As consultants, it’s interesting to read other experts views at this time of year. They broadly fit into two camps: the Hot Topics, which are the slightly more theoretical or intangible subjects, and the Burning Platforms, which lean towards the things that are going to make or ruin your year.
We’ve read through a lot of the analysis and insight, and we thought it might be helpful to consolidate the two into one short article to end 2023 with. We’ve chosen not to cite the “seers” or comment on their hypotheses – as much because that would extend the article beyond a short read as for any other reason.
Image source: Unsplash
Hot Topics
The consensus across the articles, papers, and blogs we’ve read is the hot topics for 2024 look, largely, quite like those for ‘22 and ’23. It isn’t surprising that they are predominantly technology-based but what’s interesting is they all pretty much seem to be what will have been on every CRO’s future-forecast risk register for the past 5 years. In no particular order, three of the most common subject areas are:
Autonomous Vehicles and EVs – Obviously EVs are already here (see below), and fully automated self-driving vehicles are not yet legal in the UK, but the recent King’s Speech did lay the groundwork for the Automated Vehicles Bill. In the past, this has seemed a bit of a pipe dream, but the interesting angle here is that the outlined legal framework suggests it will not be the drivers who will have legal liability, but potentially manufacturers or a new Authorised Self Driving legal entity. Where does that leave personal motor insurance by 2030?
App-based services – Telematics was around as a UK insurance phenomenon at the turn of the Millennium, probably before. However, it never really worked, mostly because, in personal lines, the cost of fitting the “black box” vastly exceeded the risk reduction (theft, mostly) that could be obtained from the tracking. In fleet, at the time, the resistance to the “spy in the cab” was such that it wasn’t a battle many fleet managers wanted to take on. Fast forward nearly 25 years and it’s still a subject for discussion. There are, of course, some highly successful uses for the technology in all its forms; the question is does it have sufficient appeal and scope to ever be more than a niche product. We’ve read many pages on app-based motor services linked to insurance, but they seem largely to be good ideas looking for a home. What may have traction in 2024 and be driven by app-based services, if it can find a sufficiently large audience, is usage-based pricing – see below regarding uninsured driving.
Machine Learning and AI – of course 2023 was the year of Chat GPT, but AI and ML have been around for far longer than the past 18 months – what do we think was running the algorithms on those millennial telematics boxes? There has been a lot of chatter about the potential for smart technology to augment or replace claims processing activities and it’s undoubtedly true.
However, the potential has been there for many years and, embedded within the tech are two silent issues that insurers will need to get their heads and arms around: 1) how you control the Intelligence and Learning after you’ve set it off – you only need to have been involved trying to untangle a 3-year old Robotics Process Improvement (RPI) project, when the people who programmed the robot have left the company and not left any notes, to know how painful it can be when automation gets away from the owners; 2) how you ensure ethical practice and good customer outcome are embedded in technology without a conscience or judgement – this isn’t as Philip K. Dick as it sounds; if the AI model is trained on a historic dataset which has an innate racial bias in it, unintentionally caused years ago, the Artificially Intelligent model will replicate that bias.
Burning Platforms
If we now turn to subjects we expect are still going to be top of the priority agenda in 2024 and where Procurato expects much of its focus to be based, they are also things we saw a lot of in 2022 and 23. We think there is still a lot of work which can be done in these areas to save money, improve outcomes and deliver value.
COR and Indemnity Management – with the 2023 market COR widely reckoned to be north of 114% by most analysts, and the Bank of England not predicting inflation to return to “normal” levels until the end of 2025, it’s interesting to see a consensus for 2024 of a 100% market COR. Although we know premiums are skyrocketing, it’s difficult to believe that insurers expect to price their way out of this market alone. Procurato’s senior consultants have been through at least 2 of these cycles before and our take is that the best performers will continue to take proactive supply chain and active indemnity management action to supplement the effect of increased premiums. Having worked through this in 2008 and 9, we saw the most successful doubled down on inflation management actions, working harder on supply chain than ever. There are savings to be made and deals to be done when you have a relentless focus on inflation-busting.
Uninsured driving – Our recent discussions with a range of clients, partners and industry experts suggests an unintended consequence of the c66% increase in premiums in 2023 and the projected increase of a further 10% in 2024 is more people driving uninsured. Some of the increase is attributed to the changes to the auto renewal processes of some insurers meaning that customers have unintentionally allowed their insurance to lapse. However, recent research by The Green Insurer suggests a lot of it is simply affordability driven. 7% of research respondents suggested they had driven uninsured in the last 12 months and, of those, 33% said they had done so multiple times and that this was predominantly a cost decision. This sits alongside research from November by Trakm8 which suggested that a quarter of those surveyed thought motor insurance was becoming unaffordable. With 55% of under 25s surveyed saying they were struggling to pay for insurance, the opportunity for Pay as You Drive products is significant, though the claims journey for those will require some consideration.
The Consumer Duty – A very good Webinar last week intimated that the FCA were gearing up for a broadside against those insurers and brokers who were not where they should be on Consumer Duty. This complemented a speech by Nisha Arora, the FCA’s Director of Cross Cutting Policy and Strategy given in November. In the speech, Nisha said, “To meet the shift in expectations required by the Duty, you need to ensure that your customers' interests are central to your culture and purpose, and that this is embedded throughout the organisation, in your strategy, governance, leadership and people policies.”
Procurato expects significant follow-through in 2024 particularly on evidencing Good Outcomes and remediation of Poor ones is embedded. Most of our Consumer Duty activity in 2023 was in this area and we don’t see that changing.
EV Strategy – Whilst we’ve perhaps been slightly ironic in our views on the Hot Topics which have been hot for some time, we believe that in 2024 insurers and brokers will need to come to terms with electric vehicles. We have been collaborating with some other experts to understand the gaps in the sector and they seem to be across the board. There have been some high-profile withdrawals from underwriting, commercial insurers who have lost clients through a lack of proposition and capability, terribly extended cycle times for repair, and shocking credit hire bills for non-fault claims. Although the sale of EVs has slowed somewhat in the recent past, the emergence of new ULEZ zones and rules is likely to continue to drive new vehicle buyers towards EVs. We’d also recommend that some of the energy should be put into understanding the world beyond today – which is thinking about Electric Self-Driving Vehicles.
Conclusion
Our conclusions from this quick turn around the topics making the year-end predictions are straight forward:
1. The horizon-scanning hot topics are interesting and the horizon in some cases is coming nearer but, as we have learned from EVs, the challenge will be to have thought through the consequences before getting in too deep.
2. There are genuine challenges for 2024, but there are also solutions and opportunities. The Procurato view is that leaning heavily on established practices and well-trodden paths will serve insurers well.
3. For both of these conclusions, delay is the enemy of progress, and progress at pace is the route to success.