Sector trends & challenges
Demand shift & COVID impacts
Public and political pressure on the sector has risen due to well publicised issues with Covid-19 driven claims. Future shifts in demand for some insurance products, along with new policy requests, will generate additional strain.
Climate change and Cyber are likely to radically impact the sector over the medium-term. Pricing in these additional risks accurately, whilst remaining competitive, will remain a major challenge to global insurers.
Many insurers continue to reduce their exposures to certain lines of business such as D&O, Professional Indemnity and Energy. This is resulting in reduced choice and increased cost in specific market areas.
Sector rating profile
2 on the temperature scale. The sector has remained resilient in the face of COVID-19 challenges and natural catastrophe claims, however, there are signs of stress in discrete pockets of the market and some insurers may face increased costs as a result of the need for remediation of operational resilience requirements imposed by the regulators.
The insurance sector has benefitted from robust premium rate increases across many lines of business and this has seen the market report strong profits and improved solvency ratios.
One effect of the hard insurance market has been a big increase in the use of organisations’ captive insurers whereby large corporates seek to use their own insurance company to reduce their expenditure on commercial insurance.
Insurers face a number of underwriting issues. The increasing demand for pricing transparency from the PRA and FCA will continue to place additional burdens on insurers and the impact of these changes have yet to be fully determined by insurers. At the same time, risk profiles will likely need to be re-evaluated in light of the longer-term impacts of climate change, COVID-19 and the associated changes in societal behaviour.
In terms of operations, increased digitalisation, like with the majority of sectors, is occurring across the insurance industry. Increased data analysis and marketing technology will need to be deployed to maintain consumer satisfaction. Cost savings and efficiency improvements are there to capitalise on but there may be disruption and higher costs in the short-term. At the same time, the requirement for insurers to demonstrate and document their operational resilience is placing additional pressure on companies needing to meet the upcoming regulatory deadlines.
From a claims perspective, COVID-19related claims continue to be an issue for certain insurers although changes to policy wordings are expected to limit the impact of future pandemics. Insurers have also faced a very costly year in terms of natural catastrophes, however losses have been off-set by very strong rate increases.
The ultra-low interest rates and dividend blocks may continue to dampen investment returns and this has led to some insurers pursuing riskier investment strategies resulting in more exposure to diverse asset classes.
Brokers are seeing problems arising from a push for immediate information alongside reduced customer loyalty which is a strong theme coming out of the market.
Supporting insurance groups with the restructuring they need to undertake so that they can continue to service their pan-European clients after the UK left the EU.
Supporting the run-off market
Providing insurers with sell-side support on run-off deals including in-depth financial analysis, production of sales documentation and assisting on bidder negotiations. Supporting dedicated run-off acquirers with buy-side due diligence and the design and implementation of strategies to aid their growth and underpin improvement in their core processes.
If you have a challenge or opportunity, our Insurance Restructuring team are here to help you navigate what's next.Find out more