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Published On: 1 September 2015
Any firm bold enough to stick its collective neck out and make 50 predictions about what might influence the UK insurance market over the next year is going to get some spot-on, some partially right and fail to call it right with others. The unexpected comes at us from all directions, but the aim of the predictions section in this report every year is to focus on those areas where the need to be ready to adjust to change, and meet challenges head-on, seems most pressing.
What is a good strike rate? Perhaps that is for our clients and readers to judge. Here’s a review of the big hits – and misses – from last year’s report to help you make up your mind.
We have chosen ten predictions that have certainly attracted interest over the last year and made a significant impact in the market, sometimes even greater than we envisaged this time last year.
The catastrophe bond market continues to grow with the first quarter of 2015 seeing a record US$1.7 billion of new bonds issued in a market now worth over US$22 billion. Its size is now provoking some commentators to question whether it poses a threat to the stability of the reinsurance market, while others still herald cat bonds as a stimulus to innovation.
George Osborne continued to surprise everyone with his extensive liberalisation of the pensions and annuity market, a classic grey swan event. The changes that were already weakening insurers’ hold over the annuity market accelerated with the new freedoms to drawdown lump sums from individual pension funds.
The use of social media, especially by personal lines claimants, has continued to develop and insurers are slowly coming to grips with the opportunities for better interaction with customers. The publication by the Financial Conduct Authority earlier this year of new guidance on social media usage will give a fresh impetus to this area.
Hackers continue to pose a major threat to data-dependent business and the legal consequences have grown too. The delay to the new EU regulations has left a vacuum for national courts to fill. The recognition by the courts of liability for emotional distress alone caused by data protection breaches has happened following the UK Court of Appeal’s finding in Vidal Hall and others v Google Inc. This is an area where black swans lurk in the shadows.
The high profile this issue has had on the political agenda has ensured that the momentum behind HMRC’s tough stance against anything that looks like avoidance has continued. This is very unlikely to relent.
Last year saw the start of what has become a boom in M&A activity, fuelled by the diverse factors we identified last year – Solvency II, the search for value in a soft market faced with low investment returns and the pursuit of business in high-growth markets.
This is still a hot topic among corporate financiers and risk managers even though the market is yet to develop. Pooled risks and club deals may be the way forward.
Warnings that the volume and profile of abuse claims would continue to pose a growing challenge, especially as claimant solicitors can recover high costs, proved to be chillingly accurate. Recent new cases thrown into the public spotlight show this sensitive issue will not go away.
The exodus is gathering pace and to a greater extent than even the pessimists feared, with some firms almost giving up on claims that fall within the portal, although volumes within the portal remain as high as ever. The wave of personal injury firms entering markets such as deafness and clinical negligence claims will continue – watch out for possible new areas not yet tapped.
Telematics is starting to go mainstream and the proportion of new cars with automated emergency braking, lane drift sensors and other safety devices is now significant enough to start having an impact on accident rates, with implications for the motor claims supply chain. The feared potential for conflict over data ownership is growing.
There are a few of last year’s predictions – on medical devices and data protection regulation in particular – that have got stuck in the European policymaking machine.
The European Union’s iterative policymaking process always moves slowly but even experienced observers can be caught out from time to time by the snail’s pace progress.
The medical devices regulations, prompted after scandals involving PIP breast implants and prosthetic hips, surprisingly failed to get past the Council of Ministers in December, while intense lobbying by privacy campaigners on one side and internet firms on the other has slowed down the progress of the revised data protection rules.
A key challenge was that some of the crucial European Parliament committees took longer than expected to be reconstituted after last year’s European Parliament elections. These saw a much enlarged block of anti-EU MEPs elected from across Europe, many of whom have no appetite for the legislative heavy-lifting in the committees.
These key issues will emerge from the extended EU policy formation process at some stage in the next 18 months so they haven’t gone away and will need to be watched carefully.
Then there was the completely unexpected – the shock 56% increase in Insurance Premium Tax in George Osborne’s post-election budget. The new 9.5% rate hits in November and will put the personal lines market, in particular, under fresh pressure, as consumers will expect insurers to absorb the increase. A genuine grey swan event, but one that no-one predicted.
So several hits, a few misses, but most importantly plenty of food for thought.