Andrew Gaches, a partner and head of longevity at Hymans Robertson, explains what emerging risks insurers should monitor after Covid-19. On Hymans Robertson's 100th anniversary, he also reflects on the consultancy's achievements in 2020.
Will Covid-19 transform the insurance sector?
Covid-19 has had a massive societal impact and that is going to drive change in the insurance sector.
From a consumer perspective, we have had a shift in insurance needs and individuals have a greater awareness of their own mortality. There has also been an increased focus on mental health and a heightened awareness of risk, which means sales channels will need to evolve.
As well as responding to the change in consumer demand, some insurers are feeling increased pressure on balance sheets, and with that there is likely to be an increased focus on what is core business, and what are non-core books.
Overall, there is likely to be some consolidation in the insurance sector.
Can insurers draw any lessons from the pandemic?
Without doubt, there will have been learnings. Insurers have had a real-life opportunity to assess whether they are truly operationally resilient. They now have real experience of whether their contingency plans worked.
While they cannot plan in detail for every disruption, they can ensure their organisations are set up to react swiftly.
Insurers can also consider how useful some of their previous scenario planning has been.
We have also seen some positive shifts in how organisations think through risk scenarios, rather than what was previously, for some, a tick-box exercise.
For example, rather than just thinking through what would happen if there was a certain fall in equities, perhaps now we consider what the drivers might be for a fall in equities and what other impacts might come with that.
What emerging risks should insurers be monitoring?
Most insurers will be monitoring a wide range of risks. But there are some that are particularly topical. For example, looking at cyber risk and how it has evolved in this working-from-home environment.
Other risks include staff wellbeing and motivation, thinking about credit markets and future pandemics. Environmental, social and governance risks are also a hot topic already on many insurers' agenda.
A final risk is the potential rise in consumer activism, including the rise in cancel culture and increasing examples of activism.
Another of the big changes that will emerge over the next couple of years is the evolution of the risk margin. Eiopa is now clearer on its direction of travel in terms of its approach. It has yet to be seen how we evolve things in the UK, as with Brexit we have greater flexibility.
What have been Hymans Robertson's key achievements in 2020?
We have been delighted to make a difference for clients in a very challenging year. First, by assisting clients in weathering the initial storm as Covid-19 took hold.
Secondly, we also supported clients' growth strategies, which is very much our long-term focus. For example, we helped reinsurers bring new capacity to the bulk annuity market.
The bulk annuities sector remains a huge growth market, driven by the long-term challenges that pension schemes face and the demographic shifts that are occurring in society.
More broadly, we are thrilled to be entering our hundredth year as an organisation and to be continuing our growth strategy. We have made our pledge to be carbon zero by this year and to be lifetime net zero by 2025, meaning we will offset all our carbon emissions dating back to when we were founded in 1921.
Reaching our hundredth anniversary is a chance to reflect and an opportunity to look forward to the future.
Diversity and inclusion are huge priorities too across Hymans Robertson. We work in an industry, which has traditionally been behind other industries in terms of diversity and inclusion, and unless we address that, it will hurt us as a sector.
It is only by achieving true diversity of thought that the insurance sector can fully understand its clients and their customers' needs.