In his role as partner and global insurance leader at PwC, Jim Bichard (pictured) oversees a team of some 15,000 professionals serving insurance clients across 100-plus countries on a daily basis. It’s a role that has helped him develop a unique point of view of how the sector has evolved, where it stands today – and what the future holds for the insurance market.
Digging into some of the key pain points he sees facing insurance businesses, Bichard looked to PwC’s most recent ‘Insurance Banana Skins’ report’ and its finding that insurance companies are being exposed to a plethora of macro-economic and geopolitical risks.
Interest rates, inflation and geopolitical conflict are just some of the risks having either first or second order impacts on insurance companies today, he said. Meanwhile, as part of a regulated sector, insurance companies are grappling with increasing complexity.
“Technological disruption and climate change are risks that continue to move up the register,” he said. “Scenarios such as cyber are creating risks; and given the amount of reliance on data across the whole of the insurance market, it’s no surprise that data protection and cyber is high on the agenda.
“Climate is a risk that continues to grow and grow in terms of its impact on the operations of an insurer, its balance sheet, the products it creates and distributes, and the investments that it holds. It’s very pervasive.”
The other challenge that PwC is championing greater understanding of across the market, is the trust gap that exists in today’s insurance ecosystem. A core part of the insurance offering is the need for insurance companies to be trusted and resilient, he said, and crucially, to make good on the implicit promise of insurance - that it will be there for customers in their hour of need.
“Generally speaking, trust in financial services hit a really low level during the pandemic. So, the insurance industry has a lot of work to do to improve trust among the public and its customers,” he said. “It’s hard to assess this risk without looking at the impact of digital and AI which is impacting all parts of the operations of insurance companies.
“Part of that is around customer preferences and the fact that these are changing really rapidly. Individuals and corporate customers are used to being able to access other areas of financial services digitally. They are also now raising questions about why insurance is a one-year product, about the potential for usage rather than loss-based products, and about why insurance hasn’t moved to be more preventative and protective.”
Bichard highlighted that, overlaid across all these factors is an emphasis on performance.
Insurers have got to remain profitable, and ensure that premiums exceed their claims, he said, which is no mean feat in today’s environment. Performance across the global sector has been quite tough, certainly up until last year, so these companies are facing juggling those performance demands and meeting their investors’ requirements while dealing with macro factors, some of which are manifesting now and some of which are poised to be even greater challenges down the line.
“We do a CEO survey every year, and one of the most interesting questions posed is whether they think their business will be viable or sustainable in five-to-10-years time,” he said. “This year, we had a record response of 45% of CEOs saying they do not think their business will still be viable in five to 10 years. And that’s just as high for insurance as for any other sector. So, what does that look like? Because five years is not a long time in which to reinvent your business.”
Having started in insurance in the mid-90s, Bichard has seen for himself how the challenges facing the market have – and haven’t – evolved over the years. What is clear, he said, is that the surrounding risk landscape has never been quite as complex as it is today. Whether that’s translating into increased riskiness is hard to say for certain, but there is certainly more complexity.
A large part of this is due to the new risks which have emerged over the last decade, he said - the increasing complexity of the market is making accurately pricing risk harder than ever.
“That pace of change is only accelerating,” he said. “It calls to mind that quote about how digital technology has never been as fast, and will never be this slow again! We’re really only just wrapping our heads around the fact that we’re in a surge right now and, until that calms down, the industry is going to get more and more disrupted.”
Insurance, in theory, has always been a data-driven industry, he said, as it involves looking at historical performance or loss experiences and using that to price risks, and effectively predict the future. The computing power and the availability of data and, as a result, insurers’ ability to model and run simulations is now in a completely different space, with things that would otherwise have taken months or years to do, now happening almost instantly.
“Interestingly, it hasn’t made us significantly more profitable,” he said. “The industry is not, as a result, in a position where it never has a loss-making year because competition is still there. But data and the ability to use analytics and modelling and computing power – and particularly how Cloud is really just starting to have an impact on that – is an important consideration.”
