The new normal may look a lot more like the old normal than we might think at the moment but it’s going to be different, nevertheless. More than a year of home working and intermittent lockdowns will have changed our behaviours in some quite profound and other more subtle ways. We may travel less, we may fall out of love with our cars, we may shop differently, we could work differently, we could become more active and sporty.
And one common thread running through all of these is risk. The various things we do in our lives will become more or less risky and that has direct implications for the insurance industry.
"The pandemic has probably changed behaviour in society as a whole," says Mazars Ireland managing partner Mark Kennedy. "To what extent we don't know. It's probably been a quiet year for motor insurers, for example. If people work from home more and we don't have the same number of cars on the road that will probably change the insurance model. Also, working from home, does that change nature of public-liability insurance?
“If activity patterns change in a significant way across the population it will have an impact on insurance and it will change the pattern of claims for insurers. The industry will have to be ahead of the curve there.”
Another challenge is pandemic risk itself. “This was probably quite low on the risk register up until now,” says Kennedy. “We haven’t had a major epidemic or pandemic or human incident of this scale for about 70 years. The industry doesn’t have much experience of it and underwriters will be reflecting on that. This will impact insurers for a while to come.”
One of the other issues the industry will have to deal with is the likely continuance of the low interest, low inflation environment for some years. The traditional business model for insurance companies saw income from the investment of customer premiums providing an important revenue stream.
“The global interest rate situation means there is very little return on insurance company assets at the moment,” Kennedy notes. “Companies are trying to get returns anywhere they can but that is very difficult as there is a limited range of asset classes they can play in.”
Climate change is another issue he points to. “Maybe this hasn’t impacted Ireland yet but look at Australia and the recent floods there. Look at the number of once-in-a-lifetime events that are happening more and more often. The more claims there are on catastrophe insurance the more that will feed into lots of other insurance around the world.”
The cybersecurity area has become more important in the last year, he adds. “A lot of investment has gone into staying ahead of the bad guys. Cybercrime is a big industry and insurers hold a lot of valuable data and that makes them a prime target.”
He also notes that the industry is also insuring its customers’ cyber risk. “With more and more people working from home with very little data security, how do you price such a risk in the future?” asks Cal Muckley, professor of operational risk in banking and finance at the UCD College of Business.
Technology will also present other challenges for the industry, Muckley points out. “You may have an algorithm that is great at predicting the probability of claims and setting premiums, but you have to ensure that it does it in an ethical way and is not discriminatory,” he says. “It might incorporate a bias against people from a certain background. Is an insurance company entitled to use information in that way? And the result may not always be correct. An individual can be placed into a particular category because of one aspect of their background which shouldn’t be taken into account. They are presumed guilty because of certain trait whereas it is not a causal factor at all. That is a challenge that will have to be faced.”
And digital technology could bring new threats to the traditional major players, according to Kennedy. “Insurance has been digitising for some time. The technology has been proven to work and people have been able to work remotely. However, in a digital world it is easier for new entrants to come into a market. It is certainly easier to build a digital platform to compete with the legacy players.”