2024 outlook for UKGI ‘remains challenging,’ but regulatory opportunities lie ahead – Deloitte

With the “sheer volume of regulatory change” that UK General Insurance (UKGI) firms are facing in 2024, there will be challenges ahead – but also opportunities.

That was according to Kareline Daguer, insurance director at consultancy Deloitte.

She told Insurance Times: “In GI, we see a number of headwinds. We have a hard market, but beyond that there are opportunities linked to it.”

Daguer reffered to the recent Financial Markets Regulatory Outlook 2024 report, published last month (9 January 2024), which noted that the UKGI sector “remains challenging” despite most insurance firms “weathering the storm well”. 

This resilience was mainly due to higher returns on investments offsetting the increased costs of claims inflation.

The firm’s report noted that headwinds included economic pressures such as inflation, the ongoing cost of living crisis, catastrophe losses and continued geopolitical turmoil.

According to the report, the UKGI market could hold several opportunities if firms were to focus on innovating to meet evolving customer needs, maintaining robust underwriting and making use of feedback loops across pricing, reserving and risks.

AI regulatory opportunities

One opportunity identified by the report was AI regulation. It explained: ”Regulation of AI is set to take centre stage in 2024, as firms seek to scale their AI capabilities.”

The European Union (EU) has already established a comprehensive AI legislative framework called the Artificial Intelligence Act (AIA), which will come into force during H1 2024. 

The report added: ”The EU is eager to establish the AIA as a global standard and its extraterritorial impact on any AI system that affects EU residents may yet lend it some clout. However, regulatory divergence is more likely. Despite agreeing high-level principles for international cooperation, major jurisdictions are pushing ahead with their own national approaches.”

”In the UK, in the absence of an AIA equivalent legislation, supervisors will rely on existing frameworks to scrutinise firms’ use of AI.

”The FCA, for example, has been particularly vocal about its plans to use the Consumer Duty to oversee AI conduct risks. Firms must balance innovation with risk mitigation and maintaining public trust.”

For Suchitra Nair, partner in Deloitte’s EMEA centre for strategy and regulatory change, a “more principle-based approach” in relation to AI has been welcomed so far.

Nair explained ”that UK supervisors would not use EU rules to supervise UK firms”.

For example, on 1 February 2024, a voluntary AI code of conduct was launched for the insurance industry.

Nair continued: “Obviously, it’s very hard to set prescriptive rules given the nature of AI, as the use cases may evolve. Overall, firms are keen to get some clarity in terms of AI. But it’s not just AI specific rules that will determine how insurers adopt AI.”

This is because wherever AI is used in operations and processes in a business, other regulation will also come into play, Suchitra noted.

“AI will not work in isolation and it will not be only reliant on the new rules that come out,” she added.