Direct Line has reported weaker than expected first-half profits, as one of the UK’s biggest motor insurers takes steps to repair a business badly hit by a post-pandemic surge in the cost of claims. Chief executive Adam Winslow said in a results announcement that the measures the insurer had already taken to improve its performance “are beginning to make a difference but there is more to do”.
The group’s operating profit from ongoing operations for the first half was £63.7mn, below expectations of £85mn.
Three key points I find interesting:-
- DLG was an early adopter of eFNOL and digital claims management but has still been caught out by claims inflation
- Poor underwriting performance seems to be the main driver of loss which claims inflation has made worse still.
- Insurers need to transform all parts of the value chain and not just claims or underwriting.
- That takes longer than most insurers expect
Adopting eFNOL and digital claims processing is one thing, but if it just automates claims processes without change, it saves some costs but will not transform the business. DLG might have transformed some parts of the claims operations but seems not to have captured the costs of settling claims whether the higher costs of repair and replacement, longer lead times to repair vehicles and property, the rising costs of repairing electric vehicles (EVs) and the higher ratio of total loss decisions as battery damage hits costs.
Other motor insurers like Sabre and Admiral have not suffered similar hits to profits and underwriting excellence is a key factor.
Sabre Insurance posts full year 2023 results
Insurer Admiral’s profits beat forecasts as customer numbers jump
DLG is not the only insurer in the UK and USA to suffer underwriting losses of course which is the second key point.
Underwriting is part of the insurance value chain where there is a large gap between top performers and the laggard majority. A recent CapGemini report describes this gap between the top 8% of insurers which are described as trailblazers and the 92% of laggards.
CapGem stastes that Administration takes up 41% to 43% of an underwriter’s working day! A further 32% to 33% of the day is spent on core activities leaving just 25% to 26% for growth and sales enablement. No wonder so much time is wasted on admin as they describe how this contributes to their main challenges.
- Data collection (28% to 33%)
- Pricing decisions (19% to 32%)
- Quote generation and policy issuance (45%)
Read a full article on this at:_
UK motor insurers endure second year of major underwriting losses
The survey covers all lines of business - P&C, Commercial, London Markets, and more. Plus it offers a playbook to improve underwriting.
Which brings me to my third key point. Insurance is a complex business, and transformation in siloed parts of the value chain delivers limited value. There needs to be an overall vision, strategy with buy-in across the business and determination to operationalise the strategy. That needs resourcing, chamnge management and time. It is not surprising that Adam Winslow says there is more to do. esure has taken years to take a vision and transform the business; and that is the whole business and not just claims or underwriting, and across all lines of business.
I cannot but observe that the complex and inflexible core systems adopted and deployed by DLG and other insurers is also a factor in this underperformance. They cost and arm and a leg. Not just to deploy but to maintain and upgrade.
It maybe that despite deploying digital claims across the business there is not the functionality to collect repair and replacement costs and feed these back into underwriting and pricing. That is not conjecture not proven, whilst it is not uncommon for claims and underwriting to be disconnected. For too long claims operations were the poor cousin but as insurers wake up to claims being where premiums get swallowed in settlement costs things are changing.
That's where the focus on deplying ecosystems, data fluidity, and adaptability are a key aspect of being to adapt, anticipate, launch and test new products and create competitive advantage. Newer MACH architected core platforms are delivering those benefits and some insurers are layering inflexible core systems with newer MACH platforms like Genasys, ICE, Instander, FintechOS, Ignite, Nividea, and more. esure took the plunge and migrated to the MACH architected EIS coretech.
It does take longer than insurers generally think to achieve that as technology alone is not a panacea. A good business model and a vision and strategy that anticipates the future is an essential but often missing factor that holds back optimal performance. The sooner you start, the sooner the desired results will be achieved. Adam Winslow looks like he has his eye on the ball for DLG.
A final PS.
Don't look to GenAI and LLMs to solve this for you. If you don't have the right vision, strategy, and distinct competitive differentiation today these tools will at best keep you as an average performer. If you have the former, and know how to train LLMs and SLMs on proprietary data with the right AI technology partner you can achieve that outcome. I'm writing about this soon so keep an eye open at www.insurtechworld.og next week.
Further Reading
WORLD PROPERTY AND CASUALTY INSURANCE REPORT 2024 from CapGemini
Surveys highlight data maturity holding back AI deployment ambitions from Insurtechworld
Underwriting trailblazers outgun mainstream insurers. from Insurtechworld
Adaptability by Rory Yates
Pro-adaptability – the competitive advantage by Gavin Peters in Modern Insurance Magazine
Direct Line has reported weaker than expected first-half profits, as one of the UK’s biggest motor insurers takes steps to repair a business battered by a post-pandemic surge in the cost of claims.
https://www.ft.com/content/643a6f7d-5ad9-46ba-b508-f680a3dffb59
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