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Five Insurance Industry Predictions for 2022

When is it polite not to say “Happy New Year” to people you haven’t seen since last year? Apparently Seinfeld once got “Happy New Yeared” in March, and declared it “pathetic”. Based on this extensive research, predictions in the third full week of January seem socially acceptable.

January 25th, 2023

1  Cyber insurance rates will increase as the market hardens in response to growing claim numbers.

Cybercrime Magazine predicted that global cybercrime losses could cost $10.5 trillion annually by 2025. In August 2021 global computer and internet security giant Norton reported that the FBI (US Federal Bureau of Investigation) received almost 2,200 ransomware complaints in 2020. Ransomware attacks are currently most common in the US and Europe.

The aim of ransomware attacks is the ransom, but the effects on victim businesses include loss of or damage to data, downtime, disruption, reputational damage, investigation and restoration costs.

Recent high profile incidents include alleged Russian interference in the UK and US elections, and an Iranian network trying to influence the forthcoming Scottish independence referendum. In 2021 Colonial Pipeline Inc was attacked, causing widespread fuel shortages in the US, followed by fuel price increases. Colonial, or their insurers paid $4.4 million. Weeks later, JSB Beef Production, the world’s largest beef supplier, was hacked, again causing major shortages and widespread disruption to food supply chains. 9 plants were brought to a standstill. A ransom of $11 million was paid, according to CNBC (Consumer News and Business Channel reports.

Recent days have seen President Biden squaring up to Vladimir Putin and warning of “a severe and coordinated economic response” if Russia breaches Ukraine’s borders. This could be seen as a veiled threat of cyber intervention, which would almost certainly draw retaliation in kind.

Don’t put off reviewing your cyber security and insurance. It’s not going to get cheaper any time soon. Even with insurance in place, you need a plan so that valuable time isn’t lost. Obviously, it should exist on paper in case it can’t be accessed after an incident. It should contain key contact names and numbers for insurers, IT support, lawyers and PR company. These may be nominated by your insurers, so be sure to find out before you need to.

2  The take-up of usage-based insurance (UBI) will continue to grow, and SMEs (small and medium enterprises) will look for further savings through the usage-based broking (UBB) route.

Globaldata’s 2021 UK SME Insurance Survey published in Oct 2021 revealed that 33% of UK SMEs have some form of usage-based insurance on their commercial vehicle fleets. A further 18.6% said they are considering it. That’s over half of SMEs.

The pandemic and associated lockdowns have left many SMEs struggling for revenue and looking for savings. By the end of this week all 4 UK nations will have lifted most of their restrictions, leaving in place some relatively minor cautionary guidance, such as mask-wearing in some situations.

The leisure and hospitality industries have been straining at the leash, after two very thin Christmases, and a great deal of additional expense on protective measures. The retail sector has fared better, whilst many SMEs in the service sector have managed to maintain a reasonable level of operations using WFH (working from home).

Some short-sighted businesses may consider cutting back on insurance or broker commissions/fees. More prudent businesses will carefully review their whole insurance portfolio, looking for better value from both insurers and brokers.

3  Demand for digital services will continue to expand exponentially.

Global accountancy firm PwC (PricewaterhouseCoopers) lead with this as one of the top insurance industry issues for 2022. Dramatically, they say expectations have changed more in 18 months than in the previous 20 years.

Fintech and insurtech are creating new products and new supply lines, but also enabling new entrants – so-called “disruptors” – to enter the market. Buyers demand a seamless experience from quote to claim. They also expect more customised products, which ties-in with the rise of UBI and UBB.

Insurers are looking at new products and new routes to sales, for example by entering partnerships to offer added value for buyers. Whilst technology and automation offer tempting rewards for insurers, there has to be serious investment in the underlying analytics and AI that drive profitable underwriting.

In 2015 the World Economic Forum estimated that by 2025 there will be 1 trillion connected devices. Given the pace of change since 2015, it seems likely that will be an underestimate. The data from these devices – the internet of things (IoT) – will enable more granular examination of risks and outcomes and finer tuning of both premiums and cover.

4  More frequent weather events driven by climate change will adversely impact property classes of insurance, driving premiums up dramatically and testing market capacity.

According to the Met Office, there were 7 named storms that impacted the UK in the 10 months from October 2020 to July 2021. We’ve grown accustomed to news of bushfires in Australia or California, but recent years have seen devastating fires much closer to home, in Portugal. In July 2021 torrential rain swept across Germany, Belgium and the Netherlands wreaking havoc. The storms caused 242 deaths and over €10 billion of property damage. In February 2021 Texas and Mexico were hit by a massive snowstorm, leading to almost 10 million without power for days.

Tornadoes made matchwood of enormous modern factories in Arizona & Kentucky in December 2021. What structural considerations need to be factored-in to new designs? Insurers are ever more sensitive to construction on flood plains. Drains and sewers, some dating from Victorian times, are more often overwhelmed than in the past.

Not all of this damage was insured, or insurable. Insurers must look ahead to safeguard reserves and market capacity by prudent underwriting. Businesses must consider on a smaller scale whether and how such events might impact their operations, and how insurance could minimise the effects

5  Data breach claims are the new no-win, no-fee playground. The ambulance-chasers who thrived on whiplash claims have seen that market disappear like snow off a dyke under the Whiplash Reforms, but their new toy is GDPR (General Data Protection Regulation) claims.

The growth in cybercrime already mentioned has resulted in an explosion of data breaches. IT Governance are global providers of cyber risk and privacy management solutions. They track reports of breaches and attacks. In December 2021 alone, they listed 74 incidents involving breaches of over 219 million records. Only 2 were in the UK, and one of them involved careless disposal of physical data records, whilst the other was digital.

So far, the UK courts have held back the tide, but it’s inevitable that once there is a precedent, the floodgates will open. Dozens of solicitors and claims management companies are actively advertising for claimants, usually to participate in class actions. In November 2021 the UK Supreme Court overturned a Court of Appeal judgement in Lloyd v Google LLC [2021], dashing the hopes of about 4 million iPhone users in England & Wales.

“Soon” would be a good time to review your GDPR practices. Data breach claims are likely to be relatively small, but when there are hundreds, thousands or even millions of potential claimants from a single breach, it’s bad news.

By the way, Happy New Year!

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