Insurance industry has much more on its plate than just Brexit
From changing business models and cyber risk to change management, insurers need to look beyond Brexit to the wider challenges facing the industry, as traditional strategies are coming under increasing threat. However, Brexit might at the same time prove to be just the push needed to bolster the sector’s innovation capacities, writes Onno Bloemers, a partner at Delta Capita.
“Brexit means breakfast” may now be a phrase forever synonymous with political gaffes, but for the insurance sector it represents far more than a ketchup splash of poetic irony. While the uncertainty surrounding the type of Brexit deal agreed undeniably represents the bacon and sausage, UK insurers will be at a disadvantage from their international counterparts should they push the mushroom and beans to one side.
At the risk of sounding like a Brexiteer, insurers need to look beyond Europe to the highly complex challenges they face from the rest of the world. According to this year’s ‘Insurance Banana Skins’ report (authored by CSFI), change management is right at the top of the risk list. From rapidly expanding emerging markets to rising consumer demands and innovation in distribution channels, the traditional insurance business model as we know it is under threat. Existing players are struggling not just with legacy systems, but also with legacy thinking, limiting their capacity to effectively transform their organisations. With this new reality of constant change, the ability of insurers to effectively adapt themselves becomes a critical success factor.
But change management is by no means the only risk leaving insurers a little overwhelmed. There are various external circumstances that insurers are increasingly vulnerable to. Take the growing threat of cyber risk, which is not just a direct underwriting risk, but also something that is relevant, as a growing part of the insurance business is managed through digital channels. While the Internet of Things and sensor technologies certainly hold the promise of increased safety and ease of use for consumers, there are new risks associated with these technologies, ranging from design flaws in self-driving cars to large-scale ransomware attacks.
Another external factor stems from the overall macro-economic environment. Both life and non-life insurers’ overall investment returns are increasingly affected by concerns over economic stability, ultra-low interest rates and market volatility. And while regulators have been focusing to reduce systemic risks through increased regulatory scrutiny, questions still remain as to how robust the sector is when an unexpected event, such as the 2008 sub-prime mortgage collapse, shocks financial markets.
Insurers are now all about managing and controlling risks and uncertain events for their customers – and Brexit should be considered as just one part of this. The ongoing negotiations should in no way change the fact that insurers should be primarily focused on delivering sustainable business and target operating models. Those insurers that do so will be best placed to digest not just the outcome of the negotiations, but the equally important global challenges that lie ahead.
Thinking optimistically, the outcome of the UK’s negotiations may provide one unexpected upside: insurers that are now setting up hubs in European countries can use the occasion to implement modern, digital, customer-focused insurance operations on the continent. So, despite all the political posturing we have seen from both sides to date, Brexit might prove to have been just the push needed to get the sector busy with innovation after all.