Trends in risk and the insurance sector
After the feeling of "planet in suspense" that the pandemic brought us, 2022 registered with such an animation of consumption, which exceeded in several cases the averages of 2019, with very positive reflexes in several sectors of the economy.
The outbreak of the invasion of Ukraine sent spirits soaring; but the eagerness to make up for "lost time" quickly returned almost irrationally...
Irrationally, because the consequences of the war "pierced" all borders and shook almost all logistics chains still barely recovered from the pandemic, and catapulted the prices of unavoidable goods... at first it was said that it was a "surgical" inflation and that it would quickly fade away... but no...
All the uncertainty remains, we "float in plain sailing" with inflation being part of our investment rationale; and our eagerness to make up for lost time is slowing down....
The combination of these factors is well reflected in the retraction of the average level of private consumption, especially in the middle and lower classes.
We have lived through years of great testing of everyone's resilience and our capacity to adapt has dictated that we find in the Media, in recent days, paragons that read: "Consumption levels in Portugal are at their lowest level since 2018... were it not for the enormous fear that the war will not be over so soon.
The reflexes have already reached several components of the economy and consequently insurance (always more immediately to those related to consumption and later and with more cushioning to those of companies).
What we see most evident in the insurance sector with reflections on their customers:
Insurance prices are under upward revision. Particularly in health insurance, not least because the entire health ecosystem is pushing up prices, namely by revising the agreements between providers and insurers, something that has not been updated for around 12 years.
The war has further boosted cyber-attacks and the innovation of hacker techniques and no day goes by without companies, "more or less large, more or less small", being seriously attacked. Cyber insurance is the order of the daybut insurers are continually adapting to the blatant reality and imposing higher prices or at least caps on coverage: for example industrial companies already find it very difficult to insure loss of profits caused by cyber attacks; but there are several other important covers in these insurances - such as specialised support from forensic, IT, legal and communication technicians, 24/7 in case of attack, damage recovery costs, ... - and our advice is that companies should take it.
The focus in insurers is increasingly on branch-to-branch profitability, and a increasingly careful selection of risks/clients. With a few exceptions in between, it must be said, when the competitive war tightens...
There is a the trend to require an increasing share of firms in preventionbut they legitimately want to feel rewarded in the conditions given by the insurers in return for their investments. This would require a logic of partnership and multi-year contracts, something that we advocate as brokers and risk managers. We believe that we can move in that direction. But there is something that companies should immediately practice, in order to take better advantage of the good working and prevention conditions that they have in place: must negotiate with time, earlier than the maturity dates, in order to allow the agenda of the companies' risk technicians for a correct assessment. Otherwise, companies are assessed by the average of their sectors... And beware, in Portugal there is a settlement of almost all corporate contracts for January 1, which makes the agenda of the entire ecosystem difficult...
What about in terms of new emerging risks?
War, water and food shortages, global warming and the consequent demonstrations of the planet with natural cataclysms and forest fires, new pandemics due to mutations of the current viruses, ... and on a more "individual" and Portuguese level, the lack of savings for retirement?
The new sustainability rules impose that until 2026 all companies, regardless of their size, comply with a vast set of requirements, something to be applauded, but which will bring risks of non-compliance/fines/reputation that must be taken into consideration. The issue must inexorably be placed on the agenda of companies as soon as possible.
We are in an era of great vulnerability and uncertainty and this drives the notion of the importance of insurance. These emerging risks, in shape or extent, will lead to reactions from the insurance industry: either by protecting itself - by reducing or making more expensive existing coverage - or by exploring the opportunity to create new types of insurance.
What about the Innovation chapter?
More innovation is needed to meet the expectations of consumers and business customers, who see this sector as too bureaucratic, technocratic and opaque.
Digitization, service robots, drones for claims assessment, artificial intelligence at the service of customer relations, actuarial, claims and even fraud detection, chatbots in customer service, ..., are the order of the day in the sector. There is also a great effervescence in the insurance sector in technological innovation, with reflections in lower operating costs over time and better quality and speed of service.
Many of these technologies are behind Insurtechs - players in the new generation insurance ecosystem - that come to offer solutions to the incumbents (the incumbent insurers and brokers), or even present innovative forms of insurance or way to sell/assist directly to end customers:
- insurance on-off, pay how you drive, pay as you drive,
- "microinsurance" with very specific guarantees and easily explained through chatbots that respond in real time to everything...
- and insurance for individuals that reward prevention, with various experiences already in our country, especially in life and health insurance, as is the case of Fidelidade's vitality programme and Tranquilidade's discounts for good health practices?
Planet Earth is an exciting place in terms of innovation, but very dangerous ... Insurance done right helps bring some peace of mind, we're here to support you!
Trends in risk and the insurance sector
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