Emerging risks

Each year, Línea Directa reviews potential emerging risks in order to anticipate the impact they may have on its business activity.

The first identification of emerging risks was carried out in 2023, when the company identified the influence of autonomous vehicles and population ageing as such risks, developing a control environment to reduce their potential impact on the company’s operations.

The main specific emerging risks that the company will have to address over the next three years are related to the shortage of qualified repair professionals and the loss of purchasing power due to the elimination of jobs replaced by Artificial Intelligence. Both risks may materialise in the medium to long term, and their social impact and impact on the company’s activity will undoubtedly be significant. The sudden and exponential development of AI had already been identified as an emerging risk, but due to its rapid evolution, other risks derived from it have arisen.

These risks are external to the company and strongly alter the context in which it operates.

Below is a table describing the risk and the control environment, with specific measures to mitigate its impact on the company.

  Shortage of qualified repair professionals Loss of purchasing power due to the elimination of jobs replaced by AI
Category Social and economic Technological, economic and social
Description The shortage of qualified professionals to carry out repairs is beginning to emerge, and there are no reasons on the horizon to expect an improvement in the sector; quite the opposite.

There is quantitative and sector evidence showing a general deficit in technical trades, with more than 100,000 unfilled vacancies in trades such as plumbing, electricity and maintenance, and lower competition per vacancy reflecting a structural shortage. This coincides with a key demographic issue: more than 52% of plumbers are over 45 years old, while only 9–12% are under 30, indicating a major lack of generational replacement in the sector. Current capacity is insufficient, generating delays. In fact, more than 50% of renovation companies suffer significant delays, with delays of up to four months in home repairs.

For insurance activity, companies involved in repair work are at risk of collapse due to staff shortages and unattractive economic conditions. The collapse of repair shops due to weeks-long repair delays may increase in the coming years. There is a structural shortage of repair professionals (home and motor), caused by the lack of generational replacement, the sector’s economic conditions and the high demand for these services (ageing housing stock and vehicle fleet).		 This is an economic and social risk derived from technology. The use and application of AI in process automation entails the progressive replacement of human work, deteriorating wages and job quality, and increasing inequality.

All these consequences arising from the use of AI generate a structural transformation of the labour market that may lead to loss of purchasing power, economic uncertainty and social tensions, polarisation and political instability.

AI not only changes the business; it changes customers' economic capacity.
  Shortage of qualified repair professionals Loss of purchasing power due to the elimination of jobs replaced by AI
Category Social and economic Technological, economic and social
Impact The operational impact on Línea Directa Aseguradora will be very high due to the increase in repair times, with delays of weeks or months, and consequently breaches of SLAs (Service Level Agreements), generating an increase in customer complaints and claims, as well as a deterioration in the customer experience (CX).

It will intensify existing bottlenecks in the claims chain due to saturation among repair shops, loss adjusters, and repair providers, ultimately resulting in longer cycle times (case closure).

Due to lower availability, repairs will be carried out more hastily and less qualified professionals will be used, which will lead to other risks such as claim reopenings, increased fraud and cost overruns, reputational impact for the company and legal risk due to service non-compliance.

Significant tension will arise with providers due to low profitability and, consequently, a greater abandonment of the sector, as they may not find it profitable to work with insurers when demand for these services is very high. The future impacts for the insurer will mainly be:
  • Impact on the company’s strategy (repair vs. compensate).
  • Negative reputational impact on the company due to increased repair delays.
 The most significant effects we have observed from this risk are as follows:
  • Reduction in the number of policies; motor insurance products more oriented towards third-party coverage rather than comprehensive coverage. In general, more basic products or products with fewer coverages would be taken out in order to reduce premium costs. The home insurance line would be severely affected, as it is not mandatory insurance, and health insurance would be even more affected given the existence of the public health service.
     
  • Economic impact due to increased delinquency, fraud, cancellations, and a fall in insurance purchases and policy renewals.
     
  • Systemic impact derived from social unrest, political instability and abrupt regulatory changes, generating greater environmental uncertainty and risks of macroeconomic shocks.
     
  • Regulatory/compliance impact related to an adjustment of Social Security or Corporate Income Tax costs for companies that incorporate AI systems to the detriment of workers needed to perform those tasks.
  Shortage of qualified repair professionals Loss of purchasing power due to the elimination of jobs replaced by AI
Category Social and economic Technological, economic and social
Mitigation actions The actions Línea Directa is taking to mitigate the situation are as follows:
  • Strengthening the internal service delivery model by expanding the scope of repairs in proprietary centres, or implementing hybrid models in which part of the repairs can be carried out remotely on site where the vehicle is located through digital diagnostics, in the case of the motor line, or through video calls to identify damage for certain types of claims in the home insurance line.
     
  • Attracting and developing talent through proprietary dual vocational training programmes (with institutes/vocational training centres) and technical certification programmes focused on supplying staff for proprietary repair shops. In addition, the attraction of new profiles from qualified immigration and/or professional reskilling has been reinforced.
     
  • Improving the customer experience (CX) by increasing transparency, indicating real waiting times and carrying out proactive management through constant communication with customers.
 The actions Línea Directa is taking to mitigate the situation are as follows:
  • Adapting the business model by designing products for customers with more unstable incomes, increasing flexibility in premium payments and coverages, and developing inclusive products or microinsurance.
     
  • At financial level, diversifying investments and avoiding excessive concentration in sectors exposed to bubbles.
     
  • Monitoring key indicators such as the policy cancellation rate, non-payment ratio, evolution of household disposable income, employment indicators (especially qualified employment) and exposure to technology sectors.