Sector trends & challenges
COVID-19 claims & demand shift
Handling of coronavirus-related claims will remain a key issue for the sector for some time, with public and political pressure likely to rise. Shifts in demand for some insurance products will generate additional strain.
Climate change is likely to radically impact the sector over the medium-term. Pricing these additional risks accurately, whilst remaining competitive, will remain a major challenge to global insurers.
Many insurers are retracting support from major sector lines - for example, airlines - in order to focus on core offerings. This is resulting in reduced choice in specific market areas.
Sector rating profile
The sector has remained resilient in the face of COVID-19 challenges, but there remain signs of stress in discrete pockets of the market.
Greater regulatory demands and an increasing demand for transparency from the PRA and FCA will continue to place additional burdens on insurers and will make for a tough environment in the coming year. COVID-19 related claims are a further issue to work through, with public and political pressure likely to be a factor.
The sector has seen an increase in claims costs on certain lines, including travel, airline, and business interruption (BI). Insurers are therefore retracting support from major sector lines given the issues faced, creating a capacity issue. In addition, ultra-low interest rates and dividend blocks may continue to dampen investment returns.
The impact of the BI Test Case in respect of COVID-19 related claims is a further issue to work through. Associated public and political pressure is also likely to be a factor which will make things increasingly challenging for insurers. Consumer literacy has increased and is also causing disruption to the industry. Brokers are seeing problems arising from a push for immediate information alongside reduced customer loyalty.
Risk profiles will likely need to be re-evaluated in light of the COVID-19 crisis, such as the impact of virtual working on property and employers' liability. There will be increased focus and scrutiny on policy coverage and exclusions for future similar events. New regulation in the form of IFRS 17 and FSAB LDTI approaches will need to be simultaneously implemented.
Increased digitalisation is occurring across the industry. Cost savings and efficiency improvements are there to capitalise on, but there may be disruption and higher costs in the short-term. Increased data analysis and marketing technology will need to be deployed to maintain consumer satisfaction.
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