By Manan Sagar, Chief Technology Officer for Insurance at Fujitsu UK&I
It’s no secret that buying car insurance can be a frustrating experience. Probably one of the most common complaints is the lack of accuracy around pricing and the increased charge for customers’ ongoing loyalty to a vendor.
Therefore, it’s been a welcome relief for customers as the price of premiums continues to drop within the UK car insurance industry; decreasing by 1% in the third quarter. This has been pushed down by uncertainty from the personal injury discount rate change in July 2019 and the market watchdog’s interim report on general insurance pricing practices.
However, this is less exciting for insurance companies. It’s a worrying sign for the way the industry currently works, and this warning should be taken as an indicator that it’s time to change lanes in the way we approach pricing practices in UK insurance.
Out with the old, in with the accurate
The hinderance to customer satisfaction for insurance companies has been the result of generic circumstantial ‘repair and replace’ pricing systems. Insurance premiums in this archaic model are based on historical data which makes projections about potential outcomes based on trends. This often causes specific groups of people – such as young adults – to be penalised as underwriters and actuaries use past data sets to look for loss patterns and make projections about future outcomes.
As a result, this has created a conception that insurance providers have unfair and inaccurate prices, and unfortunately digital transformation in such a model is limited to enabling “easier” purchase and claims processes.
But now technology is giving insurance companies the opportunity to alter this model. Traditionally prices are formulated through a calculation of stakeholders: the client + the broker + the insurer. But now the addition of technology providers has increased insurers’ capabilities to process, analyse and use data to provide more tailored premiums and accurate results. In other words, technology is enabling insurers to become a force for good, and rather than just reimbursing for damages and losses, to predict and prevent these from happening. In the grand scheme of things, this would benefit not only the industry, but society as a whole.
For example, rather than filling out generic questionnaires to conclude a pre-determined price, technology will be able to look at current and real-time data to consider the customer’s behaviour before establishing a price point. This means insurance companies will have capabilities to offer more bespoke policies that better reflect their customers, their lifestyle and their needs. In some cases this precision will reduce insurance costs on an on-going basis – the benefit being an increase in customer satisfaction and retention.
This is all possible thanks to technology that already exists. Powerful analytics tools and the Internet of Things (IOT) has opened the door for insurers to provide “smart policies”, and make dynamic projections about future outcomes, calculating pricing models based on this new approach. For car insurance, this means that data can provide insights not just into when and where, but also how the customer drives – ultimately promoting safety on roads. Some car manufacturers like Tesla have already spotted the opportunity and have, earlier this year, announced that they will be offering insurance to their car owners in the US at a 30% reduction.
The insurance industry has its brakes on
Increases in customer satisfaction and customer retention are no doubt the goals of every insurance company, and achieving this through digitisation seems like a promising offer.
However, it’s not that simple.
Insurance is an age-old industry that is deeply rooted in the traditional business model it currently operates in. Most of these companies are also big, which makes a change of this nature more of an upheaval than an agile step-change.
This has made actions within the digital transformation process, such as implementing automation to harness the power of “data”, extremely slow for some organisations. But insurance companies need to think how they can start adapting to the new customer demands, and how they can revolutionise their own industry and stay relevant.
To get in gear, insurance companies need to challenge their traditional mindset and see technology as a supplement to their services. Ultimately, to thrive in today’s market, insurers will have to shift their focus on prevention, and “smart policies”. Soon enough, policyholders – whether the public or businesses – will no longer accept the old way of doing things.
The UK car insurance industry is at a cross roads. And how well insurance companies use technology will determine whether they go down the route of futureproofed customer experience, or a dead-end.
THE END OF YEAR TAX CHECKS THAT COULD SAVE YOU THOUSANDS
Charlie Reading, Founder and MD of Efficient Portfolio
After HMRC’s tax return deadline at the end of January, it can be tempting to drop your guard, believing that your new tax bill is a long way away.
It’s true, you’ve got a whole year until the next bill is due. What most don’t consider, however, is that there is a range of checks that you can do reduce that bill significantly.
Astute investors make use of their tax-free allowances every year and save thousands of pounds in the process. With such massive savings on the line, it’s a strategy to certainly consider.
With that, here are some easy checks and tips from Charlie Reading, Founder and Managing Director of Efficient Portfolio chartered financial planners, that could start you on your way to a much leaner tax bill:
1. Maximise Your ISA Allowances
Good returns, flexibility, diversity and tax efficiency should be key components in your financial strategy, and the ISA helps to deliver all of these. Historically, ISAs have been at the cornerstone of tax-efficient saving and are often referred to as one of the essential steps in your strategy, as they can help your wealth grow without you being penalised by heavy tax charges. They are an incredibly useful way of saving, and, as such, it is generally encouraged that people take advantage of their benefits. However, the ISA allowance is offered on a ‘use it or lose it’ basis, so if you fail to maximise it, you can’t make up the funds later on.
Up until 5th April 2020, you can contribute up to £20,000 into an ISA, and a further £20,000 from 6th April 2020, thereby sheltering up to £40,000 per person, as long as you’re over 18.
2. Top Up Your Pension While You Still Can
At the time of writing, the highest level of State Pension you can receive is £129.20 a week, which is frankly a paltry sum to live on. That’s why saving for the future is so important. It might seem wise to enjoy life now and worry about retirement later, but you’d only be damaging your future quality of life.
Pensions are a highly tax-efficient way of saving and now offer a great deal of flexibility in retirement, as when you retire you can gain access to 25% of your pension pot as a tax-free lump sum, with the remainder taxed at your marginal rate.
The current pension annual allowance is set at £40,000, so if saving for your future is a priority, it is worth investigating which pension is right for you, sooner rather than later.
3. Protect Your Estate from Tax
Inheritance Tax (IHT) is a concern for people from all walks of life. If you are hoping to leave a legacy to your loved ones, the last thing you would want is for that legacy to be taxed at 40% and lost to the Government.
One simple way of combatting this is to consider using your annual IHT allowance. During your life, you are allowed to give away £3,000 per year without incurring any IHT charges upon your death. There are of course downsides to this, in that you lose all access and control over the money, but it may be a tax-efficient strategy to consider.
4. Don’t Overpay Your Capital Gains Tax
The final tax consideration at this time of year is Capital Gains Tax, which is also given on a ‘use it or lose it’ basis and is currently set at £12,000. The issue of Capital Gains Tax is most acute if you hold investments which have grown above your tax-free allowance.
To ensure you make the most of your Capital Gains Allowance, it is generally recommended to sell down a portion of your portfolio to realise the growth made, but only enough to maximise your allowance, is the most prudent strategy.
These funds can then be used to fund any outstanding allowance on your ISA, for example. The advantage of doing so is that by placing your money from a taxable to non-taxable environment you have the potential for further growth, and you benefit in the longer term by potentially reducing a future bill.
There’s plenty of time left before the taxman comes knocking once again, but there’s no better time than the present to start looking into how you can save you and your business thousands of pounds simply through tax allowances you might not have previously been aware of.
HOW TECHNOLOGY IS FUTUREPROOFING STOCK MARKET TRADING
Tony Shaw, Executive Director, London Office and Head Sales UK & Ireland at the Swiss Stock Exchange
Markets are shifting, there’s no doubt. Amid all the disruption and volatility from the past year, the Swiss Stock Exchange asked traders about what they expected in 2020 and beyond in our industry survey. The findings point to a rise in digital to help traders content with external forces.
First and foremost, traders are enthusiastic about what digital assets can offer.
Two thirds of traders polled said they’d had a marked rise in interest from their clients for digital assets and crypto-products. Given the interest, traders are increasingly bullish about the potential of these products – so much so that 80% have predicted an increase in overall demand in the long term. Market users believe these assets will help generate cost synergies and streamlining trading and settlement processes by creating efficiencies and ultimately reducing costs.
Our 2019 results reflect what traders have told us when it comes to digital assets and products. Last year, we saw significantly higher trading volumes from products with crypto currencies as underlyings. Overall volumes grew by +8.5% over 2018, but the increase in crypto products alone was +17%, reaching CHF 518.2 million ($534.54 m). There was a year-on-year increase in the number of transactions, as well (+21%): 19,636 trades in total.
The potential digital assets hold is clear – evidenced by the building of the SIX Digital Exchange (SDX), a fully integrated issuance, trading, settlement and custody infrastructure for digital assets.
According to traders, artificial intelligence (AI) is expected to bring further benefits to market operations.
Two thirds of our survey respondents anticipate AI will create more opportunities for the traditional equities business, while a similar number expect it to reduce the cost of trading. Innovation in AI is already – and will continue to be – a key driver in making our industry more effective at withstanding future risks and challenges both within and beyond the market itself.
In Europe, there is growing momentum behind calls for shorter trading hours – this trend was reflected in our survey as well.
Industry groups such as the Investment Association are advocating for stock market trading hours to be cut from 8.5 to 6.5 hours to open the industry to working parents and women who cannot commit to such long workdays. We found traders were largely supportive of this, with many saying that it could even facilitate operational benefits. The roll of AI is clear here in improving efficiency while minimising time wastage: 36% of traders said the introduction of shorter trading hours would prompt greater market liquidity.
Beyond the market itself, geopolitics continue to shape wider market sentiment.
It comes as no surprise that four fifths of traders said their strategies have been – to some extent – influenced by Donald Trump’s tweets. Interestingly, only 39% of those polled viewed Brexit as an influencing factor in trading activity, while three quarters believe the US election will drive trading activity in 2020 and 65% acknowledged trade wars would also have an impact.
More broadly, traders are split on the state of the global economy – 58% are bracing for a global recession while 42% predict stable macro-economic conditions over the next three years. What seems clear is that whatever happens in the wider economy, traders are making headway with new technologies that can improve their strategy, efficiency, and overall market health.
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