The big three
There are three main challenges insurance faces with incoming regulatory change the most short-term.
The FCA’s revised rulebook is a largely positive move for insurance. Removing ‘outdated or duplicated requirements’(2) will give insurance firms more freedom to tailor certain service procedures and employee development to suit their needs and goals. However, with the consultation period on the proposed changes ending at the start of July, firms do not have much time to consider how they might adapt to the new rulebook.
Immediate challenges include whether to continue providing the heightened level of protection to large commercial insurance clients, as dictated by the Consumer Duty. Under the changes, clients who fall under this definition will no longer be captured by the FCA’s conduct rules, meaning it’s down to firms to assess the strategic benefits of leaving big clients to manage risks independently. As underlined by several sector specialists at Deloitte, insurers could offer protection for large policyholders above and beyond the expectation to gain a market edge(3). However, this should be considered against how feasible or beneficial dropping Consumer Duty obligations for certain clients would be.
If regulatory upheaval is the sector’s most imminent challenge, underinsurance is its greatest and longest-standing. Across the books of business reviewed on BCIS’s Intelligent Rebuild Cost Platform, the average underinsurance among listed properties is estimated to be in the region of 40%.
In the context of the built environment, the insurance market is simply not equipped to handle underinsurance at mass. The primary risk for underinsurance is having an outdated or inaccurate estimate in the first place. Getting this right comes down to tracking the rebuild figure in line with current market conditions and ensuring it accounts for economic or regulatory factors. With up-to-date rebuild costs, insurers will be able to better prepare for the future. These should be factored into plans alongside changes to building and fire safety regulations and the more stringent risk assessments these require.
Keeping in step with technological progress is the sector’s third biggest challenge. Aviva’s latest Broker Barometer showed 85% of brokers are interested or very interested in enhancing their operations with digital or automated processes(4). While the sector is still heavily reliant on outdated CRMs, spreadsheets and other legacy tools, the BIBA Conference illustrated there is a growing appetite for using current software, AI and automation.
The benefits of doing so almost go without saying – improving the quality and speed of risk assessments, greater adaptability to regulatory demands, and the ability to better tailor insurance products to customer needs. However, embracing digitalisation must go hand in hand with maintaining strong relationships. For brokers particularly, AI is little use when making clients feel confident and supported in their investment decisions. As highlighted at the BIBA Conference panel, ‘The Value of an Insurance Broker’, clients still value human interaction so it’s about using technology to elevate relationships, not replace them(5).