Expertise

Six months into 2017,what have been the highs and lows for the insurance industry – and what does the rest of the year have in store?

By Neil Clutterbuck, Chief Underwriting Officer

Halfway in to what has been a year full of change, it seems a good time to pause and reflect on the year so far.

From the dramatic reduction in the Ogden discount rate, to the increasingly sophisticated use of technology within the industry, the changing nature of terrorism and the potential impact of the Grenfell tower fire on building regulations in the UK, we’ve seen some significant developments set to disrupt the insurance landscape as we know it.

Half year review 201701 Ogden discount rate 02 Changing face of terrorism 03 Grenfell Tower 04 InsurTech 05 What’s next?

This is one of the most significant changes facing our industry in some time and affects claims costs for all lines of business which see claims for bodily injury.

There is little doubt that payments relating to significant injury, particularly those involving younger claimants, will rise and that premiums will have to rise too in order to reflect this.

Given the consequences of the rate cut for insurance premiums and also public sector organisations, such as the NHS, there is pressure on the Government to revise the way in which the discount rate is calculated. Furthermore, to add to the ambiguity, amidst recent political upheaval, the summary of this consultation and implementation timetable are still unknown.

What is certain is that cases will start to be settled on the current basis and as such we need to deal with this change as an industry on the basis of the facts we know today.

Allianz Expertise Half year review 2017

Ogden discount rateWhile an adjustment to the Ogden discount rate has been on the cards for a while now, the proposed reduction from 2.5% to -0.75% was greater than expected.

Whilst councils are being told to prioritise those blocks where they have most concern this will clearly be a major project and a huge expense for the government to update these facades with more appropriate cladding.

The true extent of the impact across the commercial sector has yet to be acknowledged with Premier Inn already citing concerns about three of its hotels. One thing Grenfell has highlighted is the need for a fundamental review of building

Allianz Expertise Half year review 2017

regulations. The ABI has a vital role to play in co-ordinating the response of insurers and to help the government in determining the way forwards, as do other organisations such as the Fire Protection Association (FPA).

The FPA plays an important role in supporting the insurance industry, providing technical guidance and testing of materials to ensure property protection and life safety are at the forefront of building regulations. Indeed they have been lobbying the government for some years on the issue, stating after the Grenfell fire

“It is the Fire Protection Association’s view that Building Regulations and its Guidance in Approved Document B have not included an appropriate impact analysis of the safety and resilience consequences introduced by the adoption of materials and methods with poor fire performance capability. There is a need for the Building Regulations and its Guidance to consider both the external envelope of the building and its resilience to fire ingress.”

Reinforcing these regulations with an emphasis on property protection as well as reducing risk to human life will undoubtedly result in increasing the life safety provisions of these buildings as the properties maintain their structural integrity for longer and the speed at which a fire can take hold is reduced.

Grenfell TowerThe impact of this tragedy continues to be felt with (at the time of writing) all 181 blocks tested so far failing tests for fire resistance of the panels that form part of the cladding in blocks across England.

Editorial credit: C. Hoyer, Shutterstock.com

Editorial credit: dominika zarzycka, Shutterstock.com

It is fair to say that it had not been foreseen that vehicles would be used to commit terrorism this way and therefore it was never the intention of the insurance industry to pick up the costs associated with these crimes.

However it is only right that victims of such attacks are able to receive appropriate compensation, the question is – who should pay for this? As

things stand at present there is no legal nor policy obligation for insurers to pay out, however under the Motor Insurance Bureau‘s (MIB) articles of associations, explicitly article 75, insurers are required to pay from their own funds third party claims where “the use of the vehicle is other than that permitted by the policy”. This will certainly cause much debate amongst the motor insurance community as to whether this

clause was intended to pick up such an event. This is especially true given that it is almost impossible to underwrite for these risks as the frequency, severity and risk profile varies significantly in each instance.

Terrorist attacks such as this often have a much wider impact than that which seems obvious as first. The police response is often, rightly, to close the area to enable them to carry out

Allianz Expertise Half year review 2017

their investigations and secure the area from further attacks. This can have a huge impact on businesses nearby who have to close whilst this is ongoing or as visitors numbers drop in the subsequent days. Without terrorism insurance in place this can leave businesses without appropriate insurance cover to compensate for these losses which may have significant consequences for some businesses.

Changing face of terrorismOver the last 12 months we have seen an increase in shocking terrorist attacks being carried out across Europe, with vehicles being used as weapons becoming sadly a more familiar occurrence.

It is only right that victims of suchattacks are able to receive appropriatecompensation.

Allianz Expertise Half year review 2017

InsurTechInsurTech has become somewhat of a buzzword over the past six months but what does it actually mean for the insurance industry?

InsurTech, in its simplest sense, is the application of innovations in technology to insurance.

Increasingly sophisticated technology brings with it many opportunities, including improvements to products, processes, underwriting and customer interaction. Its potential is significant and wide-ranging; from Artificial Intelligence (AI) capabilities to improve operations, to Blockchain’s offering of an automated and safer method for processing payments. Technological advancements in the claims arena are also improving the service we provide to our customers. Our recent launch of Allianz Site View, a live video streaming platform for customer claims, is a key example of this.

The technology allows both Personal and Commercial property customers to instantly provide information about their claim, via SMS or email. The customer can choose to upload images, documents, video clips or even start a live video feed, at a time which is convenient for them.

However, while these technologies will undoubtedly improve the customer experience and insurance practices, some caution must be exercised in their application. With innovation comes risk too, such as gaps in skills and talents, over-reliance on flawed datasets and new insurable risks with no precedent – not to mention the cost involved with continuous innovation and new technologies. In order

From the far reaching consequences of Grenfell to the changing face of terrorism in the UK and the impact of Ogden, the levels of ambiguity in the market are unlikely to change in the near future.

Whether changes will have a considerable and long-term impact is not in doubt and remaining abreast of these challenges is of crucial importance.

Whether they are legal, data-driven or operational, the huge advancements in technology and increasing pace of change will also present a challenge to ensure we continually adapt and evolve to capitalise on these advancements.

These will shape the way insurers and brokers operate and how they interact with their customers providing endless possibilities to improve our service to our customers at the point of inception, during risk management and at the point of claim. In short, opportunity abounds and we have an exciting road ahead.

Opportunity abounds and we have an exciting road ahead.

to best manage these risks and maximise the opportunity, it’s important for us all to develop our technical capabilities in line with these technological advancements.

What’s Next?

Allianz Insurance plc. Registered in England number 84638. Registered office: 57 Ladymead, Guildford, Surrey, GU1 1DB, United Kingdom. Allianz Insurance plc is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Financial Services Register number 121849.

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