Analysis: Review of the Year 2019

2019

It feels as if 2019 was an uncomfortable year for the general insurance market as it never quite seemed to grasp control of its own destiny. Wherever you look, carefully laid plans were derailed by the unexpected – and often unwanted – intervention of external forces. David Worsfold looks back at the highs and lows of a tumultuous year for the insurance industry

Brexit

No force has been more powerful or potentially more disruptive than Brexit. Plans have been put on hold, domiciles have been moved, European Union citizens working within the insurance sector supported through registration processes, all while policyholders have remained in the dark about crucial issues like health and motor insurance when travelling in Europe. It is easy to fall for the political narrative that we are stuck in an endless groundhog day. A superficial glance at what we wrote in this review last year might appear to confirm that nothing has changed.

“It has certainly been hard to escape from Brexit. The huge uncertainty surrounding the final outcome of the tortuous negotiations meant that most firms are no clearer on how it might affect them – and their clients – as the year closes than they were on New Year’s Day. Hopes have been raised and hopes have been dashed that there might be a deal, or at least an extended transition period, that maintains equivalence. The Chequers proposals reminded the financial services sector that it would have to fight hard and shout loud if it is to sustain any serious traction in the negotiations”.

That final sentence is where the peril now lies for the insurance and financial services sector. It has had no traction with the government. There is no soft landing promised for insurance, no equivalence, no passporting guaranteed. If, and it still remains a big if, the latest proposed deal goes through before the end of January, it has a truncated transition period to the end of 2020. There is little realistic hope of the insurance industry getting anything more out of this than it already has – and that is very, very little.

The industry will be left to rely on individual national regulators offering an extended equivalence. So far, there is little encouragement on that front, despite the generous reciprocal gestures from the UK regulators.

Claire Bowler

Claire Bowler

Partner, head of the insurance sector, DWF Law 

What was the high point of 2019 for the insurance industry?

The appointment of John Neal as chairman of Lloyd’s and his plans around The Future at Lloyd’s and Blueprint One. The global market needs a modernised, efficient, entrepreneurial and market-leading Lloyd’s. Neal looks like the man who can deliver.

What was the biggest disappointment during the year?

The government’s failure to raise the discount rate beyond minus 0.25%. Optimism was high at the end of 2018 with the passing of the Civil Liability Act so the industry’s hopes were brought crashing down when the Lord Chancellor set the rate at minus 0.25%, despite the advice of the Government Actuary.

Who had a good year?

David Howden [CEO of Hyperion] for the continuing success of Hyperion and attracting top talent from the fall out of the Marsh – JLT deal. Howden’s strategy of attracting the best talent, investing in people and empowering people is impressive.

Who will be glad to see the back of 2019?

Insurance HR directors. On a positive note 2019 will hopefully be seen as a turning point in the market and the insurance industry’s attitude to harassment, sexism and bullying. The Lloyd’s cultural survey published in September served as a wake-up call for the whole industry. While the findings of the survey were uncomfortable reading, if it means we really start to tackle the issues set out in the report it could be one of the most historic turning points for our industry going forward.

Lisa Bartlett

Lisa Bartlett

President, UK & Ireland, Crawford & Company

What was the high point of 2019 for the insurance industry?

2019 has been the year in which the insurance industry has fully grasped the need to better capitalise on the extensive range of technologies available to enhance every part of the insurance and claims process. In the Lloyd’s market, for example, the need to harness technology is clearly a core component within the Future at Lloyd’s programme, and the desire to attract new insurtech start-ups through its doors is evident in the creation of the Lloyd’s Lab.

What was the biggest disappointment during the year?

There is no doubt that the failure to reach a resolution on Brexit has been a significant disappointment. Companies are having to invest significant time, finance and resource into their preparations for the UK’s departure from the European Union and efforts to limit the potential impact to business that this will cause.

Who had a good year? 

Lloyd’s under the leadership of John Neal must certainly be commended for the development and release of the Future at Lloyd’s Blueprint One which aims to make the market one of the most advanced in the insurance sector. This is a huge undertaking and will require significant investment at all levels, but there is clearly a collective will to succeed and failure to advance is not an option.

Regulation

20 February

The Financial Conduct Authority closed its market study of wholesale insurance brokers, saying it had “not found evidence of significant levels of harm that merit the introduction of intrusive remedies”

29 March 

First Brexit deadline passes without Brexit happening. Rolled forward to 31 October

2 July

Treasury launches its Green Finance Strategy setting out a wide range of actions it expects financial institutions to take in the face of climate change

23 July

The FCA launches consultation on fair treatment of vulnerable customers

29 September

Pan-European regulator Eiopa adds sustainability to the factors it is considering as part of the Solvency II review due for completion next year

4 October

The FCA sets out plans for tough action on dual pricing after a year-long investigation

16 October

The FCA sets out it plans to consult in early 2020 on requiring listed firms to make climate-related disclosures in line with recommendations from the Task-force on Climate-related Financial Disclosures

29 October

General Election puts roll out of whiplash reforms in doubt as testing of the claims portal is put back, making an April launch highly unlikely

31 October

Another Brexit deadline comes and goes without Brexit happening. Next deadline set for the end of January 2020

Regulation

Never a year goes by without regulation imposing itself and 2019 has been no exception.

Early in the year the burden of regulation prompted pan-European trade body, Insurance Europe, into a warning about the impact that EU regulation was having on employees, saying the increase of regulatory requirements for firms, had created “a substantial rise in insurance employees’ workloads and stress levels”.

This immediately won support from Steve White, British Insurance Broker’s Association CEO, who said small brokers staffed by one or two people, in particular, were penalised by the weight of regulation: “Since its inception in 2013, the Financial Conduct Authority has issued 145 consultation and discussion papers, calls for evidence and thematic reviews which take insurance brokers’ focus away from helping individual and business customers and we ask for a period of stability allowing time to embed current requirements before introducing new ones.”

It hasn’t been all bad news on the regulatory front. In February, the FCA announced that its market study of wholesale insurance broking had “not found evidence of significant levels of harm that merit the introduction of intrusive remedies”. That was a weight lifted from many industry shoulders.

The industry was not so fortunate with the inquiry into dual pricing. This row started in September 2018 when Citizens’ Advice tabled a super-complaint with the Competition and Markets Authority which responded by acknowledging there was a serious problem.

Attempts by the industry to clean up its act did not impress consumer bodies and regulators and the noose slowly tightened during the year.

First, the government stepped in in May when it said the Competition and Markets Authority could be given the power to impose fines on companies in breach of consumer law without going to court. It also signalled that it would legislate to give the FCA new powers to stop companies taking advantage of loyal customers if their existing powers proved insufficient.

This was followed in early October by the FCA waving a big stick at the industry. It said an estimated six million policyholders in 2018 paid £1.2bn more than if they had paid the average price for their risk. It made it very clear that it was now time for action, announcing a limited six week consultation period “Remedies are inevitable,” said Christopher Woolard, FCA executive director of strategy and competition. “Whether those are imposed through FCA rules is, to some extent up to the industry. They can be remedies that are agreed on a voluntary basis, there’s always scope for that in any market study.” The FCA said it expects new rules – including fines – to be in place by the spring.

Another issue that rumbled on throughout the year was the whiplash reforms arising out of the Civil Liability Act. The enthusiasm for the reforms around the industry was quickly tempered by what many saw as the rush to set up the claims portal. The fear was that with the government so distracted by Brexit, the clarity of rules and protocols needed to make it work and win the confidence of consumers and claimant bodies were lacking as the time for the trials in October approached.

It seems that the unexpected intervention of a General Election has pushed this stage back, making the planned launch in April/May 2020 almost impossible to achieve, although no official confirmation of that was immediately forthcoming.

As we go into 2020, the way the industry treats vulnerable customers will come into the spotlight. The FCA launched a consultation on this during the summer and is currently digesting the feedback.

Also looming large next year will be the outcome of the Solvency II review. This will be an early test of how effectively the Prudential Regulation Authority and the Bank of England can hold the line on maintaining close equivalence with European regulation after Brexit.

Graeme Trudgill

Graeme Trudgill

Executive director, British Insurance Brokers’ Association 

What was the high point of 2019 for the insurance industry?

The 2019 Biba conference, record numbers of people, networking, stands and business done, along with great speakers and a prime ministerial campaign announced.

What was the biggest disappointment during the year?

Australia retaining the Ashes. And with an industry focus, the Financial Conduct Authority pricing document was difficult reading for the industry.

Who had a good year? 

Our member All Clear, it pretty much cleaned up across every award category, it is good to see a successful broker being recognised for all it does in helping people with medical conditions access travel insurance. Its success just serves to emphasize the great work brokers do to help their customers. Of course All Clear were not the only award winners – Biba’s Steve White, scooped the UK Broker Award for Achievement too – a great reflection on our organisation.

Who will be glad to see the back of 2019? 

The FCA wholesale broker review was an enormous piece of work which required massive resource from members. We are very glad to see the back of that although pleased that it had a positive outcome.

Nick Hobbs

Nick Hobbs

Director of broker markets, Allianz Insurance

What was the high point of 2019 for the insurance industry?

Difficult to pick out an industry highlight but we can be thankful for a number of things that didn’t happen. Few extreme events (so far) and no increase in the rate of insurance premium tax. Both would fall into that category. 

What was the biggest disappointment during the year?

The government gave a strong indication that it would revise the discount rate from where it was at minus 0.75% to somewhere between 0% and 1%. What was announced was a rate of minus 0.25%. 

Who had a good year? 

Allianz and LV for winning in seven categories at the British Insurance Awards in July. That was a fun evening.  

Who will be glad to see the back of 2019?

Just about every member of the electorate who has witnessed and suffered the sorry political debacle of the last 12 months.

 

Claims

12 February

Pool Re extends cover to non-damage business interruption

10 March

Ethiopian Airlines Boeing 737 Max 8 crashes in Addis Ababa killing 157 people. Leads to all 737 Max 8s being grounded

1 April

Financial Conduct Authority takes over regulation of claims management companies

15 April

Notre Dame in Paris ablaze. Axa says it insures two contractors that were working on site. The French state insures the building

15 July

The discount (Ogden) rate set at minus 0.25% disappointing the industry. Later Scotland sets its rate at minus 0.75%, making claims in Scotland more expensive

29 August

Final deadline for Payment Protection Claims. Total refunds estimated at £50bn

23 September

Thomas Cook collapses. Outstanding personal injury claims become an issue as firm self-insured all but the largest claims

November

Floods in South Yorkshire and Midlands

Claims

Challenges on the claims front came thick and fast, many exerting a sharp upwards pressure on premiums.

The relatively benign claims environment in the aviation market took a severe jolt early in the year when a second Boeing 737 Max 8 crashed, this one an Ethiopian Airlines plane taking off from Addis Ababa. All 157 people on board were killed. It led to the grounding of all the new Boeings, setting off a series of investigations into what went wrong and how the plane received the relevant safety certificates. The entire fleet is still grounded.

The biggest blow to the industry was probably the government’s decision on the discount rate (Ogden rate) for personal injury settlements. Most motor and employers liability insurers felt they were acting cautiously by factoring in a rate of between 0% and 0.5%. In the end, they were hit in July with a  minus 0.25% rate and later a minus 0.75% rate in Scotland. This made eyes water as insurers contemplated the damage it would do to their balance sheets. It is a battle the industry now acknowledges it has lost, although a mechanism has been put in place for more frequent reviews.

Several major issues kept surfacing during the year that have the potential to cause the industry some real image problems as we go into 2020.

The inquiry into historic allegations of child abuse kept reporting issues with insurers being unco-operative over compensation claims. In particular, Ecclesiastical came under fire for its handling of claims involving the Church of England.

The other issue was Grenfell. Although the first part of the public inquiry focused on the response to the fire in which 72 people died, criticisms of insurers kept surfacing, especially why they hadn’t been tougher on the safety of buildings with the type of cladding used on Grenfell. As the inquiry moves on to look at the reasons why the fire happened, this issue is likely to return to the headlines.

Flooding in the UK continued to pose challenges with the ultimately successful battle to save the Whaley Bridge dam in Derbyshire getting nationwide coverage in August. The dam wall at Toddbrook Reservoir was damaged during heavy rain, prompting the evacuation of about 1500 people.

That was followed by severe flooding in south Yorkshire and parts of the Midlands in the middle of November, which initially became more of a problem for the government than the insurance industry but with the spotlight on the region and the response, how insurers – especially Flood Re – performs will be closely watched.

Internationally, the first part of the year was relatively quiet on the claims front but as it progressed some major claims loomed. In October, Typhoon Hagibis hit Japan during the Rugby World Cup, leaving at least 95 people dead, hundreds injured and thousands homeless. Wildfires caused devastation in California and in Australia where they threatened the Sydney suburbs. Growing seismic activity in California during the autumn started to ring alarm bells.

Huw Evans ABI

Huw Evans

Director general, Association of British Insurers

What was the high point of 2019 for the insurance industry?

Avoiding a no-deal Brexit, securing post-Brexit contract continuity, and seeing the FCA produce a sensible, measured report into general insurance pricing. 

What was the biggest disappointment during the year?

MP David Gauke over-riding the new Government Actuary Department formula on Ogden discount rate after two years’ work to agree a more sensible, objective formula.

Who had a good year?

Political talking heads who earn a living on Sky News

Who will be glad to see the back of 2019?

Retiring MPs who can look forward to some normality in their lives. 

Steven Wallace

Steven Wallace

UK & Ireland MD, McLarens

What was the high point of 2019 for the insurance industry?

The response to Hurricane Dorian – one of the worst storms ever to have hit the Bahamas - has been hugely impressive and a reminder of the important role that the industry has to play. In particular, those adjusting teams on the ground have undertaken amazing work in the most challenging of circumstances to help businesses and communities recover from this disaster.

What was the biggest disappointment during the year?

The political uncertainty in the UK, both over our future relationship with EU and, now, with another General Election on the horizon, contributes to a continued lack of clarity on a range of issues, from provision of financial services to regulatory reform.

Who had a good year?

Insurtech businesses continue to generate a lot of interest and, indeed, investment – £2.2bn in the first half of the year alone, according to the Financial Times. It’s exciting to see the potential for how things such as automation, data and blockchain can be utilised within the industry.

Who will be glad to see the back of 2019?

I will, to be honest. This year we restructured our leadership team and created 16 new management roles; we opened a new dedicated Real Estate Office in Chelmsford; we launched McLarens Agriculture; we have made new appointments across all disciplines and we responded to the aftermath of Dorian and Humberto by stationing teams from the UK in the Bahamas and Bermuda. It has been a busy time, we have had a good year, but looking forward to a breather before embarking on exciting plans and further growth in 2020.

 

Lloyd’s

21 March

Bloomberg Business Week publishes stories about serious sexual harassment across the London market, following up earlier stories in the Evening Standard

27 March

Lloyd’s reports £1bn loss for 2018

May

Lloyd’s starts consulting on ideas for further modernisation of the market

18 September

Lloyd’s reports £2.3bn profit for the first half of 2019

24 September

Lloyd’s launches Blueprint One, its latest plan for modernising the market. It also releases a survey saying one in 10 women working in the market have experienced sexual harassment

10 October

International underwriting Association reports that premium income in the London company market in 2018 increased to £28.437bn, a rise of 8.1%

8 November

Lloyd’s announces merger of Council and Franchise Board from June 2020

11 November

Third quarter data shows electronic placement is on target

Lloyd’s and the London Market

The London Market had a very uneven year, often losing control of the news agenda as it faced a barrage of revelations about appalling sexual harassment. Lloyd’s responded in April by announcing a series to tough measures, including lifetime bans for perpetrators but this did not stop the flow of headlines as women went public about their experiences. As the autumn progressed there were signs that the market was facing up to this problem, especially with the publication by Lloyd’s of a survey that revealed some shocking statistics about the number of women in the market who had direct personal experience of sexual harassment.

A wide-ranging six point plan was launched in October after Lloyd’s CEO John Neal declared he was “appalled” by the findings, adding: “I am determined that we create a working environment at Lloyd’s where everyone feels safe, valued and respected. Cultural change takes time, but we have to accelerate progress and the measures announced today are intended to do just that.”

In terms of results, 2019 started to look better as the pressure on firms to pull out of unprofitable business started to have a significant impact. After reporting a £1bn loss for 2018 early in the year, Lloyd’s was able to smile again in the autumn when it reported profits across the market of £2.3bn for the first half of 2019. This was followed by the company market, through the International Underwriting Association, recording another year of strong growth in 2018 with premiums up by 8.1% to £28.437bn.

Lloyd’s has been pushing innovation very hard. In July it produced a report on parametric insurance – Triggering Innovation: How smart contracts bring insurance to life – which heralded a new generation of insurance products but which attracted little comment or coverage at the time. It is a potential game-changer for the industry. Parametric policies trigger a pre-defined level of claims payment quickly after pre-agreed parameters have been exceeded, such as an earthquake over a certain size. 

As policies are based on definitive information such as previous loss events and independently verified data, insurers have more scope to design products for risks that could otherwise be uninsurable or underinsured. The report describes four practical applications for smart contracts in the cargo, contingency/aviation, agriculture and property catastrophe classes and it will not be long before parametric policies become commonplace.

The biggest news from Lloyd’s was the launch in September of Blueprint One which sets out the first stage of the next generation of ambitious plans to modernise Lloyd’s, including plans for two digital platforms, a risk exchange for non-complex risks that could handle up to 40% of market business, and a platform to support the placement of more complex risks. It will also deliver a digital claims solution, which aims to automatically process simple claims in as short as two days.

Neal has nailed his colours to the mast of delivering this plan: “The support we have enjoyed to date has been essential to delivering Blueprint One and we are seeking the renewed commitment of all market participants to partner with us to achieve our vision to build the most advanced insurance marketplace in the world.”

Confirmation that the modernisation of the market continues to have strong momentum came in the third quarter when it was announced that IUA companies signed up to Placing Platform Limited were accepting an average of 53% of in scope risks and Lloyd’s syndicates accepting 65% of in scope risks. Over 100 brokers were signed up, over double the number a year before.

Tim Roberts

Tim Roberts

Commercial director, Plexus Law

What was the high point of 2019 for the insurance industry?

It was a relief to many in the industry to see that, after years of lobbying on the epidemic of whiplash claims, the whiplash reforms were finally becoming a reality. In theory this should enable policyholders to benefit from lower premiums as the cost and frequency of claims reduces.

What was the biggest disappointment during the year?

Despite the much-anticipated whiplash reforms finally becoming a reality, it was frustrating to realise that the savings they should achieve will be hit by an increase in the cost of repairing vehicles. Repair costs have shot up this year – and that’s before we see the real impact of Brexit. Also, the delay in part two of the reforms meant that all the real inflation drivers for motor claims lay outside of the scope of the current reforms and portal. And the cherry on the cake was the government u-turn on the discount rate.

Who had a good year?

This year DWF became the largest firm to date to float on the London Stock exchange. So I’d say anyone advising on this had a pretty good year.

Who will be glad to see the back of 2019?

Brexit has meant that it has been another turbulent year politically, with little progress and lots of frustration. I imagine [former Prime Minister] Theresa May will be quite relieved to see the back of 2019.

Brokers

2 January

Ardonagh completes acquisition of Swinton Insurance, founded by Ken Scowcroft in 1957

1 February

The Information Commissioner’s Office fined Arron Banks’ Eldon Insurance £60,000 and political campaign group Leave.EU a total of £60,000 for data mis-use

6 February

The British Insurance Broker’s Association announces Boris Johnson as keynote speaker for its conference, promoting criticism from some members. At the conference Johnson announced his intention to run in the Conservative leadership contest and Biba made the front pages as a result

6 March

Tentative merger talks between Aon and Willis Towers Watson end almost before they have begun

1 April

Marsh completes takeover of JLT 

15 May

Biba announces that former trade minister, MEP and chairman on the All Party Insurance Group Jonathan Evans will take over as its chair when Lord Hunt retires from the position at the end of the year

22 August

Ardonagh closes all remaining Swinton branches, ending a 50-year high street presence

3 September

Goldman Sachs completes £320m acquisition of majority stake in Aston Lark, sparking a new round of purchases by the consolidator

25 October

Gallagher’s claims against Ardonagh for poaching staff dismissed in High Court. CEO Simon Matson’s offensive comments are back in the headlines

Brokers

Wherever you look in the broker market in 2019 the wave of consolidation seems to be sweeping over the sector.

The high profile US$5.5bn takeover of JLT by Marsh was completed on 1 April after a round of fundraising in the money markets and EU regulatory approval. Lucy Clarke was unveiled as president of Marsh JLT Specialty but faced a battle to hang on to some key JLT teams.

The speculation that Aon would feel the need to respond to Marsh’s JLT swoop reached fever pitch in March when news of tentative talks with Willis Towers Watson leaked out. No sooner this was out in the open the talks were called off.

One famous broking name disappeared from the high street during the year as Ardonagh closed the last of the Swinton branches following it acquisition of the broking firm from Covea late in 2018. This ended a 50-year plus high street presence for the brand. From its launch by Ken Scowcroft in 1957 and the opening of its first high street branch in Salford in the early 1960s, Swinton grew to be a familiar presence on high streets around the country.

In the mid-market, Aston Lark remained one of the key driving forces behind consolidation, especially after Goldman Sachs become a majority shareholder in September in a £320m deal.

The moving of whole teams between firms has long been a feature of the broking world, especially in the London Market, and most firms, while they might grumble, take it on the chin. When one team left Arthur J Gallagher for rivals Ardonagh patience appeared to run out at the US firm and it launched a court action against Ardonagh for poaching staff from its Alesco subsidiary. This dragged on all year and left plenty of people with red faces, especially Gallagher’s UK boss Simon Matson.

Gallagher had sought £9m from Ardonagh in a legal battle that centred on the departure of four energy insurance brokers who left Alesco for Ardonagh-owned companies in 2017. All bar one of the claims were dismissed by the High Court at the end of October leaving Gallagher with a £3.1m legal bill. The reputational fall out was worse as Ardonagh chairman John Tiner condemned the “abusive and racist language” Matson used about some of the departing staff. These comments were widely reported and forced Matson into a belated apology.

Biba found itself in the news when it invited Boris Johnson to speak at its annual conference in Manchester in May. This choice did not win universal approval from its members but turned out to be a PR success for Biba – as Johnson chose the occasion to announce his intention to contest the Conservative Party leadership election and run for Prime Minister. This made the front pages and the rest, as they say, is history. 

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