Covid, the Financial Conduct Authority’s pricing review and climate-related strategies are set to define the re/insurance sector in 2021, according to analysts at professional services firm EY.
Rodney Bonnard, EY’s head of insurance in the UK, said the pricing review will have a big cost implication for the sector as many insurers will have to overhaul their business and pricing models, and ultimately for some it could act as a catalyst for M&A activity.
Bonnard added that, overall, it should also be seen as an opportunity to build better engagement and more longer-term relationships with customers, but there should be no doubt that this will be one of the most fundamental regulations to ever impact the insurance industry.
Another challenge insurers are set to see in the near future is climate change, as Kabari Bhattacharya, EMEIA Insurance Sustainable Finance Leader at EY, explained.
He believes that re/insurers have a critical role to play in accelerating and smoothing the transition to a net-zero world and expects that this will be a key focus in 2021.
“There are three main areas where the insurance industry can make a real difference,” Bhattacharya noted.
“The first is through underwriting – stepping away from many of the highest carbon emitting companies, working with clients on their transition and pursuing growth in sectors that support the Paris agreement.
“The second is through the investments it makes – divesting from sectors such as coal, while integrating ESG into their investment decision-making and engaging with counterparties in their decarbonisation plans.
“And the third is through changing the way they individually operate, and actively reducing their own firms’ carbon footprint. 2021 will see a concerted drive by insurers to focus net-zero strategy on both sides of the balance sheet.”
Meanwhile, COVID-19 is expected to continue having a major impact on the sector throughout 2021, as announced losses have already hit over $25 billon globally.
“The COVID-19 pandemic, lockdowns and resultant recession will continue to have a major impact on the sector as claims relating to event and travel cancellations and business interruption rise,” Bonnard added.
The pandemic and its subsequent impact on the world’s economy has been felt in multiple ways so far in 2020. Moody’s recently used it to underpin a negative outlook on the European insurance sector.
Rising unemployment in many European countries could also negatively affect life insurers’ activity in 2021, while the 2020 contraction in GDP may continue to constrain P&C volumes next year.
