REG Reviews

REG Reviews – April 2023

1st April 2023

Welcome to your April edition of REG Reviews!

Last month, heightened insurance premiums rocked society amidst cost-of-living crisis, a robot made history through performing surgery,
the market prepares for SMCR reforms and an enhanced focus on D&I has materialised
following the FCA’s promised consultation paper launch and REG’s Women in Insurance panel event.

Read these articles and many more, as we bring you all the important news and views from the insurance and financial services world…

Industry News​


SMCR II on Horizon Following Review Launch

The HM Treasury has launched a Call for Evidence on the Senior Managers & Certification Regime, alongside the release of the FCA’s and PRA’s joint discussion paper, to make UK financial services more competitive post-Brexit.

“The SM&CR aims to reduce harm to consumers and strengthen market integrity by making individuals more accountable for their conduct and competence,” and these reviews on performance, effectiveness, and scope of the regime will provide HMT and the regulators with a shared evidence base for identifying the most effective way for the regime to deliver on its core objectives, as outlined in the Edinburgh Reforms.  

The key questions in the paper include:  

  • Has SMCR delivered against its core objectives? 
  • Do these objectives remain right for the UK? 
  • Has SMCR remained true to original objectives, or has the scope of the regime shifted over time? 
  • How have individual firms found the experience of SMCR?

Key focus on authorisations times amidst FCA’s continuous stagnated delays have also been highlighted in the review, following the reports in February that the regulator only approved 41.3% of approved persons cases within the target times.

HMT’s launch document stated; “The government is clear that the financial services sector is a key pillar in its vision to drive growth across all four nations of the UK.”

“As part of this, it is important that the UK is recognised as one of the best places in the world to conduct financial services business, and that this sector is globally competitive.” 

However, as voiced back in January, opposition to the reforms included objections to the review launching in such short succession after the initial introduction of SMCR and also the burden of ‘regulatory creep’. 

Rising regulatory costs are already lumbering the market, with brokers suffering a 40% rise in regulatory costs in just three years, as reported in BIBA’s 2023 Manifesto. These have been argued to only further increase with reformative action to the SMCR policy. 

Aim Sammon, Partner at Pinsent Masons, cautioned that significant changes to the regime would require firms to revisit SMCR; which would in turn incur heightened financial and operational strain on an already swamped sector. 

Sammon commented; “Proper implementation of SMCR required firms to consider their governance and management structures in detail and then make some remediations as was needed to ensure compliance with the regime.” 

The regulators have invited all interested stakeholders and regulated firms to submit their responses by 1 June 2023. 


Uninsurable Hacking Dangers Leave Health Care Systems Vulnerable

Health care systems are becoming increasingly vulnerable to malicious hackers, with cyber insurance premiums rising and the nature of such attacks becoming dangerously uninsurable.

The likelihood of attacks in the health care sphere, isn’t just a case of ‘if’ but ‘when’, reports Home Health Care News.

As such, health care providers have been under immense pressure from insurers to harden their defences through stronger data back-up strategies, multi-factor authentication implementation, increased employee security training and network segmentation, in order to secure cyber coverage.

However, despite their efforts, health care companies’ success in obtaining policies has fallen short due to a multitude of coverage restrictions and price inflations.

Many insurers have reported huge upticks in their premiums, leading to a wealth of individual health systems being unable to afford cyber policies to ensure adequate protection.

Moody’s Analyst, Matthew Cahill declared; “The cost of insurance is rising and it’s coming at the worst time for health care. There’s not a lot of wiggle room.”

Moreover, the retraction of coverage from previously held all-encompassing policies has caused a significant blow to many health care firms.

When cyber insurance first emerged in the early 2000’s, protection was most often included as a part of other policies.

Since, cyber criminals’ offences are growing in sophistication and the persistence of attacks has become unmanageable to pay out.

Risk Strategies’ Senior Vice President and National Cyber Risk Practice Leader, Rob Rosenzweig, informed how the amounting danger and accounts of successful hacks have therefore led insurers to rethink holistic coverage, as such plans are under-priced for the amount of risk policy providers are now exposed to.

Thus, since 2019, this has led to a retraction in coverage, with cyber insurance manifesting into predominantly standalone policies in 2023.

Companies now must invest into further add on plans to protect their institutions from increasingly discerning threats.

“Insurance is becoming unaffordable or frankly unavailable for a lot of small- to medium-sized issuers,” Omid Rahmani, Associate Director at credit rating agency, Fitch Rating voiced.

More recently, in the wake of the Ukraine war, exclusions of state-backed attacks in all policies have been introduced across the board, given the extreme risk from the volatile political economy.

“So many insurers treat social engineering as a separate policy extension,” Soumitra Bhuyan, an Associate Professor at Rutgers University commented.

Indeed, from April 2023, LLoyd’s of London have stated the requirement for all insurance groups in their global and reinsurance marketplace to permanently exclude state-backed cyberattacks from all their policies.

With the alarming forecasts of cyber insurers’ refusals to cover nation-state backed cyber-attacks all together, health care systems run the risk of complete collapse if an attack was to occur and ultimately the start of a patient safety epidemic.

Infiltration of hospital intelligence doesn’t just risk the exploitation of personal data or damage financial health, but in the instance of health care, malicious infringement of patient records poses a detrimental risk to life.

Fortified Health Security CEO, Dan L. Dodson, warned; “In the health system space, we’re seeing organisations go down for weeks and months, literally diverting care. It’s one thing for a patient record to be exposed, and nobody wants that. But it’s an entirely different set of circumstances when you can’t deliver care.”

“With the increased rates and limited coverage, small independent and rural hospitals are at a significant disadvantage in obtaining cybersecurity insurance and may be unable to recover if a breach happens,” Bhuyan disclosed.

Ultimately, Zurich’s CEO begged the question; “Are cyber threats becoming so risky as to become uninsurable?”

Will health care systems be able to ensure adequate cyber protection for themselves, their institutions and patients?


Robot Revolutionises Surgical Operations

For the first time in NHS district hospitals’ history, a robotic arm was used to assist with a full knee replacement surgery. It worked alongside clinical director, Thomas Moores at Walsall Manor Hospital. 

The patient, who was in his 60’s, has severe arthritis in his right knee, leaving him unable to walk due to the pain.  

When asked whether this procedure had been nerve-racking to prepare for, Moore stated; “The robotic technology helps us plan in advance, so there’s actually a lot less stress in terms of the surgery itself.” 

The waiting time for joint replacement saw a massive increase due to the pandemic creating a backlog of patients. Whereas patients used to have to wait 18 weeks for a joint replacement, they are now having to wait two years.   

The robot’s technology can be used throughout the different stages of the procedure. In preparation stage, a 3D computer image of the joint is made before the surgery, marking the parts of the deformed bone that will be removed.  

During the surgery the robotic arm was mounted on a mobile stand next to the operating table. The hand of the robot is connected to an orthopaedic bone-saw that is used in the surgery.   

The robot helps to guide the saw that is operated by the surgeon whilst cutting the bone. The robot limits how far the saw can go using sensors to prevent the surgeon going over half a millimetre outside the marked area on the 3D image.  

The 3D image is also displayed on a large computer screen for the surgeons indicating real-time saw movements and also highlighting the lines that the saw should stay between.   

If the saw moves outside the line, the screen flashes red and the robot immediately intervenes by turning off the saw.   

This technology increases bone preservation while damaging less soft tissue, creating a less painful experience for the patient with a quicker recovery time, allowing hospitals to free up more beds quicker.  

Unsurprisingly, this technology isn’t cheap, with £1.8m of grant money allocated to innovation being invested by the hospitals trust.

Some have considered this a high price to pay for equipment that has a narrow operational application, especially when there is already a lot of criticism about NHS spending and staff salaries. 

However, many supporters of the technology believe this is the next step we should take to reduce the strain on the NHS immediately. 


BoE Warns on Growing Climate Risk Appetite Challenge

The Bank of England has warned of their uncertainty over whether banks and insurers are “sufficiently capitalised” to combat climate-related risks. 

Following the BoE’s Climate Change Adaptation Report (CCAR) publication released October 2021, which set out early thinking on climate change and the regulatory capital frameworks for banks and insurers, the regulator has engaged with numerous stakeholders to continue to review and monitor progress relating to climate related risks and regulatory capital frameworks. 

In the latest report issued 13 March 2023, the regulator cautioned of the growing “risk appetite challenge” presented to the industries, with risks relating to climate change proving difficult to assess relative to the regulator’s own risk appetites.  

The BoE identified two key areas of climate risk assessment; “capability gaps” and “regime gaps.”

Capability gaps refers to the forecasted difficulties inherent in identifying and measuring climate risks. Regime gaps refer to challenges in capturing climate risks in capital frameworks, including areas such as insufficiently short time horizons. 

To counter the challenges of the “unique characteristics” climate risk presents, the BoE suggested a forward-looking assessment approach is necessary, which would include firms’ implementation of stress testing and scenario analysis.  

Climate risks are becoming harder to predict and capture in existing capital regimes, given the long-term effects they have compared to other forms of financial risks. 

Through strengthening firms’ management of such external risks, the regulator insisted this would in turn reduce their capital requirements, compared to firms initiating fewer controls around climate related losses. 

However, despite the findings around lack of sufficient capital to combat climate related risks, the BoE reported that there does not appear to be sufficient justification for regulators, including the Bank, to make a policy change to these time horizons. 

BoE’s Deputy Governor, Sam Woods, stated an extra capital buffer is unlikely at present due to the lengthy time frames involved and suggested fallout from climate change will manifest more as a “pay as you go”, rather than capital upfront type of risk.

Economist, Lukasz Krebel at the New Economics Foundation, criticised the BoE’s lack of action, stating; “Climate-related risks pose a grave and growing threat to the stability of the financial system… It is therefore worrying that the Bank of England acknowledged that actions we take now will influence how serious these risks will grow but failed to act following its capital requirements review.” 

The Bank will undertake further analysis to explore whether changes to the regulatory capital frameworks may be required. This includes supporting current initiatives in place to measure climate risks, the adoption of International Sustainability Standards Board (ISSB) standards and further reviews with stakeholders to assess progress, to deem whether policy revisions are necessary. 


Market Eagerly Awaits FCA’s D&I Ambitions

Organisations can expect the FCA’s long awaited D&I consultation paper in the first half of 2023, as financial regulators insisted their proposals will be released in effort to strengthen and improve D&I initiatives and measures across the market.  

The FCA and PRA first released a discussion paper in July 2021, seeking views on regulatory plans to improve diversity and inclusion in financial services. 

In response to the feedback, further consultation on more detailed proposals was set forth for Q1 2022, accompanied by a policy statement in Q3 2022.  

However, following many revisions to the release date throughout 2021 and 2022, their revised proposals have now been pushed back again, with a declaration that the new consultation paper and policy statements will be delivered in Q1 2023 and Q3/Q4 2023 respectively. More than a year later than their original proposals.  

In his latest speech at the Association of British Insurers’ Diversity, Equity and Inclusion conference in November, Sheldon Mills reiterated the promised launch of the long-awaited release of the paper, as he urged the industry to do more on ensuring diverse representation and inclusive cultures.  

Suggesting D&I is a two-sided problem, Mills commented; “First, internal representation within our organisations, second, externally, sufficient knowledge and understanding so that we can serve our diverse society well.” 

“That isn’t just about race or a gender debate, it’s also about social mobility, class or levelling-up – ensuring that we serve all communities. And many of those things ‘intersect’ with each other,” he continued. 

Although delays to the papers release are disconcerting, the regulator has been consistent in vocalising their stance on the market’s stagnated approach to actioning change in the across the board.  

Whilst some are celebrating the progress being made, the FCA are aware a lot more needs to be done and hope the paper will come as a lifeline for organisations failing to adhere to ESG requirements and position the industry in good stead around D&I.

REG Roundup

The FCA’s consultation paper will be much welcomed among the market, given the scarcity of clear rules and measures around the D&I challenges in the industry. Although many players within the insurance and financial services market are powering change through training and initiatives within their organisations, it is evident more needs to be done to champion diverse and equal workplace environments and adhere to wider societal ESG requirements.

The delays in release question the principal's priorities, given the industry is far from influencing positive change, as women still only occupy 29% of senior leadership roles and only 3% of senior positions in the UK insurance industry are held by individuals from ethnic minority backgrounds. Both figures far below industry standards.

Although we are all responsible for promoting diversity, clear direction and guidance from the regulating bodies is necessitated to steer perceptions and encourage less reluctant players whose companies do not yet deem D&I as a priority to increase their focus on these areas.

Embedding effective measures and controls into a stereotypically homogenous industry is indeed a positive step in the right direction, to enact a shift in the current biased representation and start to empower a freshly diverse, inclusive and motivated workforce.


Stock Markets Bounce Back Following Shaky Bank Collapses

Following reassurance about banks’ stability from both the US and UK governments, stock markets have rebounded.  

Stock markets originally tumbled following numerous collapses of banks, starting with the Silicon Valley Bank in the US, which was a key lender to technology firms. 

The failure of this bank then led to the collapse of Signature Bank, another US bank that catered to the technology industry. These failures deemed as the biggest bank failures in the US since the banking crisis in 2008. 

Credit Suisse was the next bank to see a rapid fall in shares, causing major concern, As the Swiss bank, which was the second largest in Switzerland, was considered one of the 30 banks worldwide that could not fail due to their importance within the banking system. 

By the 20th of March, UBS, Switzerland’s largest bank bought Credit Suisse for £2.5bn, in a government-backed deal. The Swiss National Bank stated that this was “best way to restore the confidence of financial markets and to manage risks to the economy.” 

Following the banking turmoil, US Treasury Secretary, Janet Yellen, announced that people’s deposits would be protected by the government if another bank were to collapse, causing the Stock Markets to stabilise.   

Yellen stated; “the situation is stabilising, and the US banking system remains sound.” 

In the UK, Chancellor Jeremy Hunt described the UK’s financial system to the MPs as “fundamentally strong”, even with the market being unsettled. He also mentioned that UK bank had enough money, significantly more than before the 2008 financial crisis.  

“We continue to monitor the situation carefully,” he stated. 

Increases in top bank share were seen as the FTSE closed 1.79% higher.   

NatWest, Prudential and Barclay shares increased by about 5%. Similarly, Standard Chartered and Lloyds saw increases in trading. 

The Bank of England, the US Federal Reserve and five other central banks worldwide worked together on Monday to help prevent a significant banking crisis by increasing dollar flow into the financial system. 

This allows banks to borrow dollar through the course of the seven-day-a-week facility from the Bank of England. However, no banks have used this so far, suggesting there are not many concerns within the UK banking system. 


REG Pushes Positive Change for Women in Insurance Industry

On 28th March, REG hosted a panel discussion addressing the challenges still undeniably facing women in the insurance industry, and how we can start to promote positive change in the sector to work towards a more inclusive work environment.  

The event started with a talk from Marketing Manager, Zoë Parsons, discussing some of the challenges facing women in the market. 

Zoe recognised that although representation and opportunities for women have improved over the years, challenges pertaining to gender pay gaps, attitudes, gender parity, and recruitment are still very much rife.

Women still only occupy 29% of executive positions, with the figure only decreasing at the higher levels of the organisational chain.

Moreover, the financial services and insurance industry holds the biggest gender pay gap in the UK, at 24.9%, compared to the reported National Average of 14.9%. 

On a larger scale, nationwide retention rates of females in the workplace have significantly dropped and recently spiralled the country into what McKinsey coins the ‘great breakup’ era. 

Amidst a time where underrepresentation and inequality are rife within the workplace, the panel were therefore ultimately asked the question, how does the insurance sector not only champion inclusivity, but also succeed in female retention?  
Attitudes towards women serve as an overriding problem. So, following, Melanie Cotton, Associate at Elborne Mitchell LLP gave a fantastic introduction to gender bias and our own unconscious biases.

Melanie stated that ultimately equal opportunities will stem from breaking the internalised assumptions we hold regarding gender roles and shifting the archaic stigmas around female capabilities. 

We would like to say a massive thank you to our panellists; Kate Payne, Partner at Elborne Mitchell LLPCaitlin Jansen Van Ryssen, Associate at WTWKajal Pankhania, Manager at DA Strategy and Chair of MGAA Next Gen and Gemma Henderson, Business Director at IDEX Consulting Ltd, for then sharing their thoughts on how the insurance sector and us as individuals can address the barriers and start to action fairer representation and equal opportunities across the board, to create a motivated, empowered and positive workforce. 

The key takeaways from the panel’s insights were change can be achieved in 3 simple ways – Education, Empowerment & Confidence. Through commitment and collective action we CAN create a diverse and powerful workforce where gender inequalities are a thing of the past. 

Thank you to everyone who attended our Women in Insurance Event and for the enthusiastic involvement in championing change in the industry.

If you couldn’t make the event or would like to listen to our conversation on how the market can begin to action equal opportunities, subscribe to our YouTube channel to be notified when the full recording of the discussion is shared. Or follow us on LinkedIn, where will be sharing key insights from the event on our page over the next few weeks. 

At REG we are proud we are able to host events like this to combat issues relating to diversity and inclusion in the market.

Stay tuned for our next market panel event and let’s keep the conversation going, so we can create an empowered and diverse workforce for the next future generations of insurance professionals!


Escalated Green Parts Usage Places Motor Insurance Market in Good Stead

With the rising trend for insurers to use green parts, brokers are being strongly encouraged to update their motor policy wording. 

Previously, insurers would use new parts from manufacturers as replacement, but more recently parts of motors from other vehicles are being used. These are known as green parts.

Motor insurers are being forced to use more green parts due to the pressure of claims inflation.   

Manufacturers are taking a significantly longer amount of time to deliver a new part due to supply chain blockages. Insurers will then have to pay for credit hire costs or temporary vehicle replacements for customers while they wait.  

This contributes to the increasing claims inflations that motor insurers are being affected by. In order to avoid this and get vehicles back to customers faster, insurers have turned to using green parts. 

Due to this, the wording on motor policies documents needs to be changed to keep up to date. 

The Chairman of e2e Total Loss, Martyn Holman, stated; “As long as somebody is getting their vehicle back fairly quickly, and it’s in good working order and guaranteed, they are usually not that bothered.” 

“But there may be some clients that want to know what is going on. There is always that question mark, so brokers do need to be aware of what is going on through the claims process. Let’s not forget, a lot of brokers also have managing general agents.” 

 “It’s particularly relevant in the commercial motor space, where you have fleets. A lot of bigger brokers are very hands-on with the claims process. It’s part of the customer process.” 

Commitment to sustainability was also discussed as a factor behind the green parts trend, as it acts as part of insurers’ environmental, social and governance activities. 

Allianz is one company that has updated its policies in order to move towards using green parts and reduce repair times for customers.   

In their updated policy wording, green parts are automatically chosen to be fitted, allowing customers to have reduced excess. 

With claims inflation hitting the double digits, these policies allow customers to get sustainable repairs much quicker.  

Ageas is another company heading towards a more sustainable repairs method, with the objective of tripling its green parts use in motor repair by 2023. 


Insurance Becomes Luxury Amid 'Poverty Premium' Crisis

Research by Social Market Foundation has shown that over 50% of people living in poverty are struggling to pay for their insurance, with some having to neglect these expenses due to prioritising paying for food and energy bills. 

The research revealed a “poverty premium” as they have to pay more for uncontrollable factors, such as the area they can afford to live in, making insurance less affordable for those on low incomes. 

The report, which was supported by Fair By Design and conducted by Public First on behalf of SMF, looked at 1,537 UK adults with equivalised low income below 60%, alongside two focus groups. 

It was reported that only 7% of respondents agreed that it was fair that people in poverty should have to pay more for insurance, whereas, 66% of people stated that they believed it was unfair.   

The research also suggested that around 5 million people with low incomes would be unable to pay for an unexpected cost of £500 without external assistance. 

It was also estimated that around 2 million people with low incomes could incur an insurable loss over the next five years. 

The reported discussed two main factors causing higher insurance cost for those living in poverty. Firstly, people with lower incomes are often facing bigger risks, which may cause the price of insurance to be upped.  

Another reason is that many living in poverty pay higher prices to meet insurance costs monthly, rather than all at once. They commonly choose to have single item policies rather that household content insurance policies. 

The Director of SMF, James Kirkup, stated; “We need politicians and regulators work with the insurance industry to investigate the causes of the poverty premium, so that everyone can get this vital product at a reasonable price.”   

The Director of Fair by Design, Martin Coppack, commented on the fact that people are charged more due to externalities outside of their control and mentioned that both the Government and financial regulators suggest the other is responsible for changing this. 

“We are stuck in a continual policy ‘ping pong’, while those on the very lowest incomes continue to pay more for being poor. This is why we are calling on the regulator to investigate the poverty premium in the insurance market to put an end to this stalemate.” 

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