Written by Rory Yates, Global Strategic Lead, EIS.
Rather cynically, the current poll winners, Labour, decided to attack car insurance this past couple of weeks in an attempt to gain votes. This got me a little riled to be honest, and I wasn’t alone in the insurance industry with many turning to Linkedin to express their outrage.
Firstly, inflation and the economy, along with Brexit and the damage it’s done to the cost of labor & parts are a real issue in most sectors. Insurance is no different. Even energy costs have had an impact and contributed to inflating costs.
At one point, insurance claims inflation in the UK was at around 30%, some three times higher than peak inflation. So, there must be an additional problem here beyond mere economic inflation.
There are many more factors at play, and the complexity of insurance will start to become apparent to the Shadow Transport Secretary if she is lucky enough to assume power. EVs, repairability due to struggling garage networks, the rising car population, the shift back to the car as public transport has failed us with strikes and dramatically rising costs, rising crime in key areas, and so on are all contributory factors to the car insurance you pay.
Simply calling in the regulators won’t resolve these problems.
Insurance companies aren’t lying about the outcome of inflation and generally rising costs. As it stands, car insurance looks unviable, with ratios battering some of the largest and most scaled car insurers.
If anything, there’s good evidence insurers aren’t passing on all of the costs, with some suggesting more rises are needed to balance the books and sustain these important businesses.
What does all this really tell us?
My first big takeaway from the General Election so far — none of the parties have displayed any real understanding or commitment to this industry.
There are plenty of examples of a greater focus on banking and other job sectors, but given most things aren’t feasible without insurance, you’d have hoped for a lot more here.
It’s a real shame that insurance is viewed so narrowly. It disregards its critical role in so many areas of our lives. Examples like income protection and the value it provides in the face of volatility in the job market, and the adverse effects of unwelcomed life changes. Or bigger commercial insurance, which essentially lubricates the wheels of much of the UK’s trade prospects.
This is a fundamental gap in any of the party’s manifestos and is reflected in a lot of the past general elections as well.
The second observation is that much of the language aimed at insurance suggests measures that’ll be done to us, rather than developed with us. The signs of collaboration and using insurance to help drive much-needed change in areas like climate change, other than a nod to flood resiliency, are extremely limited.
A bold, collaborative future
So, what can political parties do? In reality, the answer is relatively simple to write down but harder to act on. We need the government, and political parties more broadly, to work with, and not merely look to act on insurance.
Avoiding assumptions and misplaced decisions, could be unlocked by understanding the naturally collaborative nature of insurance. Insurers are massive interconnected businesses, looking at a wide range of data sources, large supporting supply chains, and often large-scale customer bases sold through many distribution points. They’re largely open networks already.
Examples of the potential benefits of collaboration are plenty. Developing an “adverse weather” intelligence centre would be game-changing. Allowing insurers to provide insights into their understanding of risks and how these might be mitigated would create profound, mutually beneficial outcomes.
In car insurance, we could develop better education and training in the repair networks. Then there’s addressing the economic impacts of policy development, so that the government better understands the symbiotic relationships between these things and insurance, e.g. the impact of insurance on trade.
A really profound example is in cyber insurance, where the “unknown” potential for harm is being addressed directly by insurance.
There are so many examples of the potential positive impact of government and insurance collaborating effectively together. In the face of many macro-environmental uncertainties, we need to see this relationship evolve urgently.
The industry reaction
Insurance professionals appear to have a very nuanced response to this.
Balancing support for consumer protection and affordability, with concerns about regulatory impacts on market dynamics and pricing models, is a tricky topic to handle in the media.
However, I know from lots of industry engagement on this that insurers are generally supportive of initiatives that promote transparency, fairness, and sustainability. They’re also cautious about measures that could disrupt risk-based pricing or stifle competition and innovation. It’s really at the heart of most insurance business models and the balancing act that makes these insurances viable.
There’s a huge need for collaboration with policymakers to achieve balanced and effective solutions. Insurance should be far more visible in politics, and there should be a lot more opportunity for discussion and dialogue, as well as key representation in tackling bigger macro-environmental factors.
The way forward is a better discourse and politicians who are prepared to be far more engaged with the deeper topics involved. Some of the pledges seem to miss the changes that have already been put in place with GIPP and Consumer Duty. This demonstrates a disconnect between the FCA and senior policymakers as well. This needs to change.
It’s time for a change on lots of fronts. Change is coming, but not necessarily the one we needed in insurance.
Notes to Editors
Each party’s manifesto reflects their broader policy priorities, with implications for various types of insurance, including health, social care, pensions, and environmental insurance. The below doesn’t reflect all of the detail, but it does provide a summary of the bigger plans & pledges.
Conservative Party
- NHS Funding: Commitment to increase funding for the National Health Service (NHS), which indirectly impacts health insurance by reducing pressure on private health insurance uptake.
- Pensions and Social Care: Introduction of a cap on social care costs and an insurance model to cover those costs.
- Flood Insurance: Pledge to improve flood defences and ensure affordable flood insurance through the Flood Re scheme.
Labour Party
- Public Health and Social Care: Plans to expand public ownership in health and social care, potentially reducing reliance on private health insurance.
- Pension Protections: Enhancing protections for pensions, which may impact annuities and other insurance products related to retirement.
- Climate Change: Increased investment in flood defences and support for sustainable insurance practices.
Liberal Democrats
- Health and Social Care: Proposals for a dedicated tax to fund the NHS and social care, aiming to stabilize funding and potentially reduce dependency on private health insurance.
- Mental Health: Introduction of comprehensive mental health services within the NHS, reducing the need for private mental health insurance.
- Environment: Support for climate adaptation measures and ensuring the insurance industry contributes to environmental sustainability.
Green Party
- Public Health: Strong emphasis on increasing NHS funding and services, aiming to minimize the need for private health insurance.
- Climate Resilience: Commitment to building resilience to climate change through enhanced flood defences and promoting insurance models that support environmental sustainability.
- Social Insurance: Introduction of a Universal Basic Income (UBI) which could influence the insurance landscape by altering income protection needs.
Scottish National Party (SNP)
- Scottish NHS: Continued commitment to free at the point of use NHS in Scotland, reducing the necessity for private health insurance.
- Social Security: Expanding social security provisions in Scotland, which may affect the demand for private insurance products.
- Flood and Environmental Insurance: Investment in flood prevention and mitigation, impacting the availability and cost of flood insurance.
Plaid Cymru
- Welsh NHS: Focus on improving the NHS in Wales, reducing dependency on private health insurance.
- Social Care: Proposals for integrated health and social care systems, aiming to reduce the need for private care insurance.
- Environmental Protections: Commitment to enhance flood defences and promote sustainable insurance solutions.
UK Independence Party (UKIP)
- NHS Funding: Promises to increase NHS funding while reducing administrative costs, which may reduce reliance on private health insurance.
- Social Care: Advocacy for insurance-based solutions for social care costs.
- Flood Defence: Support for enhanced flood defence mechanisms and insurance accessibility for at-risk areas.
Reform UK
- Healthcare and NHS: Reform UK advocates for significant reforms in the NHS to improve efficiency and patient care. While they do not explicitly mention private health insurance, their emphasis on a reformed and efficient NHS could influence the reliance on private health insurance.
- Social Care: The party supports creating a sustainable and fair social care system. This includes exploring funding mechanisms that may involve insurance models to cover social care costs.
- Pension Security: They advocate for pension reforms to ensure security and sustainability for retirees. This could involve insurance products related to pensions and annuities.
- Flood and Environmental Insurance: Reform UK supports better flood management and investment in flood defenses. This aligns with ensuring that flood insurance remains accessible and affordable to those in high-risk areas.
- Business Insurance: By promoting a more favorable business environment with lower taxes and fewer regulations, Reform UK aims to make business insurance more affordable and accessible for enterprises.
