Optimism fell among life insurers and remained flat for general insurers during Q2 2017, but business conditions remained strong, according to the latest CBI/PwC Financial Services Survey.
The survey, carried out before the UK general election, showed a strength in underlying business activity, implying that the continued pessimism reflected geopolitical and economic uncertainty rather than weak business performance.
This decline in optimism was not universal, with insurance brokers feeling more optimistic than they did at the beginning of 2017.
The survey found employment levels and investment in staff training rose significantly for life insurers, general insurers and brokers last quarter.
All three also intend to significantly increase their IT spending in the coming 12 months as the industry invests heavily in technology with the hope of long term cost savings and efficiencies.
The survey noted that insurers expect a slowdown in their spending on regulation over the coming year. Spending on compliance will still be substantial, but will not increase at the same pace as last year.
Jim Bichard, UK insurance leader at PwC, said insurers are going through significant changes as they prepare to transform their business models. This has driven an uptick in hiring and training the staff needed to implement new technologies and strategies.
Bichard said: “To the extent that insurers have any discretionary spend, we are clearly beginning to see this money invested in technology directly impacting customer engagement, such as distribution and marketing.
“Artificial Intelligence and robotics will become more of a priority a few years down the line and it’s good to see an emerging understanding of the potential of these emerging technologies. For now though, insurers, especially those in the life sector, are focused on streamlining their back office.”
Bichard said insurers have done most of “the heavy lifting” with Solvency II and as a result PwC sees many players, particularly in life and pensions, taking time to draw breath before embarking on the inevitable investment which will be needed to adopt IFRS17.
“This doesn’t mean they’ve stopped spending money on regulation as both PRA and FCA remain active. Insurers are carrying out impact assessments as they work to understand the implications of IFRS17 ahead of the 2021 effective date,” said Bichard.