Unsurprisingly, it was the interest rate environment that was front of everyone’s mind. The consensus of our Advisory Board is that inflation will fall, notwithstanding central bank nervousness around geopolitical forces, especially in the Middle East. As interest rates fall in turn, competition must ramp up, and the requirement for banks to innovate their product offerings and pricing will become more pressing. This competition, according to our Board, is obvious in retail banking but less clear in business banking, although certain members suggested that they were seeing competition starting to ramp up in this space, too.

In 1980, the US experience one (inflation-adjusted) billion-dollar climate disaster every four months. Now, there is one every three weeks, and these events cost $150 billion each year.¹ This figure only accounts for extreme events, and does not include the increase in smaller scale events. Against this background, it’s no surprise to see insurers ramping up premiums or pulling out entirely of the worst affected markets like Florida, where average premiums have tripled since 2018.²

Our Advisory Board was deeply concerned about this issue, acknowledging that the industry has a social responsibility to continue to deliver protection and coverage for customers across the country. How, though, to achieve this while maintaining commercial viability?

Firstly, data is key. The difficulty of a changing climate, of course, is that previous risk modelling data is either less accurate or obsolete. Furthermore, our Board pointed out that certain climate risks, such as convective storms, are extremely difficult to effectively model. However, there are an increasing number of innovative climate modelling solutions around whose data can be leveraged to help an innovative insurer to update risk modelling.

Tech alone, though, is not the answer. Our Board were clear that there is an education piece for customers who purchase an initially attractively priced house without realizing that they will be hit by increased premiums due to climate risk. One of our Board proposed developing partnerships with legislators to give house insurance ratings to reflect affordability in a similar way to House Energy Ratings.

There also needs to be an increase in the number of homes being built better equipped to handle a more extreme climate. Our Board pointed out that developers are incentivized to build for affordability, not for sustainability. Our Board pointed out that the only way to address this issue is to form large-scale partnerships with developers and those in public policy to encourage development with sustainable materials.

With this being said, our Board warned that the hype around FinTech – which had said that nimble, tech-driven startups would take down the established players – is waning. FinTech has been buoyed by favourable rates environments, but as this fades, the relationship between incumbents and FinTechs must be reassessed. The real vulnerability of established players, according to our Board, is to challengers who do one thing very well – with the example being given of Wise, who disrupted international transfers – where it was suggested that banks have traditionally made too much money through too high fees.