Xuber, Xchanging’s insurance software business, has published a survey, which concludes that almost three-quarters (71 percent) of insurance executives believe a UK exit from the European Union would be bad for business in the London insurance market.
According to the Risk Management Survey 2015 that Xuber conducted in partnership with The Insurance Insider, “insurers fear a so-called ‘Brexit’ could diminish the London insurance market’s position on the global stage.”
The London Market is currently the largest global hub for commercial and specialty risk and includes Lloyd’s and other wholesale insurance companies. Xuber noted that the “group posted £60 billion [$92.34 billion] in gross written premiums in 2013, according to London Market Group research.
“The estimated GDP contribution of the London Market was put by the London Market Group at £12 billion [$18.5 billion] in 2013, representing 10 percent of UK financial services, 21 percent of ‘the City’ and 32 percent of the overall UK insurance sector contribution.”
Justin Davies, Director of OPEN Xposure Business Unit, Xuber said: “The survey results offer fascinating insight into the views held by very senior industry practitioners on a range of issues.
“It is clear from the responses that remaining in Europe is a priority for a majority of insurers, all of whom want in place economic, political and regulatory conditions in which the London market can continue to thrive.
“The results also show how companies recognize the need to embrace new technology and tools in order to remain at the forefront of this highly competitive industry. Importantly, the responses have revealed what our clients and the market in general want from their partners and service providers, and where they perhaps need more support than they are currently receiving.”
One of the executives who took part in the survey expressed the opinion that “more insurance business would remain within the markets of EU member states rather than finding its way to London if the UK leaves the EU.”
Xuber reported that another respondent said “exiting the EU would spell ‘disaster’ for the UK,” adding that “it is extremely naive to think otherwise.”
The survey also found, however, that 29 percent of those who responded “disagreed that an EU exit would necessarily be bad for the London Market, with one person questioning the advantages of being a member of the club, who said: “On the contrary, more economical independence from the EU may be an asset for the UK in our preference of London-based securities”.
The UK government has promised to hold a referendum on EU membership by the end of 2017 although there have been indications that it is more likely to take place next year.
According to the results of the survey, the top three threats to the future of the London insurance market are the following:
• Fear of the business making the wrong decision
• Speed of decision-making by the business
However, respondents also saw opportunities ahead, with the greatest potential in:
• New products in new markets
• New or improved technology (analytics, web distribution)
• Improved distribution (e.g. links with brokers or coverholders).
The survey also queried respondents on other matters pertaining to the industry. It found that “in terms of the insurance cycle, two-thirds said they do not believe underwriting cycles have gone forever but, significantly, a quarter (24 percent) said they believe they have gone for good, 10 percent were undecided.
“Many respondents admitted the insurance sector has not sufficiently adapted to advances in digital technology, with three-quarters of respondents saying the insurance market has been slow to innovate and is playing catch up in the ‘data age’.”
Xuber cited a respondent’s view “that the reinsurance sector lags behind peers in the direct insurance market when it comes to innovation;” another said the market is too reactive and ‘rarely proactive’ when it comes to embracing innovation.”
Another respondent criticized the insurance market’s willingness to underwrite “new and unknown risks,” while others highlighted the need for insurers to “wake up to the risk posed by non-traditional insurance players.
According to the survey, “84 percent said technology has improved the ability to manage exposure to risk, with the three biggest drivers changing approaches to exposure management being technological advances, regulation and reinsurance.” It also found that nearly “nine in 10 (89 percent) said they have become more reliant on technology in the past five years with many suggesting it has changed the way their business operates across the board.”
47 percent said they are “building – or have plans to build – an enterprise exposure platform or repository, and 53 percent said they do not. Only 30 percent said they are comfortable with the idea of storing exposure records in a third-party ‘cloud’.
“Underwriting discipline will be driven by the accuracy and speed of access to data according to 82 percent of respondents, while two-thirds (65 percent) said they actively consider the implications of developments such as ‘The Internet of Things’.
“Furthermore, almost three-quarters (72 percent) of respondents believed local regulators will make increasingly large demands on firms for enterprise level exposure management, with only 7 percent disagreeing, and the remaining 21 percent undecided.”
Xuber also pointed out that its “OPEN Xposure platform enables insurers and reinsurers to optimize the allocation of their underwriting capital and more accurately determine reserving levels.” As a result they can better maximize their returns on investment, while also reducing their spending on reinsurance.
The use of the program improves and enriches “the quality of underwriting and hazard data, and aggregating exposures across all business lines and geographies, better equips insurers and reinsurers to accurately understand their aggregate exposure to catastrophic losses,” Xuber’s report said.
The survey also sought to “understand influences on practitioners’ attitudes to risk. More than half (56 percent) said the World Trade Center attacks of 9/11 was the historical event that had most influenced their attitude towards risk modelling. This was followed by Hurricane Andrew of 1992, which one-third of respondents were most affected by, then the Thai Floods (22 percent), Hurricane Katrina (15 percent), the 2004/2005 hurricane season (11 percent) and cyber exposure (11 percent).”
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