PRA Innovation Roundtable
It’s a privilege to be invited to address this pilot PRA Innovation Roundtable.
I’d like to thank the PRA team for bringing together the insurance, banking and regulatory communities to consider how we can facilitate responsible innovation in financial services.
Innovation has made London one of the world’s leading financial centres. The UK’s insurance sector is a global success story - the largest in Europe, and the third largest in the world.
When we think about insurance, innovation may not be the first word that comes to mind. Yet, from maritime insurance of the 17th century, to defending corporations from the scourge of cyber criminals, our industry has always been at the forefront of managing new risks. We can only serve our customers by embracing new technologies and developing novel products that address the needs of a changing world. And firms must do this while navigating an accelerating business environment.
Capital may be the key ingredient for growth and innovation. But risk management is often what unlocks the power of that capital.
Insurance is one of the prime drivers of our economic growth and innovation, enabling people and businesses to take the risks needed to succeed.
Innovation
Let me give you a few examples of how this journey of responsive and responsible innovation continues today.
- One significant advance is usage-based insurance (UBI).
Take motor insurance. By leveraging telematics, we can monitor driving behaviour and mileage, offering premiums that reflect actual usage. This not only provides more accurate risk pricing; it also, responsibly, incentivises safer driving.
- Parametric insurance is another innovation transforming how our industry responds to natural disasters.
It triggers automatic payouts based on predefined parameters, such as the magnitude of an earthquake or the wind speed of a hurricane.
This enables faster relief for those affected, demonstrating our industry’s responsibility toward communities in a time of dire need.
- Artificial Intelligence (AI) and machine learning are revolutionising how we do business.
AI algorithms can analyse vast amounts of data to identify patterns and predict risks with unprecedented accuracy.
This allows for more precise pricing, faster claims settlement, and can help reduce fraud.
Together, these can put a downward pressure on premiums, demonstrating responsibility in a time of rising costs.
- There should be no-one who cannot gain access to the benefits of insurance.
Microinsurance, digital platforms and insurtech solutions are expanding access to insurance for more individuals and communities.
These innovations show our responsibility to society.
Regulatory Engagement
Let me turn to regulatory engagement.
As an industry, we fully understand the fundamental need for a regulatory framework that is both effective and efficient.
I would like to take this opportunity to thank the PRA for its collaborative approach to engagement.
The long Solvency II review process has shown the benefits of this collaboration. The new Solvency UK regime better meets the needs of the UK market and boasts an innovative Matching Adjustment mechanism that will enable insurers to invest in a broader range of assets.
This will help our industry meet its pledge to invest billions of pounds in green and good projects in the years to come. Driving growth, and creating a more sustainable future for us all.
To support implementation of Solvency UK, jointly with the industry the PRA established Subject Expert Groups. This was a novel approach. But it has transformed the way in which industry and the regulator engage.
The success of the SEGs means a wide range of topics are now discussed in these forums – ranging from the Matching Adjustment to stress testing, liquidity risk and regulatory reporting.
What about the future of regulation?
We have not explored enough the role AI could play in enhancing regulatory reporting within the insurance industry. Without presupposing a solution, we have both common and separate objectives.
We have a common objective to support the growth of the industry - to ensure it remains a global centre of financial excellence with a world leading reputation for resilience, probity and yes, innovation.
Regulators rightly seek an efficient framework, one that is comprehensive enough to meet the demands of resilience and stability while flexible enough to support the growth of the industry and the wider economy.
The industry seeks the efficiency and ease of compliance that stems from clarity and simplicity plus a reporting flexibility that adapts to the variety of business models, the needs of smaller businesses and the differing levels of risk taken by this diverse industry.
With these goals in mind, we know that AI has potential on two fronts – one, to assist firms in automating data reporting, and two to help regulators with analysis.
But perhaps the greatest boon might lie in using AI to identify unseen trends. We would be making the industry more resilient by anticipating tomorrow’s risks rather than just looking at data that protects against past challenges.
By working together, we can create a resilient, forward thinking, competitive and responsible insurance industry.
An industry that is a cornerstone of our country’s economic wellbeing.
An industry that continues to play a vital role in every household and every business.
An industry that is making this world safer, greener and more financially secure.
Thank you.