EY insurance study shows: 45% of Swiss insurers could be driven out of the market by 2030

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The Swiss insurance industry is on the verge of a radical upheaval. Against the backdrop of a deteriorating market environment and a stagnating insurance business, companies are setting themselves ambitious growth targets. This is resulting in fierce, predatory competition: it is highly likely that 45% of Swiss insurers will have been driven out of the market by 2030. Should these disruptive trends continue and pick up pace, this figure could be up to 70% of insurers currently on the market. These are the findings of the latest study by EY.

Zurich, 16 June 2016 – Swiss insurers are looking to the future with too much optimism, with their current growth forecasts well above anticipated market developments. The study conducted by audit and advisory firm EY shows that companies are hoping to grow by 5% each year on average. But the reality of the situation looks somewhat different: “Growth opportunities within the insurance market are limited. It’s even conceivable that we may see a decline in volume,” explains Achim Bauer, Insurance Leader at EY Switzerland.

Stagnating insurance market
Several driving forces are inhibiting market growth for insurance companies: “The strong Swiss franc is preventing growth of Switzerland's gross domestic product,” explains Yamin Gröninger, Director at EY Financial Services Switzerland and head of the study. At the same time, a forecast by EY predicts that household assets will fall by 0.1% by 2018. This will curb demand for insurance products even further. What’s more, the increase in Switzerland’s population, until now a key driver for the industry’s growth, is highly likely to slow as a result of the mass immigration initiative.

The political and regulatory environment for insurance companies is also becoming increasingly challenging. A number of political initiatives such as the “Altersvorsorge 2020” pension reform package threaten to curb market development, while new regulations such as Solvency II, Swiss Solvency Test and the Common Reporting Standard are causing costs to rise. Negative interest rates currently pose a serious threat to life insurance companies. Forecasts suggest that the low interest environment will continue for some time, meaning Swiss franc swap rates for maturities of up to 10 years will show negative values.

The Swiss insurance market is already saturated. Insurance expenditure in Switzerland amounts to 7,267 Swiss francs per household and year, corresponding to 11% of income. Worldwide, this figure is only higher in Luxembourg. “Swiss consumers will increasingly try to optimize their insurance cover expenditure in future. In doing so, they will be supported by new, technology and data-driven business models on the part of insurance companies, which present customers with targeted quotes relevant to their circumstances, as well as technologies that increase price transparency on the market,” says Yamin Gröninger.

Discrepancy between expectations and reality
The discrepancy between projected market developments and company objectives will ultimately lead to far-reaching upheavals. In order to grow profitably, Swiss insurers are being forced to merge with their competitors or to be driven out of the market. The increased competition gives grounds for expecting that 45% of Swiss insurers will go out of business by 2030, as in the scenario determined by the EY study.

At the same time, new providers are entering the Swiss market, representing a further threat to companies. InsurTechs and major groups from outside the industry have the potential to acquire significant market share. It is therefore conceivable that existing and new competition will together eliminate up to 70% of insurance companies currently on the market by 2030. “This development is highly likely; we have already seen it happen in other industries,” says Achim Bauer. “When sales in the mobile telephone market stagnated, new competitors emerged, with the result that all of the previously leading manufacturers were forced to withdraw from the market. The travel industry experienced the same upheaval, with online platforms driving traditional travel agencies out of the market. Similar developments lie ahead for the insurance market.”

Opportunities and risks of digitization
Digitization has been embraced by the insurance market. New technologies have dramatically improved the position of consumers, and the effects of this are clear to see: Consumers are increasingly price conscious, and customer loyalty is declining. The insurance business is therefore evolving into a consumer-to-business model (C2B). “Customer proximity, a deep understanding of and ability to quickly address needs are becoming core competencies,” explains Yamin Gröninger. “Companies that do not follow this trend are faced with serious difficulties as new providers take advantage of the opportunities that arise as a result.”

InsurTechs have already become established, calling traditional business models into question and breaking down the value chain. This is already resulting in increased competition and a decline in prices. Groups from outside the industry are better able to intervene in the insurance market. “In almost all business areas, there is at least one provider that is more familiar with insurance customers than the insurers themselves,” says Yamin Gröninger. “This means there is a high risk of traditional providers losing access to their own customers. One example of this is motor insurance companies; the manufacturers know a lot more about customers’ needs in these cases.”

Time to take action
In view of the upheavals, a number of options are available to Swiss insurers: they can consistently rely on scalability in order to boost efficiency and generate cost savings; they can enter into partnerships with InsurTechs and make use of their potential for innovation; they can offer personal services tailored to the individual that digital competitors are unable to match; or they can restrict themselves to acting as a supplier for a group from outside the industry. Irrespective of the approach taken: “The most important thing is that insurers now take decisive action,” says Achim Bauer, adding, “It’s their last chance to rethink their strategy and gain a clear understanding of their own strengths. These competencies should take centre stage for all activities.” Swiss insurers should also consider potential risks when coming to a decision on how radically they want to strive for change. An evolving strategy means being able to survive the upheaval temporarily, while a fundamental strategic realignment ensures a competitive edge in the long term.

About the study
This study was conducted by analysts and industry experts at EY using scientific methodology. Large amounts of data were evaluated, including macroeconomic and demographic indicators as well as insurance companies’ business reports and investor presentations. It also looked at companies’ own models as well as findings from a number of national and international mandates for insurance companies. The study covered the areas of life, non-life and health insurance; the reinsurance market was not included as part of the study. Segment-specific analyses were dispensed with; instead, the study focused on changes and threats to all insurance companies.

About the global EY organization
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EY’s organization is represented in Switzerland by Ernst & Young Ltd, Basel, with ten offices across Switzerland, and in Liechtenstein by Ernst & Young AG, Vaduz. In this publication, «EY» and «we» refer to Ernst & Young Ltd, Basel, a member firm of Ernst & Young Global Limited.