WHEN IT COMES TO INSURANCE – WE HAVE YOU COVERED.
Life & Pensions
Life & Pensions (L&P), or as more often referred to globally as Life & Annuities (L&A), is like other parts of the Insurance industry experiencing a challenging environment. This is further compounded by L&P specific challenges such as persistently low interest rates.
The market is changing, with customer expectations ever higher, technology innovation redefining operating economics, increasing competition, and more intrusive regulation. This has led many L&P insurers to place a greater emphasis on trying to grow their top line sales while trying to maintain underlying profitability.
Low fixed investment yields globally have cut rates offered to policyholders, and in the UK, this coupled with the ‘pension freedom’ changes has led annuity sales to plummet in recent times. There are some positive signs, but in the short-medium term this represents the new market ‘norm’.
The L&P operational challenge remains as significant today as ever with outdated systems, a complicated IT environment, multiple products (and variations) often on individual platforms, a lack of standard administrative processes across product lines, and back office underwriting processes that have seen little change. There are clear signs that for many insurers this is starting to undermine sales and is increasingly adding time and cost to servicing, often leading to workarounds on workarounds on workarounds. This is frequently resulting in overly labour-intensive processing and a culture of ‘heros’. As further regulation piles on more requirements this is going to mean layering on further complexity. For some the critical breaking point is coming sharply into focus. Operational Transformation is moving from merely being one option to reduce costs to being a business necessity to provide ongoing servicing.
When it comes to L&P Closed Books, then two of the most commonly deployed strategies have been either to offload them to an insurance firm that specialises in buying and consolidating Closed Books, or to retain ownership but Outsource the Closed Books to a third-party administrator (TPA). These trends are likely to continue particularly as Closed Books move towards the ‘long tail’ (lower number of active policyholders) where the lack of scale becomes a cost drain on servicing. The challenge though remains how to balance this with leveraging the client relationships that exist within these Closed Books to cross-sell – something we’ve seen TPA Outsourcing providers increasingly work with Clients to better address.
At Hillbrooke, we help L&P Insurance firms to address operational efficiency challenges to drive down servicing cost per policy for both Open and Closed Books. We help Clients to leverage the benefits of Outsourcing as well as the use of Automation, Cognitive Learning, and Data Analytics to drive costs down and enhance the customer experience. Talk to us.
General Insurance (GI), or Property & Casualty (P&C) Insurance as it is referred to in the US, continues to go through challenging times, with hopes for growth and improved profitability tempered by difficult market conditions which has seen both a decline in premiums/rates and rising costs.
The opportunity for General Insurers remains huge, as there has never been as much risk and as much complexity in the world as there is today. However, this is tempered by more aggressive competitors, rising motor losses per claim, property premium pressure, and low investment returns, not to mention soaring natural catastrophe claims that are threatening to become the norm with climate change. This has meant that delivering and maintaining profitable growth has become increasingly difficult. Then there is the ever-present threat of ‘industry disrupters’ – be it from autonomous driving or the threat of well-resourced new entrants such as Alphabet or Amazon who will look to change ‘the game’.
In the UK, the Ogden discount rate adjustment for personal injury claims and the potential of the Civil Liability Bill should reduce costs in the motor insurance sector providing a potential, albeit likely temporary fillip against claim cost increases.
There is a pressing need to address the Expenses Ratio. For General Insurers the operational focus is firmly on trying to contain cost increases be they in claims, servicing, or in maintaining regulatory compliance. The implementation of Solvency II reporting has tested the industry and resulted in increasing operational complexity; however the changes in accounting standards that IFRS17 will bring has the potential to layer on even more complexity to existing processes and systems. There is no doubt that the resourcing and costs of the Finance function are going to come under increasing pressure in the months and years ahead.
Robotics (RPA) and Cognitive intelligence (CI) technologies promise to help insurers do more with less. The often tactical application and proof of concepts are now increasingly giving way to strategic and industrialised deployment. This is typically seen in middle office administration processes – most notably in claims.
Insurers are increasingly using Outsourcing as a lever in areas beyond IT, further and deeper into the middle and back office such as underwriting, claims, actuarial, and finance to drive out significant cost. However, the benefits are being felt far beyond just wage arbitrage, increasingly they are coming from underwritten Operational Transformation which is delivering the biggest difference to unit costs.
At Hillbrooke we can help you address the Expenses Ratio and provide a platform for profitable growth, through supporting you in the application of technology and use of Shared Services and Outsourcing. – Talk to us.
As the Insurance market undergoes rapid and systemic change, driven by changing customer behaviours, regulation, carrier strategy, new Insurance entrants, and technology innovation, this has led to the re-examination and the progressive re-invention of the Insurance Brokerage firm’s business.
The ‘middle-man’ Broker role is being continually marginalised by the growing trend for customers to buy directly and to increasingly package their requirements – undermining the very premise of the Brokerage business, linking a customer to a carrier. As firms get squeezed the challenge is how to create added value in the services provided to clients, and to better differentiate offerings from other Brokers in the marketplace.
These challenges are further compounded by the uncertainty of Brexit, skills shortages, increasing specialism of firms, commoditisation, and the rapid growth of Artificial Intelligence (AI) and automation. It is clear that the current highly competitive and highly price sensitive market is going to remain for the foreseeable future.
The big 3 global Brokers’ (Aon, Marsh & McLennan, WillisTowersWatson) approach to addressing the challenge has seen them focus on building scale in key markets (partially through acquisition), focusing on deepening client relationships, providing added-value services including Risk and HR Consulting, and developing new technologies to improve the customer experience.
Going forward, Organisational Change and the Operating Model are going to become an increasing part of the conversation as Brokers demonstrate their unquestioned ability to adapt and evolve. There will be an increasing focus on reducing servicing costs and using technology and automation to drive improvements in efficiency and the customer experience.
At Hillbrooke, we help Insurance Brokers, big and small, to meet the challenges of today’s changing market dynamics. This has been through a range of initiatives, from supporting the simplification and standardisation of operational processes, implementation of robotics (RPA), through to supporting the establishment of regional and global Shared Services hubs, and advising on the Outsourcing of non-value adding middle and back office administration. However you are looking to transform. Talk to us.
The ‘London Market Insurers’ – the cluster of Insurance and Reinsurance firms based in the UK capital and that are members of Lloyds of London – face a changing world that is having such a profound impact that it is becoming a case of ‘adapt or die’. While Lloyd’s remains one of the world’s largest Insurance Markets and firms continue to do well in traditional speciality lines such as marine, energy, and aviation, and are seeing significant growth from relatively new products such as cyber-insurance, this belies the underlying trends and challenges in the business as a whole.
Claims arising from major catastrophes (Cat. losses) will continue to have the biggest impact on profitability of both the overall market and individual London Market firms – resulting in sometimes radical swings from year to year. This is exemplified in 2017, when following six years of market profitability, the market suffered from major claims primarily arising from hurricanes in the US and Caribbean and wildfires in California, with Lloyd’s reporting a £3.4bn market underwriting loss. However, this is compounded by an increasing array of challenges facing London Market Insurers;
- An over-reliance on mature western markets (particularly the UK and North America) resulting in a high concentration of risk.
- Slow growth in the fast-developing emerging markets which will erode long term competitiveness.
- Perception (and to an extent an inherent truth) in the complexity of London Market placement.
- Limited offering in some of the fast-growing reinsurance lines eg. insurance-linked securities.
- Increasing regulatory burden (including IFRS17 implementation).
- Potential impact of Brexit on ‘business as usual’ in providing insurance across the EU.
- Increased competition from reinsurers outside of London (particularly in fast-growing emerging markets).
- High Expenses Ratio.
The implications of the challenges remain;
- How to globalise operating models.
- Maintain regulatory compliance in an efficient and sustainable way.
- Broadening of service offerings along with taking advantage of new opportunities such as the UK Insurance-Linked Securities (ILS) legislation.
- A push to expand in the challenging emerging markets.
- Standardise and where practical commoditise risks and products.
- How to compete against low cost providers effectively.
One reaction to these implications has been an increase in mergers and acquisitions. Rumour and speculation on future M&A activity continues to be rampant. Although M&A may drive economies of scale and enable market diversification, and in some cases result in reduced competition, it is important to recognise that significant work is required to integrate and transform the organisations involved.
At Hillbrooke we understand the complexities of the London Market, operationally, technologically and regulatory. We can help you to drive efficiency and effectiveness in your operations, be it supporting the enhancement of your underwriting capability with new tools through to middle and back office Transformation through Outsourcing. We have helped multiple London Market insurance firms do a lot more for a lot less – resulting in step-change 35-60% cost reduction and improved service provision. Talk to us.