Price competition emerges as the greatest challenge facing insurers over the next five years

Aldershot, 5 November 2007, Computer Sciences Corporation (NYSE: CSC) announced today the results of a new CSC study that poses a stark warning for homeowners with properties at risk of flooding. Of 200 UK insurance professionals surveyed on the future of general insurance, 91 percent said that insurance on these homes will become “unaffordable” unless the Government increases its flood defence spending. The study also showed that 75 percent of insurance professionals are concerned about new building plans, arguing that premiums will have to rise for all homes at risk of flood if the Government allows new properties to be developed on flood plains.

Fierce price competition is at the root of respondents’ concern and emerged in CSC’s research as the single greatest challenge facing the insurance industry over the next five years. This is in part due to the phenomenal success of Web aggregators, which enable consumers to easily compare prices. Climate change emerged as insurers’ second greatest cause for concern.

Of the insurers surveyed, 61 percent said that price competition will drive the industry to end its current practice of subsidising homes on flood plains by charging higher premiums to everyone. This conviction reflects an accelerating trend towards more precise pricing for risk, with 88 percent of respondents stating that the industry must start to segment and price risk based on “increasingly detailed personal information” in order to compete on price.

John Maitz, vice president for CSC’s Financial Services Sector in Europe, the Middle East and Africa said: “Our research indicates that the insurance industry is reaching a ‘tipping-point’. Price has always been the most important differentiator in the general insurance mass market, but the rise of aggregators has made comprehensive price comparison so easy. As a result insurers will have to work hard for other factors to gain prominence. Product and service differentiation are two other ways insurers can protect margins and differentiate themselves, but both are areas in which most players struggle to find genuine traction. At the same time, with margins under severe pressure, pricing more precisely for risk represents the principal strategy whereby they can hold on to market share without seeing their profitability diminish to an unacceptably low level. For households on flood plains these developments augur very poorly indeed.”

In the CSC survey, 63 percent of insurers said that the industry’s record thus far on implementing new ways to price for risk has been either “unsuccessful” or “not that successful”, implying considerable scope for change in this area. The research also shows that insurers are looking to tighten pricing in other areas besides household insurance. For example, in motor insurance, 72 percent of respondents believe that if road charging is introduced in the UK, they should be able to use traffic monitoring data to charge higher premiums for riskier drivers.

Strategies for non-price differentiation, through product innovation and improved customer service, are also at the forefront of insurers’ thinking as they work to protect their margins. Indeed, 61 percent of respondents said that price will not necessarily always remain the “main differentiator” in the general insurance mass market. But, again, progress in the two main areas for non-price differentiation – production innovation and customer service – is generally viewed as poor.

In the survey, 66 percent of respondents said the industry has not been successful in introducing innovative product lines, whilst 62 percent said its record on customer service has been either “unsuccessful” or “not that successful”. An overwhelming 93 percent of respondents believe that improving claims handling will be “vital” in order for clients to genuinely differentiate between insurers on the basis of customer service.

Information technology (IT) emerged as the critical factor whereby insurers could achieve the differentiation they seek. Indeed, 80 percent of respondents think the industry has been “frustrated” in realising its ambitions because of limited IT investment.

“The majority of those interviewed recognise the effect that under-performing technology has on their business,” Maitz added. “Clearly, it will be those insurers who use technology more innovatively and effectively who will achieve their business goals and be in the best position to differentiate themselves. By doing so, they will help to retain market share and best serve the needs of their customers. They will be the insurance winners over the next few years. ”

Other major findings of CSC’s research include:

Insurance industry calls for personal injury costs to be reviewed by regulatory authorities

In view of the fierce, price-driven environment, survey respondents were heavily critical of the additional pressure on margins arising from the growing ‘compensation culture’. 90 percent of insurance professionals responding wanted regulatory authorities to tackle ‘spiralling legal costs’ relating to low-level personal injury claims and mandate a common method for determining compensation according to standards based on current industry best practice. This follows in the wake of new figures from the International Underwriting Agency that show that for every £1 paid in compensation for UK motor accidents, an additional 43 pence is paid in legal fees, up from 30 pence in 2005.

A slim majority of 53 percent of respondents believed that the system in Ireland – where the Personal Injuries Assessment Board sets fixed compensation sums for certain types of common claims – is a fair system for both insurers and the insured. These respondents said they view this as another potential solution for the UK market.

Insurers remain sceptical about the costs of Financial Services Authority (FSA) regulation

Concerns over margin pressure may also be adding to insurers’ frustrations regarding regulatory costs. 67 percent of insurance professionals responding believe the costs of FSA regulation in general insurance are “disproportionate” to the level of risk involved, whilst 65 percent go as far as to say the regime imposes “unnecessary costs” for the industry and consumers alike.

Notes to Editors

About the Research

CSC’s research was conducted in October 2007 using databases from the annual “Future of General Insurance” conference, run by the Institute of Economic Affairs, and the readership of insurance and broker magazine Insurance Times. 209 respondents (55 percent insurers and 45 percent brokers) across the UK answered the survey. No external voices on the market (e.g., analysts, lawyers, accountants, consultants or vendors) were involved. For a copy of the findings, please contact Francoise Dibben on fdibben@csc.com.

About CSC in Financial Services

CSC distinguishes itself through its time-tested ability to plan, build and operate highly reliable, efficient and secure business and IT solutions for leading financial services firms around the world. To complement its capabilities in consulting, systems integration and outsourcing, CSC brings financial services industry knowledge and experience, a comprehensive portfolio of financial services application software and an extensive network of industry and technology partners. CSC’s financial clients include more than 1,200 major banks, insurers and investment management and securities firms.

About CSC

Computer Sciences Corporation is a leading global IT services company. CSC’s mission is to provide customers in industry and government with solutions crafted to meet their specific challenges and enable them to profit from the advanced use of technology.

With approximately 87,000 employees, CSC provides innovative solutions for customers around the world by applying leading technologies and CSC’s own advanced capabilities. These include systems design and integration; IT and business process outsourcing; applications software development; Web and application hosting; and management consulting. Headquartered in El Segundo, Calif., CSC reported revenue of $14.9 billion for the 12 months ended March 30, 2007. For more information, visit the company’s Web site at www.csc.com.