Briefing: Five big issues facing insurance firms in 2022

By Content Director Saxon East 

The year has barely begun, but already the FCA’s latest reform, effective from 1 January 2022, is having an impact on prices. How pricing reacts to the changes will be one of the big issues facing personal lines this year. 

But, it is not just the pricing reform in personal lines that will be on people’s minds in 2022. Here are five other big issues facing insurance firms this year.

1) The impact of the FCA’s pricing reform on SME provisions

At the very least, brokers and insurers will face more administrative and reporting requirements as a result of the FCA’s pricing rule change.

Insurers will demand more information from brokers on areas such as sub-broking, packaged products, commission rebates and premium financing.

Elsewhere, brokers will need to flush out ‘unfair’ practices. A good example is administration fees being charged twice to the customer - once from the MGA and another from the broker. The FCA will view such practices dimly. 

2) Rising claims inflation 

Claims inflation is on the rise - and not just in motor. Construction material costs have reached a 40-year high. Commercial property premiums are likely to rise as a result. It could feed through into home insurance, although the competition may keep prices down here. 

3) Interest rate rises 

It’s been the longest bull run in the history of finance, but things are cooling. Amid rising inflation, the US Federal Reserve System has warned of interest rate hikes. Further rate rises will dampen prices on risk for assets such as equities and cryptocurrency.

Rate rises will also impact the cost of capital. That could mean less private equity money being piped through to brokers for mergers and acquisitions. It will also result in more expensive refinancing costs for consolidators. 

For insurers, rate rises could mean greater returns on their investments. 

4) Shift to home working 

The shift to home working has immense potential benefits - a more content workforce, saved property costs and more efficiency as digital tools are even more widely adopted.

There are also risks. One of the biggest is workers feeling isolated, especially newcomers, and staff not getting proper support when homeworking. Mental health within the workforce will become an even greater issue in 2022. 

Insurance firms will have to work hard to get the balance right. 

5) Environmental, social and governance (ESG)

An absolutely massive area that is only getting bigger. Investors are pushing for change and directors must react. Aviva Investors, for example, is focusing on investing in businesses with green credentials. 

The wellbeing of the workforce will also become more important. Socially progressive policies, such as more flexible and expanded paternity pay, will become the norm. More supportive policies and actions around mothers returning to work after pregnancy will emerge too. Gender equality in pay and promotion will continue to gain ground. 

Finally, boardrooms will have to think long and hard about ‘doing the right thing’. The reputation of the company comes first. Chief executives will be expected to lead by example.