So, what constitutes that ‘new abnormal’ for UK life insurers, and the protection insurers in particular?
When thinking about the main market influences and trends in the protection market, it can be helpful to place them into four categories:
The reason for the inverted commas is simple. While the most severe phase for society may have passed (we hope), Covid-19 is still very much with us as an industry.
Looking back over the past three years, we can reflect on how the actual mortality and morbidity impacts on insured lives have been much lower than first feared.
We can also take pride from how the insurance industry as a whole has demonstrated its adaptability and resilience in the face of remote working and distribution and the need for new ways of supporting clients.
But there is no getting away from the fact that Covid-19 is still having, and will continue to have, a material impact on the UK protection market.
Firstly, while it may become less front-of-mind in a generally vaccinated population, there are still risks from higher mortality and morbidity.
The impacts of long Covid also have to be taken into account. Emerging research shows that around 10 per cent of people who were hospitalised with Covid-19 still have lingering symptoms a year later, including severe breathlessness and heart issues.
Continuing Covid-19 cases, along with long Covid and ongoing staffing and capacity concerns, contribute to a poor outlook for the NHS. It is predicted that the NHS backlog will continue to grow until 2024, and then only gradually decrease, with all that it means for pressures on capacity and waiting times.
If people are waiting 12 months rather than six for operations that has obvious implications for long-term health and mortality. And longer-than-usual waits for ambulances and A&E treatment have been translating into noticeably higher mortality.
While most insurers have not altered mortality assumptions up to now, some winds of change are blowing.
Recently, we have done research to assess the impact of delays in cancer referrals and treatments, particularly following an urgent general practitioner’s referral. This showed such delays could cause of the order of 10,000 or more cancer deaths – a significant consideration for pricing and reserving.
How do we see this affecting the protection market? While most insurers have lifted Covid-related underwriting restrictions and have not altered mortality assumptions up to now, some winds of change are blowing.
We are working with some companies to evaluate if changes to assumptions may be appropriate against a broader backdrop of insurers and reinsurers having less appetite for mortality and morbidity risk.
Covid-19 has of course also been a factor, alongside others, in driving up inflation and interest rates from the historically low levels that have endured for nearly two decades.
As you will all know, protection sales are frequently driven by the mortgage market and the housing market is slowing, given the increased mortgage rates now available. There is also likely to be significant pressure on lapses due to the rising costs leading to an up to 50 per cent reduction in disposable income available to certain groups.
Yet protection products are designed precisely to support customers through times of financial and health vulnerability, so how can the market respond?
Protection product providers should see consumer duty as a win-win opportunity.
First and foremost, we believe it is with flexibility in how products are structured to address tightening household budgets. This would include making products more modular, and building in flexibility by design, to allow for changes in circumstances, and limits lapses.
This can also build on previously under-used (by customers) elements such as premium holidays and underwriting-free sum assured amendments.
Moreover, since intermediaries will often have an important role to play, insurers will need to find new ways to support them in order to limit lapses and churn.
And such a need for flexibility also applies to the group life market because of the squeeze on many company budgets.
The Financial Conduct Authority published its consumer duty policy statement at the end of July with a central tenet that “a firm must act to deliver good outcomes for retail customers”.
This should not be a leap for responsible insurers, but it will entail providing evidence of compliance, including a programme of review of policies and products, that may present some difficulties.
High among these will be gathering appropriate data on client outcomes. Life insurers will need to work out the metrics to use and the means of producing and monitoring those metrics.
It will be necessary to maintain a keen eye on which services actually deliver better customer value and outcomes.
Another area that will receive increased attention is distributor actions and the transparency of distribution charges and loadings. This could have a material impact on some channels.
These issues aside, a more positive perspective is that protection product providers should see consumer duty as a win-win opportunity.
The FCA’s latest feedback on implementation plans urged firms not to consider the requirements superficially, and also to ensure the duty is embedded in firms’ culture. One way to go about this will be to embed customer outcomes in proposition development, with structured, customer-focused processes.
This should hopefully result in renewed focus on innovation, of the kind that brought us diabetes and safer tobacco insurance products not so long ago.
This will continue the recent growth of value-add services, such as the virtual GP services that proved popular during the pandemic.
It will, however, be necessary to maintain a keen eye on which services actually deliver better customer value and outcomes.
All of which points to the importance of understanding your customer and weaving that into everything you do.
A greater focus on the customer, whether it be enforced or a central business strategy, will be hard to achieve without good analytics.
Some protection insurers have been moving in this direction for a while now, and it is gathering more momentum. We have seen first hand the success achieved from insurers who can obtain more value from good analytics on their data, with value improvements seen for new business and the in-force.
Much of the data and analytics focus to date has been on improving the sophistication and agility of pricing. Some insurers can now predict the impacts of price changes, and we are actively supporting many to develop more advanced customer behaviour and elasticity models, as well as more rapid repricing.
A greater focus on the customer will be hard to achieve without good analytics.
Their capabilities mean they can change prices in under a day – something that is also enabling more targeted pricing in the group market.
The next step we are expecting is that forward-looking companies will find ways to use other sources of data to create a virtuous cycle of increased customer engagement, starting with customer insight, leading to better product tailoring, and back to more engaged – and potentially more loyal – customers.
Companies around the UK protection market will, I am sure, be seeing and experiencing variations of these market influences and drivers within their businesses.
Whether you choose to define these as the new ‘normal’ or ‘abnormal’ is perhaps a fruitless distinction.
What is clear, though, is the need – and opportunity - for companies to seriously take stock of their ability to be profitable and grow in the short and longer term in light of an exceptional combination of current market factors.
Alastair Black is a director in WTW’s Insurance Consulting and Technology business