Hoban: IT advances could price out customers

Technological advances could result in higher-risk customers being priced out of the insurance market, City minister Mark Hoban warned an industry audience yesterday.

Delivering a lecture to the Insurance Institute of London at Lloyd’s yesterday, Hoban argued that IT improvements created both opportunities and risks for the industry.

He said: “Increasing sophisticated technologies will increase the capacity of insurers to collect more granular data on risk, and help insurers improve risk modelling. It has the potential to allow better risk pricing and customer differentiation, leading to a better deal for low-risk customers.

“We are also right to be wary. There is a risk that it could cause more segmentation in the market, reduce the tolerance for risk sharing, and potentially cause a shift, with some consumers being priced out of the market altogether, leaving them completely uninsured.

“Separately, we are all familiar with how the internet is changing how consumers interact with the marketplace … and how individuals are already more likely to buy general insurance products themselves, rather than with the advice and guidance of an intermediary.

“This presents a major challenge to how the insurance industry interacts with and promotes its products to consumers.”

Hoban also said that insurance regulation will not take the “back seat” to deposit takers supervision when the Prudential Regulation Authority (PRA) is set up.

The government has proposed that the PRA should have a statutory objective for insurance as part of its overhaul of financial regulation, which Hoban said was due to be presented to parliament shortly.

Turning to Solvency II, Hoban reaffirmed the government’s support for the directive, the implementation of which is currently held up in a European parliamentary logjam.

Arguing that the UK government had achieved “significant improvements” to the directive as a result of negotiation over the past year, he said: “We believe the level 2 agreement is now largely stable for these issues. As well as heading off any amendments that could affect or alter the implementation of the level 2 agreement, our priority is to secure an acceptable agreement on transitional arrangements for third country equivalence.

“We need to take proper account of those third countries working towards equivalence, so that UK or European firms are not put at a competitive disadvantage.“