Insurance in 2022: 7 themes to look out for

December 8, 2021

2021 has certainly been another strange year, with lockdowns, negotiating the tricky return to the office and new variants of concern restricting travel once again. The year has been no less busy for insurance and last January we suggested 5 themes to look out for in 2021: FCA pricing fairness, Whiplash reforms, COVID, Fraud and M&A.

The impact from all of these has been felt this year and some will continue to endure into 2022. Whiplash reforms have now come into full effect (31st May) but may see further reform in 2022 and IMAS has reported that the value of M&A deals in the first half of 2021 has already exceeded the total for 2020. FCA pricing fairness remains one of the biggest influences on the retail market for decades and COVID, unfortunately, remains ever-present. As we look towards the new year, we highlight seven things to look out for in the world of insurance.

1. GI Pricing reforms: Crunch time for the FCA

The FCA’s GI Pricing Practices reforms are due to come into effect on 1st January 2022. From inception to implementation, reform has taken over three years to complete and there is still a way to go before we reach the new status quo for the FCA and Insurers. Over the last year insurers have been preparing to meet the challenge of equalising new and renewal prices but the big question of what level to price new business remains unanswered. The reforms are likely to create a period of pricing uncertainty and fluctuation, insurers will need to be quick to make changes to pricing and products should a winning model emerge.

Another unknown element at this stage is the behaviour of customers, we expect that in the short term the majority of customers will be either unaware or unaffected by the changes in whether they shop around for a new deal – longer-term there could be a reduction in switching but this will not be a cliff-edge moment. Insurers and customers are stepping into the unknown and the six months following implementation will be a key period for the FCA to judge the success of the changes. We would expect some form of comment from the FCA around mid-2022 with potential adjustments should unforeseen consequences emerge, such as evidence that regular switchers are being significantly impacted by higher new business prices. For more information see our article on FCA Pricing Reform.

2. FCA Reform: Here we go again

While much of the FCA’s attention will be on the results of GI pricing reforms this year, the success of this will also determine whether the FCA decides to expand the reforms to new areas of the insurance market. Industry experts have indicated that this is likely to be in the micro-SME space with the FCA having previously stated that it believes these customers should be treated the same as in personal lines. Should the FCA look to expand the reforms, we would expect this to move much faster than in motor and home as the FCA has done much of the leg work already.

Throughout 2022 insurers and brokers should be looking out for any indications or trigger events from the FCA which could take the form of a market study, terms of reference or consultation. In addition to pricing fairness, the industry appears to be in store for more Whiplash reforms which will centre around credit hire and rehabilitation services and is expected to be announced early in the year.

3. ESG: Is your company doing its bit?

As both a term and a trend, ESG (Environmental, Social & Governance) has enjoyed a meteoric rise in recent years – reflecting an increasing awareness by companies that employees and customers alike care about the environmental and social impact of the places they work and products they buy.

With the recent agreement signed at COP26, this momentum shows little sign of slowing down and insurers are taking notice. In October Lloyds mandated that managing agents had create ESG frameworks as part of its carbon oversight and ESG sections are becoming a regular feature of insurers’ annual reports. In the coming year we would expect to see more insurers attempting to prove their credentials through divestment in fossil fuels and more underwriting of renewable energy. For more information check out our latest article on ESG.

4. COVID: Another day another variant

Despite many of us hoping (perhaps naively) that we had seen the worst of COVID, the spectre of the new Omicron wave brings with it renewed threat of restrictions. Whether we go back to into lockdown is hard to say, arguably the government doesn’t have the budget for another round of furlough. This could be both positive and negative for insurers; while general economic uncertainty is never good, restrictions could see a reduction in office working. As seen in 2020, the government’s work from home order drastically reduced the number of cars on the road and therefore cut claims for insurers leading to saving which some such as Admiral chose to pass on to their policyholders.

However, with international travel bans already being put in place the new wave could limit premiums for travel insurers, though at least they are unlikely to have to pay large claims as COVID travel bans are largely excluded from all policies now.

5. The flexible economy: Pay-as-you-go

In the era of uncertainty created by COVID, we have seen a renewed interest in both usage based and temporary insurance products as customers transition to the new normal of flexible working. In the last 5 years we have seen the likes of By Miles and Metromile emerge as leaders in the usage-based space and Cuvva and Admiral’s Veygo brand offering temporary cover. Sabre is due to add to this growing cohort in 2022 with its own temporary motor insurance product and we expect to see more insurance brands adding flexible covers to their product sets. Ageas has recently joined the panel at flexible insurance broker GoShorty and we would expect a number of larger insurers to partner with brokers in the space rather than building their own offering.

With further uncertainty surrounding renewed COVID waves, the demand for flexible products is unlikely to abate in the coming year and beyond. To learn more, be sure to check out our article on flexibility, the new watchword in insurance in 2022.

6. Open Finance: Sharing is caring

Following the data sharing revolution ushered in by GDPR and Open Banking, the FCA now has financial services including insurance in its crosshairs. Having released a feedback statement to its call for input in March the direction of travel is clear, with 2022 likely to see more concrete proposals from the FCA on the implementation of Open Finance. This will likely take the form of a proposed common framework and regulatory standards. Should these plans come to fruition the FCA has suggested data sharing would allow insurance companies to provide more bespoke services, personalised on demand cover and more easily see proof of no claims.

One unintended consequence of this transformation is that many insurers will become data acceptors with limited ability to dictate what data they receive. We have previously commented that this shift will make proprietary insight far more important than proprietary data in the future. Knowing how to use Open Finance’s data to create value adding products will be the key to making a success of it.

7. Healthtech: The next InsurTech boom?

Life and health InsurTech investment has lagged behind that of general insurance since funding of the sector began to increase around 2016. Despite COVID-19 it would appear InsurTech investment has remained high however the direction of this investment has been shifting. According to Mobi Health, global healthtech investment has reached a record £38 billion in 2021 with the US, China and UK driving the majority of this. A simplistic answer to this boom would be a greater concern for health after COVID, but new technologies and the growth of ecosystems have also played a part. Insurers are benefiting either directly as start-ups or indirectly as incumbents using healthtech capabilities -such as AI-based clinical decision support- to enhance current products. There have been several $100m+ investments in 2021 and we would expect some this momentum to carry on into 2022.

We also recently highlighted 9 healthtechs that have announced significant funding or partnerships in 2021 and will be ones to watch as we enter the new year.

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