By Mark Andrews, Domain Director – General Insurance at Altus Consulting
In 2006 57% of UK adults booked their holidays through a high-street travel agent. 10 years later that figure was down to 19% and several traditional businesses have gone under. A similar shift is now underway in Insurance. Four of the top ten UK private motor insurers in 2015 were new entrants to this sector (within the last 25 years). These new entrants accounted for approximately 23% of market share in 2015, equating to an approximate shift of £2.4bn Net Written Premium away from the incumbents. This market transformation wasn’t driven by revolutionising the shape of an insurance product, or indeed the technology that is used to design it; the same fundamental risk protection for premium exchange is still taking place.
But risk management is evolving just as rapidly too. A changing world is introducing new challenges for underwriters and actuaries. The rise of cyber-attacks, drone usage and driverless cars are all things which insurers need to be able to understand and model accordingly. In addition, there is a push to reduce the impact of traditional risks like water leaks and car accident black spots, with insurers looking to prevent as well as protect.
Underpinning this is the rise of connected insurance and the associated Big Data. More and more devices are available to give insurers data which can be used to make decisions. Risk and usage data can be fed into underwriting decisions, incident data can help inform claims liability, customer journey data can help improve engagement and real time risk data can be used to update premiums during the lifetime of a policy. A gradual increase in on-demand products and componentised policies will result in a less predictable annual book of business. Personalised pricing will lead to more accurate premiums, but this also threatens the fundamental insurance model of pooled risk. These changes will give actuaries a headache when it comes to developing new pricing models typically built on an annual, static set of risks. Overall pricing account management and monitoring will become a busier task due to more rapid changes in risk exposure.
In our white paper “The InsurTech Journey…are we there yet?” we discuss some of the developments taking place in the UK insurance industry and talk about the future, where we predict an insurance industry that looks very different.
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