last 5years. Traditional cost reduction methods are no longer tenable in this new world.
While regulatory and large scale transformation programmes (e.g. Brexit, IFRS 17, M&A) partially explain the expense surge the industry has seen, there are more known-unknowns ahead. The full extent of the impact to current business models brought about by changing travel, mobility, social and virtual working behaviours is still to be fully determined. However, it is clear that insurers will be forced to shift further towards digitisation in order to accommodate changing consumer behaviour, an increasingly virtual workforce and capitalise on new innovative products and solutions
It is more crucial than ever for UK insurers to radically reduce cost whilst creating a structurally more efficient operating model. We set out a positive outlook in our 5-part blog series to help UK insurers ‘save-to-thrive’.
Part 1: Aligning C-Suite on their ambition and appetite – practical suggestions on how to build the ‘burning platform’ and frame the key choices upfront to guide the cost transformation journey.
Part 2: New ways to identify saving opportunities – we have all been there: headcount freeze, contractor reduction, deferred bonus, etc., but none of these are permanent cures. We will introduce a structured framework to help you examine cost across the GI value chain (from distribution, U/W to operations, technology, finance, HR and procurement), ‘leaving no stone unturned’.
Part 3: Moving from vision to value – up to 83% of the cost programmes fail. With our practical case studies, we will introduce the success factors required to execute cost transformation with clarity and pace using leading-edge capabilities.
Part 4: Sustaining these hard-fought gains - discipline is a must to embed a cost-conscious culture but now this can also be enabled in a real-time and interactive way through leading-edge data and analytics and reimagining your workforce for the future.
Part 5: Knowing left from right - cost transformation often identifies structural challenges in the business, or opportunities for a more radical ‘right-to-left’ rethink of the business model. We discuss the signals and factors to consider before embarking on a ‘left-to-right’ cost programme.