Global Insurance Outlook 2013
In his latest update, Global Insurance Leader Shaun Crawford takes a look at developing trends in the first quarter of 2013 and the market forces that will affect insurers most profoundly the remainder of the year.
A trip worth taking
London, 18 March 2013 – This year the global insurance CEO needs to be the pilot of a transatlantic plane. There is plenty of consumer demand—but a few notable differences.
The designers have not agreed on the dial calibration in the cockpit. A number of key levers are still being built. And regulators at the destination are shifting the length and width (and sometime location) of the runway as the CEO approaches!
That’s not to say the trip isn’t worth taking, of course. The “size of the prize” has never been larger, and insurers prepared for the challenges ahead will come out on top.
Navigating regulation and commerce
The market continues to be frustrated by lengthy delays with Solvency II and similar challenges related to the NAIC ARE Solvency Modernization Initiative (SMI). Global regulators are not working together to harmonize risk-based capital regulation, and this continues to hamper the industry.
Accounting standards are another critical obstacle. Concern is mounting around systemically important insurer (GSII) status and the Financial Stability Board’s (FSB) much-anticipated designations—as well as the resolution and recovery implications for those that are nominated.
On the positive side, the insurance industry’s approach to risk governance is becoming more rigorous and disciplined, a response in part to issues faced by the banking industry. With the rising profiles of chief risk officers (CROs) and more than 50% of board meetings now dedicated to enterprise risk management, the demands on non-executive directors have multiplied.
Although regulatory uncertainty and risk governance might dominate the insurance CEO’s immediate agenda, we see several long-term opportunities that deserve attention in this highly competitive market. These issues include a vast increase in intergenerational wealth transfers and a greater recognition that state and private defined benefit pension schemes are unaffordable.
Although these factors create significant opportunities, most distribution models are not capable of meeting customer expectations. Consumers want to leverage a mixture of digital and face-to-face interactions with their insurers, and they want greater transparency about costs and services.
There have been significant changes in Bancassurance over the past year, with one of the world’s largest financial institutions and a Dutch multinational financial services company selling many of their global operations.
Although a large Spanish bank has undertaken some joint venture deals worldwide, there have been mixed results from Indian and Chinese joint ventures as foreign investors struggle to cope with local regulatory and cultural challenges.
In the UK, the Retail Distribution Review (RDR) saw a massive drop in the sale of savings and investment products in January and February. As advisers struggle to cope with a non-commission sales model, other global regulators are studying distribution carefully as they seek to implement similar, if not so drastic, market remedies.
Improving systems and processes
In the highly competitive, commoditized property/casualty market, providers increasingly focus on reducing combined ratios with expense base cuts. They are also making investments in new claims processes and policy systems, with greater offshoring and shared-service structures.
Speciality risks are also gaining prominence, but this requires greater transparency at the Board level to increase the visibility of any abnormal profits or risks.
Other market forces
Finally, credit rating agencies are playing a more important role, but one that is evolving and sometimes misunderstood. As rating agencies calibrate individual insurers’ models, they increasingly take responsibility for establishing an insurer’s positioning for the future.