How will the insurance industry be impacted by the decisions made by consumers and our soon to be newly elected representatives this year and beyond?
Here’s a snapshot of how we see today’s political agenda lining up:
Insurance Premium Tax (IPT) -The government announced another increase in IPT from 10% to 12% which is set to be implemented in June. The effect of this rise, is a likely increase in our customer’s premiums across the spectrum of insurance products.
With consumers already using a plethora of comparison sites to try to find the best deals, any enforced price rises due to IPT will mean that this practice will continue apace, causing greater customer churn for insurance companies and eating away at any loyal customer base.
Of equal concern is a scenario where consumers may choose to take out less cover as a means of lowering their costs. Long term, this would lead to lower premiums and thus lower profits for the industry. Importantly, it may have the effect of leaving the customer exposed to greater risk. It’s suspected that the government’s ultimate goal is to raise IPT to 20% to match those of neighbouring countries – so stay tuned, as it seems this issue is set to run for some time to come.
Changes to the Ogden discount rate – If you are the victim of a life changing injury and accept a lump sum compensation payment from an insurance company, the actual amount that you receive is adjusted according to the interest you can expect to earn if you invested it.
In February the government announced that it would be changing the calculation called the Discount Rate (It has been unchanged since 2001) from 2.5% to minus 0.75%.
The change will have a significant impact on insurers as victims receive larger financial rewards causing claims costs to increaser and making it inevitable to increase motor and liability premiums for millions of drivers.
In the case of younger and older drivers they could possibly be priced entirely out of the market and everyone in between will likely shop around for a better price.
Regulatory changes – Mandatory amendments to the regulatory environment continue to crop up year after year costing insurers a great deal of money to implement throughout multiple systems, platforms and products every time.
This year, as of April 1, renewal transparency regulations were put into play. Now, upon renewal it’s mandatory for insurers to display the premium customers paid the previous year alongside their renewal premium.
In addition there is mandatory copy reminding consumers to check that their coverage is fit for purpose and, once again, encouraging customers to shop around for the best renewal deal.
While this goes against the grain for many of us in the insurance industry, there are hopes that in the long term this level of transparency can help build greater trust between the insured and the insurer.
In the short term however it may cause a state of flux in consumer behaviour, as they do just as they are instructed and consult all the more with comparison sites. Thereby leaving themselves at risk of shopping by quantity verses the quality they may have relied on previously.
Brexit – Without a crystal ball is it too early to make a call on the exact impact that Brexit will have on the industry at large. As far as the economy is concerned, we have seen increased volatility in the financial markets and a weakening of Stirling since the June 2016 decision. But the political and market outcomes of Brexit are by no means played out and the challenges they bring to the financial markets remain.
2017 General election – A snap general election announced for June of this year is predicted to be a Tory victory and giving the government a mandate for the Brexit transition deal.
Beyond that, as Parliamentary Bills cannot be carried over from one government to the next, and the fact that the Prison and Courts Bill had not completed the committee stage by the time Parliament was dissolved on May 3, this does now mean a prolonged period during which the new discount rate will apply and the proposed changes to whiplash will now also not come into effect. The timeline for the consultation process will proceed as planned, with a view to providing a recommendation to the new Government in June.
With regard to the further impact of a Conservative win, they have made some promises to neutralise continued increases to businesses such as the increasing IPT, which if seen to fruition could be positive for business at large and in particular the insurance industry. We will have to wait and see.