When I first saw the word ‘Ogden’ in the Insurance press I was immediately reminded of the long running BBC programme ‘the organist entertains’ hosted by Nigel Ogden. You’ll all know Ogden as the rate at which personal injury damages are calculated.
I then realised my mistake amidst words such as ‘discount rate’ ‘lump sum payments’ and ‘crazy’. Words that to most consumers will have nothing to do with the impact of the decision to reduce the discount rate to 0.75% and then the words that will have an immediate impact – ‘£1000s to be added to motor premiums’
But then I thought again – was my initial thinking that far off the mark? There has been a long running dialogue about the effects of the claims compensation bill on insurance premiums. I wonder whether consumers will now be totally exhausted by the long playing out of the ups and downs of insurers’ battle to reduce the cost of claims where every piece of positive news is almost immediately countered by a major cost increase – this year’s score being IPT, whiplash costs and now Ogden.
Some might argue that in light of the global economic circumstances, and the low interest rate environment it has created, that insurers and re-insurers should have been planning for a significant reduction in the discount rate for a number of years now and that the new rate just reflects the reality that it costs to hold money. Some might also say that this kind of seismic shock – if we are to believe the industry reaction – will soon disappear from the headlines and will be put on the shelf with the LP records we now never listen to.
So, once the mood music has quietened, how can the industry respond to the sudden deterioration in Combined Operating Ratio (COR) from 20th March 2017, with some insurers restating 2016 results by as much as £100 million (sic)?
The immediate reaction to such a step change in costs has traditionally been to pass on the costs directly to the consumer, a practice that other consumer focussed industries have avoided at all costs in recent months. If done, this may well have a significant impact on the take up of insurance – either legally or illegally – which cannot be good for the industry or indeed society as a whole in the long run.
I propose an alternative approach. Such step changes in underlying costs of a business usually drive two types of behaviour; major consolidation to drive economies of scale – with the resulting reduction in consumer choice and competition - or radical transformation of the previously ‘tweaked’ business processes.
This year though the industry may just be lucky – intelligent automation and ‘as a service’ technologies have now emerged as mainstream capabilities that can deliver the sort of cost reductions and improvements in customer service that are required to meet the challenge presented by Ogden.
The UK Insurance sector is a major contributor to the UK economy and such a catalyst might just be the thing to promote its operations into becoming world class digitally enabled businesses ready to grasp the global opportunities that such operations could take advantage of - or of course we could just continue to grind the same old organ.
What do you think? We’re always interested to hear your point of view, please leave a comment below and let us know if you want to carry on the discussion.