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2014 Global insurance outlook

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“In 2014, the global insurance industry is finally emerging from the combination of financial turmoil and economic uncertainty that has challenged international property-casualty and life-annuity insurance companies for the last several years.”

Shaun Crawford, Global Insurance Leader

As the global insurance industry emerges from this challenging time, there are clear signs of rising opportunity for international property-casualty and life-annuity insurance companies. Still, complex challenges lay ahead, resulting in the prospect of slim profit margins in 2014 and fueling the need for greater customer-centricity across operations.

The headlines from our 2014 Global insurance outlook recap the industry’s most compelling storylines:

  • Rising individual wealth and aging populations are emerging as enticing areas of product expansion and revenue growth in Asia
  • Specific niches in Latin America are seeing substantial growth potential
  • Capital positions for carriers in Europe and North America are rebuilding

Looking on the risk side of the equation, global insurance executives are challenged by the protractedly low interest rate environment and an often confounding array of stringent international and national regulations.

Technology continues to shape the industry, with legacy systems restraining some carriers’ ability to embrace big data analytics or meet the expectations of digitally savvy customers. The need for strong digital operations and rich customer experiences will be an ongoing strategic theme across the industry for some time to come.

Overall, the industry appears at the threshold of much better times ahead, though there is much work to do for global carriers looking to take advantage of the opportunities.

Summary of the key challenges and opportunities by region

Asia-Pacific

• Slowing economic growth rates and low interest rates are the primary challenges, while rising individual wealth and aging populations create opportunities, especially for new products.
• Property/casualty and health insurers may benefit from the new free-trade zone in Shanghai.
• Product development and distribution must be evaluated as regulatory changes open the savings market to new entrants.
• Evolving regulations and their region-by-region differences will complicate market opportunities.
• Data analytics can improve competitive standing, and identify areas to reduce expenses.
• Asia-Pacific region’s share of the global middle class will nearly double, rising from 28 percent in 2009 to 54 percent in 2020, according to our projections.

2014 Asia-Pacific insurance outlook

Canada life

• Renewed focus on asset management and wealth management compels development of more innovative, attractive products and improved profitability in tax, sales and asset-liability management.
• Insurers must improve expense management and underwriting through streamlined processes, stronger data analytics capabilities, outsourcing and more diligent focus on core operations.
• Understanding changing consumer demographic information is critical to guide product and distribution strategies and expand growth opportunities.
• More stringent regulatory and accounting changes compel insurers to improve their modeling capabilities, data quality, data governance, and the level of detail provided by their reporting systems.

2014 Canada Life insurance outlook

Canada property/casualty

As consolidation activity continues among large carriers and more insurers seek growth through mergers and acquisitions, the pressure to improve the bottom line will intensify.
New products ranging from cyber insurance (driven by increased use of social media and proliferating cyber attacks), to sensor technology and vehicle telematics, have generated substantial interest because they have “game-changing” potential for the industry.
Carriers accept that big data is here to stay and, as a result, have made great strides in creating better predictive models to aid in pricing and other key areas.
To drive growth, insurers will largely be focused on product development and innovation, as well as digital technology and big data.
Unpredictable weather and catastrophes have generated new and higher demand for insurance protection, with a particular focus on flood insurance. Insurers are using satellite mapping to more effectively assess their vulnerabilities.
Complete, integrated and customer-centric solutions – with largely cloud-based systems for distribution, underwriting, product development and claims management – must be the end goal for digital technology investments.
The rapid pace of regulatory and accounting changes is unlikely to decrease – as evidenced by OSFI’s new regulations and proposals concerning corporate governance, ORSA, cybersecurity, solvency and capital. IASB and FASB guidelines must also be monitored. It’s clear that insurers should expect more regulation, rather than less.

2014 Canada Property and Casualty insurance outlook

Europe

• In recovering from recent economic turmoil, insurers must simplify their organizations and business models to create more efficient operations that can seize emerging growth opportunities.
• Evolving regulations are becoming more stringent, affecting everything from capital requirements to commission rates and customer care.
• While an aging population (a 4% increase in the number of individuals 65 and older in the EU is forecast for 2014) and the personal and commercial non-life markets present opportunities to increase sales, insurers must maintain focus on profitability.
• In the low interest environment, insurers must retool investment strategies to increase yields and adequately compensate for increased risks.
• A stronger digital presence is required in the improving economy, with technologies addressing enhanced consumer expectations as the top priority.
• Comprehensive, cross-functional enterprise data analytics capabilities will improve customer targeting, product design, pricing, agency management, underwriting, claims and reporting.

2014 Europe insurance outlook

Latin America

• Despite growing risks of inflation, substantial catastrophe exposures and currency exchange rate volatility, the region presents rich growth potential, especially in specific niches.
• Efficient distribution alternatives can help insurers seize business from traditional sales channels.
• Reduced margins mean growth must come from the top and bottom lines.
• Evolving regulations and their region-by-region differences will complicate market opportunities.
• As regulation evolves toward risk-based capital approaches, insurers will need more sophisticated structures for management, information and capital systems.
• To improve capital efficiency and prepare for digital competition, insurers must overcome legacy insurance technology with new investments to enhance underwriting and innovate distribution.
• Data analytics and underwriting skills are in short supply, compelling the recruitment of talent from universities and more training and development.

2014 Latin America insurance outlook

US life-annuity

• Deeper relationships with customers are vital to retaining the book of business and sustaining profitability in highly competitive market conditions.
• As stagnant sales and low investment yields constrain profits, insurers must streamline operational models and cost structures, resolving legacy system challenges to achieve long-term operational excellence and profitability.
• Enterprise data excellence is a key objective, furthering existing data transformation programs and resulting in improved data quality, access, integration, security and governance.
• Having rebuilt their capital structure to weather the post-financial crisis, insurers can enhance shareholder returns by improving the yield on investments in products and operations and restructuring capital through captives and debt.
• Despite the uncertain implementation dates of many complex regulations, insurers must improve their governance structures in anticipation.
• As life insurers confront multiple and often conflicting regulatory requirements, they must enhance their capacity to understand and communicate these changes to decision-makers.

2014 US Life insurance outlook

US property/casualty

• The low interest rate environment requires investment in technology and operations to improve underwriting, product development, claims and distribution.
• Enterprise data excellence is a key objective, resulting in improved data quality, access, integration, security and governance.
• In the aftermath of the recession, there is a need to rationalize complex product portfolios, simplify delivery and processing, and reduce frictional costs.
• The still-fragile economic recovery and the competitive dynamics in certain market segments indicate growth is likely to come from pockets of opportunity— global, geographic, product, and demographic.
• Robust economic capital modeling and enterprise risk management capabilities are required to assess evolving liabilities, capital structure and business plans.
• Enhanced record keeping and reporting capabilities are necessary to stay ahead of escalating regulatory demands for information from more jurisdictions.

2014 US Property-Casualty insurance outlook



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