This week: It's all about change

By Pamela Kokoszka | News | 17 January 2020

Moving home has to be one of the most annoying and tedious things we have to do. From organising your flat viewings to packing up all your belongings. And honestly who really likes change? It’s much easier to just stay in the place you've grown accustomed to.

However this is not always possible and change is imminent, whether it’s a house move, a job change or an unexpected redundancy.

This week we reported 180 staff at LV faced redundancy as a result of the Allianz commercial business transfer, with around nine in ten having found roles elsewhere.

While RSA’s former e-trading director Paul Trivett left the business. He is succeeded by Rob Flynn who has announced changes to the e-trade team and new hires. And Ian Kemp, RSA’s commercial motor underwriting director, took a voluntary redundancy amid the ongoing restructure.

Performance management director Jon Hancock is set to leave Lloyd’s of London this year once a successor has been found. While ex-RSA boss Steve Lewis resurfaces as CEO of insurance and reinsurance services provider and consultancy Pro Global.

In company news, GRP added Birrell Group as Midlands hub, former Iprism holding company moves towards liquidation with a small payout and Somerset Bridge sold its commercial subsidiary Business Choice Direct Insurance Services to Lloyd & Whyte Group. Simon Matson hinted that Capsicum Re could seek to expand its presence in the US through acquisitions, after Gallagher took full ownership of the reinsurance broker.

The Chartered Insurance Institute rolled out its priorities for refreshing corporate chartered status last year and said its ready to be held to account

Gefion was barred from entering new lines of business and branching out into further territories until it can meet its solvency capital requirement. While Pukka has temporarily suspended trading having reached its capacity limit with providers

In other news, Allianz Global Corporate and Specialty CEO has warned that companies face “a critical impact” if they fail to address cyber and climate risks.

The Financial Services Compensation Scheme has proposed a levy on general insurance providers of £118m for 2020/21, down £47m on the budget for the current year.

Meanwhile environmental and climate-related risks have topped the World Economic Forum’s rankings of long-term global risks ahead of the organisation’s annual meeting of political and business elites in Davos next week.

We also reported Zurich’s group chief risk officer Peter Giger has urged businesses to address environmental risks sooner rather than later and Australian Securities and Investments Commission has warned of insurance scammers in wake of fires.

In blogs, BGL Groups’ Peter Thompson cautioned that paying lip service to protecting vulnerable customers just “doesn’t cut it” and in the context of digital innovation is key to ensure customers are not excluded or unfairly treated. 

Also in blogs, CFC Underwriting’s Tim Boyce looked at how artificial intelligence is altering the landscape of liability for the healthcare industry.

In trade voice, Ozlem Gurses of British Insurance Law Association looked at whether oversight of insurtechs is keeping up with the potential damage to consumer protection that new technology could bring.

In analysis this week, Veronica Cowan looked at 5G and the risks and opportunities it brings for insurers.

This week, Post sat down with Criterion’s James Long who spoke about the challenges the high-net-worth sector is facing, as well as predictions and plans for 2020.
 

Enjoy the read!

Pamela Kokoszka

Reporter

@PostPamelaK

Retreat from coal wins insurers praise from NGOs

By Harry Curtis | News | 17 January 2020

Commitments to disengage from coal-producing and coal-dependent power companies have won insurers plaudits from activist organisations, according to consultancy Sigwatch.

Axa, Allianz, Swiss Re and Scor all placed in the top 10 brands praised in the campaigns of the nearly 10,000 non-governmental organisations Sigwatch tracked in 2019.

Concerns about climate change, including fears that assets will be stranded as countries look to transition to low carbon energy sources, have driven insurers to make numerous public undertakings to divest from and cease insuring coal-intensive projects.

Robert Blood, founder and managing director of Sigwatch, said: “Finance firms are the star performers in this year’s most praised rankings.

“As Greta Thunberg and climate activists call on business leaders attending this year’s World Economic Forum to end the madness of investing in fossil fuels, Axa, Allianz, Swiss Re and Scor are showing the way.

“By praising them, NGOs are rewarding them for a job well done and encouraging others in their sector and beyond to follow their example.

“This year we expect activist groups to ramp up their campaigning against the fossil fuel economy and the businesses that fund it. It will be interesting to see if they are able to replicate their success in securing commitments in coal to also exit oil and gas.”

Commitments

Axa, which placed third in the rankings, said it aims to reduce its exposure to the thermal coal industry to zero by 2030 in the European Union and OECD countries, and by 2040 in the rest of the world.

The French insurer initially pledged to sell €500m of its holdings in coal companies in 2015, divesting from mining companies drawing more than half their revenues from coal and electric utilities drawing more than half their energy output from thermal coal power plants.

In April 2017, it announced that it would stop underwriting the risks of companies from which it had divested, and in December 2017, committed to divest a further €3.1bn (£2.6bn) from carbon-intensive energy producers.

Of this sum, €2.4bn was accounted for holdings in companies deriving more than 30% of their revenues or energy output from coal.

The remaining €700m stemmed from the group’s investments in oil sands and pipelines, which it also committed to stop insuring.

In May 2018, Allianz, which placed fourth in the rankings, announced that it would stop insuring single coal-fired power plants and coal mines, targeting a total exit from insuring coal by 2040.

It also committed to divesting from companies planning to build more than 500 MW of new coal power capacity.

In July 2018, Swiss Re, which placed sixth in the rankings, rolled out a thermal coal policy under which it wouldn’t provide reinsurance to businesses with more than 30% exposure to thermal coal across all lines of business.

In 2016 the reinsurer had adopted the same threshold with regard to its investment strategy, divesting from existing holdings.

Tenth-placed Scor has adopted the same threshold for its investments, and in April last year ceased underwriting the construction of new coal-fired power plants, irrespective of the technologies and quality of the coal involved.

It had previously ceased underwriting new thermal or brown coal mines and plants in 2017.

Brands most praised by activist groups in 2019
1 Unilever
2

Nestlé

3 Axa
4 Allianz
5 Yum! Brands
6 Swiss Re
7 Danone
8 VF Corporation
9 Aldi
10 Scor SE

 

Brands most criticised by activist groups in 2019
1

Nestlé

2 Royal Dutch Shell
3 World Bank Group
4 Adani Group
5 Exxonmobil
6 Total SA
7 Unilever
8 Carnival Corporation
9 Coca-Cola Company
10 Sinar Mas Group
Table source: Sigwatch

 

Financial services survey finds insurance optimism surging

By Emmanuel Kenning | News | 17 January 2020

Optimism among insurance providers has soared to its highest level in years, according to the latest CBI/PwC Financial Services Survey, with brokers also increasingly upbeat.

The survey found that a net 58% more providers were positive than negative about the overall business situation in the sector.

This was in stark contrast to the previous quarter, when the market was evenly split between optimism and pessimism.

The survey, completed in December before the general election, also found upbeat responses around expectations for volume and value of business in the first quarter.

Some 43% more respondents thought premium income would increase compared to those who said it would not.

Similarly 44% more were optimistic about volumes rising rather than falling.

A net 43% of these participants were buoyant about profitability over the coming three months.

“It’s great that optimism has risen following four-and-a-half years of dire sentiment, with financial services firms also suggesting that an end to falling business volumes and profitability may be in sight.”

Rain Newton-Smith, CBI

The positive outlook came despite this part of the insurance sector being the only one to record a decrease in headcount in the survey that covered the whole of the financial services industry.

The providers of insurance services grouping involved in the survey straddled accident and fire insurance, health, travel and property insurance, as well as motor, marine, aviation and transport insurance.

It also included responses from pecuniary loss and liability insurance related firms.

The survey gauged the opinions of insurance brokers too.

It found a rise in headcount for the past three months with a further increase projected for the first quarter. In total 24% more broker firms expect to grow than shrink staff numbers.

Optimism also spiked to a balance of 48% cheerful having been pessimistic (- 36%) in the previous quarterly report.

The survey found that insurers, insurance brokers and investment managers were the drivers behind optimism across financial services rising for the first time in 12 quarters and at the fastest pace since June 2015.

Optimism was flat in banks and building societies and fell in finance houses and life insurance.

Rain Newton-Smith, CBI chief economist, said: “It’s great that optimism has risen following four-and-a-half years of dire sentiment, with financial services firms also suggesting that an end to falling business volumes and profitability may be in sight.”

Andrew Kail, head of financial services at PwC, added: “An uptick in hiring, investment in systems, and better profit expectations for the first three months of the new year are driving the positivity in the [financial services] sector, following the general election.

“However, this year in particular, firms will need 20/20 vision in order to maximise performance. Not least as there is still work needed to bring clarity on Brexit transitional arrangements.”

Hastings sees claims costs jump in Q4

By Jen Frost | News | 17 January 2020

Rising claims costs in quarter four are expected to put a slight dent in Hastings’ 2019 dividend payout.

The group’s share price approached a year low this morning, dipping to 167.3p (down from 185.2p close the prior day) at its lowest point, following a Q4 trading update.

Repair costs, third-party credit hire costs and slightly higher winter frequencies, as well as a small number of larger bodily injury losses, all played a part in the rising costs, according to the update. As a result, the 2019 calendar year loss ratio, before the impact of the July Ogden rate change, is expected to be in the range of 81% to 82% and adjusted operating profit in the region of £110m.

Hastings has continued to apply price increases “ahead of the market,” the update added.

Live policies remained broadly flat over H2, at 2.85 million.

Compared to 2018, live policies were up 5%. This was supported by strong retention rates, according to the update.

Toby van der Meer, Hastings Group CEO, said: “While the market environment has been challenging, with elevated claims inflation in the fourth quarter, we remained focused on our strategy of maintaining pricing discipline, applying rate increases ahead of the market.

“During the year we have also continued to make progress on our technology, operational and strategic initiatives.  We have started to see the initial benefits of this come through, including our ability to maintain strong retention rates over the year, which I will talk about more at the full year results.

“Taking in to account the operating performance in 2019, the board expects the 2019 total dividend to be lower than 2018. However, the board remains confident in the group’s ability to capitalise on its long-term profitable growth opportunities, and, therefore, expects to pay a total dividend above the group’s stated 65% to 75% target payout range. 2020 trading has started in line with expectations.”

Blog: How artificial intelligence is altering the landscape of liability for the healthcare industry

By Tim Boyce | Blog Post | 17 January 2020

Missed, inappropriately delayed, or simply just wrong – these are all types of human diagnostic errors hampering healthcare systems and not only are they more common than you might think, some experts believe these errors to be the third-leading cause of death in the US writes Timothy Boyce, healthcare practice leader at CFC Underwriting.

In the UK, as many as one in six patients in NHS hospitals and GPs’ surgeries are being misdiagnosed.

Putting the varying reasons why errors occur to one side, these startling statistics will no doubt be met with horror and go some way to explaining why we’re experiencing a rapid adoption of artificial intelligence across all areas of healthcare provision.

Digital innovation has begun to transform the face of healthcare here in the UK. Ground-breaking new ideas and tools have shown their potential to offer faster, more accessible and more efficient care.

AI has the power to offer better, faster and safer diagnosis, all while promising to drastically reduce the number of mistakes in the medical community.

In recent weeks, Google subsidiary Deep Mind reported its AI system surpasses expert radiologists in accurately interpreting mammograms. While Cancer Research UK further commented that “promising” initial results show how AI may improve breast cancer screening and ease pressure on the NHS.

However, unlike other industries like retail and banking which have little to no high-risk downside from widespread rapid adoption of technology, in healthcare, whether it’s a computer glitch, cyber attack or just an ill-informed piece of AI, the results can truly be a life or death situation.

As positive as current developments are, AI is not infallible. It cannot be ignored that fatal errors will, and have already occurred, due to the use of AI within healthcare. In these instances, who is to blame?

Typically, the source of the blame for an error within healthcare can easily be traced. For example, a misdiagnosis would usually be the responsibility of the presiding clinician. A faulty medical device that gives an incorrect reading, harming a patient, would likely see the manufacturer held to account. What would this mean for AI?

In its present form, AI is largely playing a crucial role assisting, rather than replacing, clinical judgement – implying that accountability for mistakes remains with the clinician. But what if the clinician is, in effect, just “rubber stamping” anything recommended by an algorithm? Could the developer be held to account?

Despite the unanswered questions, many are keen to press ahead with AI developments; providers cite that “misdiagnoses are the leading cause of malpractice claims globally and machine learning could greatly diminish healthcare and legal costs by improving diagnostic accuracy”.

With the large differences in opinion over this topic and absent any case law to set a precedent, many stakeholders will be braced for a decade-long debate over who makes the ultimate decision on patient care: the technology or the traditional healthcare provider?

Much like the medical community, insurers will need to approach underwriting these emerging exposures with caution. Many tried-and-tested predictive models will no longer be enough, and weighting will need to be applied for these emerging risks which are present, real and getting harder to predict.

In many respects, this is an incredibly difficult task when also having to juggle sky-rocketing claims inflation in medical malpractice – but the key will be for underwriters to combine skills-learnt underwriting technology and medical malpractice to mitigate the risk of the digital health revolution.

While healthcare liability insurers will have a choice whether or not to adapt to this revolution, it is just going to be impossible for them to ignore it.

Pukka hits pause on business

By Emmanuel Kenning | News | 16 January 2020

Exclusive: Motor managing general agent Pukka has temporarily suspended trading, having reached its capacity limit with providers.

The business, which has contacted broker partners, is still honouring renewals and quotes that have already been presented, Pukka Insure CEO Sam White, pictured, said. It is still supporting customers on an ongoing basis.

Pukka, which has a couple of capacity providers, is in the first year of a three-year deal with New India which replenishes in April.

“It may be prior to April that we have a little bit more capacity to release,” White stated adding that “in all likelihood” it will be April when the firm is back to “firing on all cylinders”.

The MGA was launched with £30m of capacity in 2016, targeting the commercial vehicle market.

It added private car to its portfolio in late 2018.

White noted that it had reached £70m across both lines last year.

“We have unfortunately overshot somewhat this year which is probably my fault,” she continued, accepting the company was suffering from growing pains.

“We had a particularly successful year last year. The business grew substantially. It is really a side effect of that.”

White committed that the recent start-up would learn from the experience and promised it will never be in this situation again.

“We have got much tighter controls in terms of volume restrictions put in because of this,” she confirmed.

As well as taking responsibility, White has said sorry to brokers.

“I’ve apologised to any of the partners that have been affected by it,” she said.

“Obviously it is not great and we accept that it is something we should have managed better.”

After more than doubling the company in three years, White is still keen to push on for further growth, despite the current pause.

“I would like to do more this year but that will be dependent on the capacity providers matching the appetite for growth,” she observed.

“We have less capacity than we want but we are resolving that situation because we do want to carry on growing and expanding.”

The business split with unrated Danish insurer Gefion last year. White stressed it was a separate issue highlighting that it has not written business with them since July.

“It would be inappropriate of me to comment on the Gefion situation,” she said.

She concluded that brokers had been “absolutely fabulous” during the hiatus.

“I continue to be very grateful for the support we have received,” she said.

“They would be well within their rights to be absolutely furious with us. We should have been aware that this situation was going to occur and managed it better.”

Concluding: “We are doing our best and working with them and they have been really supportive.”

Ecclesiastical group compliance director to retire

By Jen Frost | News | 16 January 2020

John Titchener, group compliance director for Ecclesiastical, will retire later this year.

Titchener has been with the insurer for three years.

John Schofield has returned to the insurer on an interim basis as Titchener steps down.

Schofield is Ecclesiastical’s former group chief risk officer. He left the business in late 2018, but has held non-executive director roles at the insurer and its broker Lycetts.

Ecclesiastical provided this statement when contacted by Post: “John Titchener has decided to retire and will be leaving Ecclesiastical during 2020. John has been with Ecclesiastical for three years and has made an extensive contribution to the business.

“John Schofield has returned to take up the role of group compliance director on an interim basis to ensure a smooth transition, reporting into Denise Cockrem, group chief financial officer.”

Titchener appeared alongside Ecclesiastical claims director David Bonehill at an Independent Inquiry into Child Sexual Abuse hearing last July, in which the insurer was grilled over its response to the Elliott Review.

Bonehill was forced to admit at the time that the insurer had given advice that had led to the Church cutting off pastoral care for a survivor of non-recent sexual abuse.

Risk managers must make sustainability transition: Zurich group CRO Giger

By Harry Curtis | News | 16 January 2020

Risk managers have never been busier, Zurich’s group chief risk officer Peter Giger said, as he urged businesses to address environmental risks sooner rather than later.

Giger, pictured, was speaking to Post following the publication of the World Economic Forum’s Global Risk Report, in which environmental and climate risks dominated the long-term outlook of surveyed business leaders.

Chief among these risks was the potential for extreme weather events, such as floods and storms, to cause major property and infrastructure damage, as well as endangering human life.

The increasing prevalence of these events present difficulties for risk officers like Giger.

“We have a clear indication that weather patterns are changing and that does weaken our ability to predict and price risk,” he said.

“You give more credit to shorter-term observations and you to try to anticipate. In the property business, the good news is that we can relatively quickly reprice.

“I’m not so much concerned about the sector as I am about society, because a lot of that is going to happen through property accounts and we are able to manage that book.

“We’re not saying the world falls over tomorrow, but it will get worse and worse. You have exposure areas today, where there isn’t enough private capacity anymore, because the risk is so high and we’re probably going to see more of that.

“We see certain risks become practically uninsurable or the coverage is so expensive that it’s no longer bought.”

He gave as examples of areas where insurance could obsolete crop insurance in cases of drought and flood insurance in cases of rising sea levels.

Environmental risks made up all of the WEF’s top five long-term risks ranked by perceived likelihood, as well as four of top five ranked by perceived potential impact.

They were prominent in the report’s short-term outlook too, with extreme heatwaves and destruction of natural ecosystems joining geopolitical and societal risks among those survey respondents felt most likely to intensify this year.

Alongside cyber-attacks, which also featured prominently, environmental risks represent areas to which risk functions within businesses are having to devote increasing attention.

“They’ve probably never been busier,” said Giger. “But at the same time every generation would have thought that their time is the riskiest that the world has ever seen.

“But it’s not only the increasing risks that is keeping risk departments busy, it’s also an incredible increase in regulation and reporting requirements.

“You might at times question what the cost/benefit of some of these exercises is. All the insurance regulators are now moving towards climate stress testing. That’s just resource consuming.”

The Bank of England announced in December that it was consulting on proposals that would see banks and insurers tested on their resilience to various climate scenarios.

Transition

While the indelible images associated with climate change are those of flooded cities, levelled homes and wildfires, these physical risks – those that result in direct damage – represent just one side of the coin when it comes to environmental risks.

The other is made up of the transitional risks, which result from business moving toward more sustainable models in a lower carbon economy, particularly when this move is poorly planned.

Asked whether businesses perhaps underestimated the transitional risks involved in addressing the threat of climate change, Giger said: “It’s a combination of underestimating the cost and the breadth of the transition that is required and the risks involved in that transition.

“But at the same time, there is also an underestimation of the technical development that can take place during the transition.

“Our thinking about the future is far too anchored in the status quo. When we talk 2050: that’s 30 years away; 30 years ago was is when the Iron Curtain fell – think about the technology in Europe at the time.

“We’re talking about time horizons, where if you have the right economic signals in the system, massive changes can take place and massive changes will take place anyway.”

While environmental risks placed highly in the rankings of short-term risks in the WEF’s report, the geopolitical implications of economic confrontations such as the US-China trade war and Brexit and political polarisation placed first and second, above environmental concerns.

Asked whether businesses were sufficiently inclined to undertake massive and difficult changes when non-environmental risks crowd out climate issues in business leader’s short term outlooks, Giger framed transition as a matter of necessity.

“I’m certain that at one stage action will be unavoidable because inaction will create a situation that will become unbearable,” he said.

“What we are trying to instil is a sense of urgency that the earlier we start, the easier it is to adapt because you have more time.

“While we recognise that the immediate outlook has other risks, we also know that in the in the medium to long term, the negative impact from the environmental risks can be catastrophic.

“These systems will come to tipping points, an extreme example being that the Gulf Stream reverses. Now if that happens, we have no clue what that’s going to look like. It’s an extreme event, but it can happen, so do we want to try?

“From a risk management perspective, it’s really that question that’s on the table: do we really want to get there, and then try to kind of figure out how to deal with it? Or are we not a lot better off taking relatively moderate transition pains relative to how the world will change under such circumstances?

Short-term outlook

Asked whether he agreed with the results of the survey regarding the pre-eminence of the geopolitical and political atmosphere in the short-term risk outlook, Giger agreed but caveated: “It’s the combination of that, and the slowing economy that there is less and less able to refinance the promises that were made to the population.”

He explained: “Much of the civil unrest we’ve seen last year was ultimately fuelled by the fact that the promises in the social security systems can no longer will be financed by a slowing economy because not enough tax revenue is produced.”

Giger also drew a link between the fractious geopolitical landscape and the risk of cyber-attacks on businesses.

“There is there is a very clear link,” he said. “There are various sources of cyber-attacks, and one very clearly is basically organised in a way that is very hard to resist.

“Our own risk behaviour is investing in mitigation, but not only that. It’s about a combination of mitigation and resilience, because you will never be 100% certain that you cannot be successfully attacked as long as you’re part of an interlinked world.

“What we is true for us, we believe applies to our clients, so we believe it’s good business practice, to do mitigation, to potentially buy cover, and at the same time invest in your resilience.”

FSCS reveals £12.4m cost of Qudos and Lamp failures

By Emmanuel Kenning | News | 16 January 2020

The Financial Services Compensation Scheme has forecast that the failures of Qudos Insurance in December 2018 and Lamp Insurance in May last year will cost £12.4m this financial year.

However, the FSCS noted that Chester Street Insurance, Enterprise Insurance, Gable Insurance and Alpha Insurance continue to be the largest failures within the general insurance provision class, making up 73% of payments.

The sector’s bill for the financial year is projected to come in at £156.4m, up £12.7m on the previous year.

The FSCS started making payments last June after unrated Gibraltar-based insurer Lamp’s collapse left policyholders in limbo.

The firm had provided a range of insurance policies to the UK retail and commercial market, including home insurance, GAP insurance, health insurance and after the event insurance.

Unrated Danish provider Qudos also covered a range of insurance products in the UK retail and commercial markets including motor, GAP and pet as well as accident, sickness and unemployment insurance.

The business had plunged into liquidation just a month after it stopped writing new business.

Last December the compensation scheme revealed it had paid out £276m in claims to policyholders of unrated providers Enterprise, Gable and Alpha which collapsed between 2016 and 2018.

Enterprise passported in to the UK from Gibraltar, while Gable passported from Liechtenstein. Alpha was headquartered in Denmark.

The FSCS added that it expects the total cost for the general insurance provision class in 2020/21 to be £133.6m, below the rolling three year average of £143.8m.

FSCS set to cut levy for insurers as broker bill rises in 2020/21

By Emmanuel Kenning | News | 16 January 2020

The Financial Services Compensation Scheme has proposed a levy on general insurance providers of £118m for 2020/21, down £47m on the budget for the current year.

The broker pot of general insurance distribution will see its levy bill nearly double from £12m to £23m.

However the levy cost for the class is scheduled to be £17m, with other elements such as provider contributions and the retail pool expected to participate.

The compensation scheme’s Plan and Budget for 2020/21 showed an expected levy of £635m for the year, along with a management expenses budget of £78.2m.

The indicative levy is up £87m on the total raised in 2019/20. The FSCS said the 16% jump was due to a rise in self-invested personal pension operator claims.

The cost of running the FSCS and paying claims, also known as the total management expenses budget has been set at £78.2m, a 1.3% increase on the latest full-year forecast for 2019/20.

It is up £3.6m or 4.8% compared to the 2019/20 budget.

The key drivers for this increase are the costs of core support and making recoveries, the FSCS said.

The general insurance provision class is due to pay £4.8m in 2020/21, up from £4.3m this year.

The bill for those in the general insurance distribution class is forecast to fall from £7.7m to £5.7m.

The Prudential Regulation Authority and Financial Conduct Authority have opened consultations on the management expenses levy limit which will run until 17 February.

The final levies are due to be confirmed in April.

CEO Caroline Rainbird said: “FSCS expects to face a number of challenges in the coming year including continuing vulnerability of customers, a higher number of firm failures and a growing number of complex claims.

“I am confident that FSCS’s Plan and Budget for 2020/21 provides FSCS with the resources and strength it will need to meet these demands in the interests of all our stakeholders.”

The organisation also revealed a supplementary levy for 2019/20 of £50m for the life distribution, pensions and investment intermediation class which it stated was due to increased claims volumes and new defaults.