“This turnaround is even more impressive when we consider that the UK is still operating in an environment of sub-2% GDP growth and inflation rates,” comments Joel Dudley, Analyst at Timetric. The BRIC countries have also conserved strong growth momentum, with the insurance premiums of Brazil, Russia, China and Mexico growing at CAGRs of 10.8%, 17.8%, 14.0% and 10.8% respectively.
According to the report, the recent financial crisis continues to affect insurance’s regulatory environment. Changes aimed at safeguarding the interests of policyholders and improving the solvency of insurers have imposed major new compliance costs on insurance companies. Solvency II, for example, has overhauled what’s required of insurers in terms of capital adequacy requirements, asset and liability valuations as well as governance, and disclosure standards.
This major overhaul means both higher capital requirements and major implementation costs for firms - burdens that might be too much to bear for smaller insurance companies. According to Prasoon Singh, Analyst at Timetric, “One solution is consolidation: Solvency II is expected to drive a wave of merger and acquisitions activity in the industry, which slackened following the financial crisis. In particular, we can expect to see larger firms scoop up smaller insurers who cannot cope with the burdens of Solvency II, and mono-line insurers making purchases in order to diversify their operations.”
To combat growing regulatory expenses, insurers can leverage recent technological improvements to cut costs elsewhere. Judicious use of “big data” and predictive analytics will allow insurers to improve the efficiency of their underwriting process by identifying profitable new areas of business and cutting underperforming lines. In addition, mobile and telematics technologies will enable insurers to reduce claims processing times and discriminate on pricing. “The increasing use of technology and product innovation to meet the changing needs of consumers has also enabled insurers to provide better customer service and build brand loyalty. Companies like New York’s Oscar and the Netherlands’s Ditzo, are bellwethers in this regard,” says Singh.
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