Insurance & Investment
Risk and Uncertainties
The key risks and uncertainties faced by Insurance & Investment include competitive pressures, the recruitment and retention of quality advisers, retention of our customers, insurance claims related risks, regulatory change and the performance of the investment markets.
Greater competition in the markets in which we operate is being driven by market consolidation, technological development and consumer demand. Our scale, powerful distribution and efficiency all provide us with critical competitive advantages and ensure we are well placed to succeed in this environment. Competitor activities also increase the risk of increased turnover of qualified advisers. To mitigate we have recently restructured remuneration schemes as well as strengthening our recruitment focus and increasingly training and developing Retail branch colleagues to become PFAs.
Adverse persistency and customer retention is a major risk to future earnings in both our Investment Business and our General Insurance Business. To mitigate, we have created specialist retention teams to focus on this issue. These teams have commenced a programme of initiatives, supported by process and system enhancements, which aim to reduce lapse rates in both businesses.
Changes in regulation and legislation are an ongoing feature of the insurance and investment industries. We have responded positively to changes in recent years (eg, Pensions ‘A-day’) and will continue to take opportunities to turn regulatory change to our competitive advantage, where possible. The most immediate and significant regulatory issue facing our business at present is the Competition Commission investigation of the repayment insurance market which may, ultimately, impact profitability across the industry. We are continually reviewing and enhancing our processes and our proposition to ensure that our Repayment Insurance products remain a valued product for our customers.
Within our Investment Business, we are actively engaged in consultations around the FSA’s ongoing Retail Distribution Review and the implementation of the Government’s proposals for Personal Accounts. In both instances, based on publications to date, we believe the strength of our multi-channel model, particularly in Bancassurance and our lower dependency on the Intermediary channel means we are better placed than many to benefit from potential changes. Changes in tax legislation can also create both risks and opportunities for our Investment business and the Chancellor’s Pre Budget Report (‘PBR’) included proposals which could materially impact on the life assurance industry.
The performance of the investment markets (equities, property and gilts) has a direct impact on our financial position and performance and can affect investor confidence. We seek to mitigate this risk through diversification of our portfolio.
In General Insurance, adverse weather conditions, particularly flooding and storms, could lead to a significant rise in household insurance claims costs and hence reduced profitability. Similarly a significant adverse change in economic conditions could lead to increased claims for our Repayment Insurance business. A comprehensive reinsurance programme is in place to limit our potential exposure to major weather events whilst robust underwriting and risk based pricing remains a key part of our business model.