Top 10 industry highlights for 2018: RPC’s Annual Insurance Review

RPC, the City-headquartered professional services firm, has selected 10 industry highlights expected to impact the insurance market in 2018 as part of its Annual Insurance Review. 

The insights are based on the expertise and experience of individuals and teams in RPC’s market-leading insurance practice, and cover:

• Ransomware and the risk of fines under new GDPR sanctions
• ‘Friday afternoon frauds’ to spread as focus switches to accountants
• Blockchain to drive down international fraud
• Driverless shipping to improve safety, but how do insurers keep up with technology?
• Trade Secrets Directive will continue trend of more confidential information claims
• Expansion of “cat” bond market – how technology can help write better risks
• “Seismic” changes to the medical malpractice insurance market may be on the horizon
• Increasing regulatory focus on pensions
• Harsher sentences for manslaughter changes the demands on insurance policies
• The rise of insurtech

Simon Laird, Global Head of Insurance at RPC, says: “A common theme to the challenges for insurers in 2018 is technology – from the higher risks related to data breaches to the impact of blockchain and driverless ships.”

1. Ransomware and the risk of fines under new GDPR sanctions

Ransomware and other cyber threats will be high on many insurers’ agendas in 2018 given how expensive security breaches can prove to be. Delays in reporting breaches can mean increased losses to both the insured and the insurers, and the new GDPR mandate will place an even larger burden – with the risk of huge financial penalties - on data controllers when implemented.

Richard Breavington, Partner at RPC, comments: “Firms will have just 72 hours to assess data breaches so they have to act immediately. It’s a huge task for controllers– if they don’t react quickly, their firms are at risk of large fines. Many firms will be looking at how breach response services, such as RPC’s ReSecure (and other cyber insurance policies), can help them meet such tight deadlines.”

2. ‘Friday afternoon frauds’ to spread as focus switches to accountants

Law firms, traditionally the target of ‘Friday afternoon frauds,’ have tightened their cybersecurity and payment processes and RPC now sees fraudsters switching their focus to accountants. Accountants will therefore have to increase their focus on cybersecurity and fraud prevention in 2018 

Robert Morris, Partner at RPC says: “Law firms have smartened up to cyber threats, and fraudsters are now choosing their next victims. Accountants and their insurers need to realise they are now prime targets.”

3. Blockchain to drive down international fraud

Almost all parties involved in cross-border trade, including insurance firms, are turning to blockchain to reduce the costs and risks that come with the sale of goods.

A digitalised ledger providing incorruptible records is central to reducing the risk of frauds that commonly occur in international trade. Blockchain would bring numerous benefits to trade credit insurers, such as the eradication of duplicated warehouse receipts and forged bills of lading. We therefore expect insurers to make increasing use of blockchain in 2018 and beyond.

4. Driverless shipping to improve safety, but how do insurers keep up with technology?

Most marine insurance claims stem from human error, so companies are turning to autonomous surface vehicles (ASVs) to improve safety and reduce losses. The introduction of ASVs will bring their own cyber risks – such as the threat of data links back to land being hacked. The insurance sector faces a significant task to ensure its cover keeps up with technology.

Toby Savage, Partner at RPC comments: "Insurers will need to revisit their current policy terms to assess whether they work for unmanned or autonomous surface vehicles – and address issues such as the cyber risk and how the conventional claims process will be affected when there is no crew aboard to report the actual cause of an incident".

5. Trade Secrets Directive will continue trend of more confidential information claims

The upcoming Trade Secrets Directive, which the UK must implement by June 9 2018, will introduce a statutory definition of a ‘trade secret’ in the UK for the first time.

There is already an increase in confidential information claims as businesses look to protect their valuable commercial information in this competitive climate, and the trend is expected to continue following the Directive’s implementation. These issues could trigger claims across a range of traditional insurance policies, and businesses seeing their own 'secret' information supplied by senior ex-employees to their new employers could result in directors & officers (D&O) policies in particular bearing the brunt of these claims. 

6. Expansion of “cat” bond market – how technology can help write better risks

2018 should bring coupon rate rises, which should in turn see additional capital for investment for insurance companies. The use of technologies such as drones and satellite imaging is likely to expand, together with an increased use of sensor technology.

Rebecca Hopkirk, Partner at RPC says: “Harnessing new technology can help the insurance industry write better risks and provide improved insurance products. The challenge for insurance firms now is how to make the most of technology to stay one step ahead of the competition.”

7. “Seismic” changes to the medical malpractice insurance market may be on the horizon

Clinical negligence claims against GPs being covered by a Government-backed scheme could have significant implications for medical malpractice insurance in 2018. This attempt to resolve the problem of GPs leaving practice due to rising insurance premiums underlines the scale of the issue.

Dorothy Flower, Partner at RPC comments, “This new scheme could be the first step towards a seismic change for malpractice insurance for individual practitioners. Whether it is opening the market up for insurers to cover more individuals or private hospitals choosing to bear increased premiums to cover the doctors, this is an area which will require very careful thought by insurers, providers and practitioners.”

8. Increasing regulatory focus on pensions

“2018 looks set to be the year of the Pensions Regulator,” says Rachael Healey, Legal Director at RPC. As well as new powers for the Regulator, its Corporate Plan makes clear an intention to intervene “more frequently, more quickly” where schemes are underfunded or avoidance is suspected.

Pensions transfers are already returning to the top of the FCA’s agenda this year.  Pension freedoms have driven an increase in requests for transfer values from final salary scheme trustees and with those requests comes the need for pension transfer advice where a pot is valued at over £30,000. There has also been increased focus from the FCA in light of developments around the British Steel Pension Scheme, with the Carillion final salary scheme the next target for pension transfers.   We expect a further paper from the FCA on the pension transfer rules this year and a white paper from the government following recent enquiries by the work and pensions committee. Insurers of advisers and pension professionals of all kinds will want to watch developments carefully.

9. Harsher sentences for manslaughter changes the demands on insurance policies

The number of successful prosecutions under the Corporate Manslaughter & Corporate Homicide Act rose in 2017, and the highest fine under the Act to date - £1.2m - came in July.

The key development will be the outcome of the Sentencing Council’s consultation into sentencing guidelines for manslaughter offences, which closed in October. Harsher punishments are expected, in particular for Gross Negligence Manslaughter - draft guidelines for the worst of these offences suggest 8 years imprisonment. Insurers will need to pay close attention, therefore, to the potential for their policies having to deal with the defence of prosecutions where the stakes will be significantly higher.

10. The rise of insurtech 

Despite a major shift in the insurance industry’s attitude towards insurtech last year (UK investment rose by 2,500% in the first half of 2017), it is still in the evolutionary stages. However, new regulations will create opportunities as well as threats, as far as data exploitation is concerned.

Although the new GDPR will restrict data processing, new forms of GDPR-compliant data-gathering will emerge. Similarly, other new regulation, such as the requirement for insurance product information documents under the Insurance Distribution Directive, provides new opportunities for automation and the collection of good quality data.