Financial services, like insurance, are feeling the impact of rising inflation, labour shortages, supply chain disruption and sharp falls in consumer and business confidence that the UK economy is currently facing.
According to the latest CBI/PwC Financial Services survey, insurers remain cautiously optimistic about their business prospects as they face pressures on prices, margins and operational capabilities.
A considerable proportion of insurance demand is non-discretionary in areas like home and vehicle cover, the survey noted, which makes the industry less vulnerable to economic shocks than other FS segments.
At the same time, as pay costs rise, they need to sustain growth and keep pace with new regulatory and reporting demands, including IFRS 17 and the environmental, social and governance (ESG)-focused Taskforce on Climate-related Disclosures (TCFD).
The survey revealed that, for insurers, changes in regulation is one of the two most disruptive trends facing their business over the coming year. The other is the growing focus on ESG.
PwC pointed out that there is uncertainty over how long insurers can remain insulated from the worst effects of the downturn: “Pension sales and valuations could be vulnerable to a financial market correction. In turn, claims costs often rise during recessions. The insurers in our survey highlight further risks, including the impact of client insolvencies.”
These short and long-term pressures have highlighted the need to create agile, customer-intuitive and cost-efficient digital capabilities.
Finally, PwC’s survey revealed a significant gap between insurers who are already reaping the benefits of digital transformation and others that are still finding it difficult to make headway.
Alex Bertolotti, Insurance Leader, PwC UK, commented: “Insurers face mounting pressures on prices, margins and operational capabilities. At the same time, they need to sustain growth, drive transformation and keep pace with accelerating shifts in regulation and stakeholder expectations ranging from ESG to IFRS 17.
“This all requires significant investment at a time when finances are constrained. That’s why it’s so important to look at the cost base line-by-line to mark out the ‘good costs’ needed to deliver strategic goals, while eliminating the lingering ‘bad costs’ in areas such as process inefficiencies and claims leakage.”
