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March 25, 2015

Global Outlook for P&C, Life-Annuity

Summary:

EY's global outlook finds generally positive conditions for 2015, but uses of technology will separate the winners from the losers.

Photo Courtesy of Nicolas Raymond

In 2015, the macroeconomic environment across much of the world shows significant improvement, with GDP rising in many countries and both the middle class and high-net-worth populations expanding in number and financial resources. These factors bode well for the global outlook for international property-casualty and life-annuity insurance companies.

Key challenges in 2015 include rising competition, generally soft pricing conditions and tight profit margins. To effectively surmount these problems, many insurers are investing in technological solutions that improve front-end sales, distribution and customer service and enhance back-end operational efficiency and expense management.

If one word could sum up the focus of insurers in 2015, it is “technology.” Many insurers are investing in digital platforms that strengthen their relationships with customers across all product classifications and geographies. Their goal is to empower both businesses and consumers to better shop for insurance, making products more transparent, easier to understand and compare.

Across all regions, insurers are capitalizing on data analytics, cloud computing and modeling techniques to sharpen their market segmentation strategies, reduce claims fraud and strengthen underwriting and risk management. They are also investing in technology solutions to optimize processes, increase collaboration across the enterprise and demonstrate capital adequacy and financial solvency for regulatory compliance purposes.

Now that much of the world has returned to more stable economic conditions, it makes eminent sense for property-casualty and life-annuity insurance companies to invest in digital solutions that widen margins and provide competitive differentiation. But technology is a two-edged sword, as the shocking number of data breaches clearly demonstrates. Thus, one last important “spend trend” in 2015 for international insurers—cyber security.

Our comprehensive global outlook explores the various challenges and opportunities confronting global insurance organizations in 2015. In this report, we offer our perspective on the property-casualty and life-annuity insurance markets in Asia-Pacific, Canada, Europe, Latin America and the U.S.

 Asia-Pacific
  • Although insurers in Asia-Pacific are likely to confront deteriorating economic conditions in 2015, growth prospects remain solid for life and non-life insurance products, with GDP projected to rise 5.5%.
  • Rising real estate and financial asset values are enabling insurers throughout the region to produce higher premium volume from the increased protection levels.
  • The growth of the middle class and high-net-worth population in Asia-Pacific presents the opportunity for insurers to increase their sales of personal lines insurance products, as well as health insurance.
  • Commercial lines insurance prospects remain strong, given the region’s elevated catastrophe risk, the rise in infrastructure and home building across much of Asia- Pacific and a low insurance penetration rate.
  • Insurers are challenged to invest in data analytics and modeling capabilities, as well as Internet and mobile digital sales, distribution and customer service solutions, given an increasingly technologically sophisticated population.
  • Regulations addressing insurer solvency, capital and risk management are moving to the front burner, in addition to consumer protections in the areas of data privacy and security.
 Canadian Property and Casualty
  • Profit margins for property-casualty insurance companies in 2015 are challenged by continuing low interest rates and GDP growth, the volatile investment climate and expense increases from needed infrastructure improvements.
  • A major competitive opportunity for insurers is to strengthen their relationships with customers, effectively putting them in focus across all product classifications and geographies, while digitally empowering them to better shop for and compare insurance products.
  • A key challenge in 2015 for Canadian property-casualty insurers is to improve the industry’s low level of consumer trust by integrating distribution and communication channels and providing more transparent information.
  • Opportunities to improve both commercial and personal lines sales and optimize growth are available to insurers that invest in technologies, such as cloud computing, mobile solutions and business collaboration software.
  • Building an enterprise data excellence infrastructure via more robust data analytics and predictive modeling will help insurers pinpoint new growth opportunities, optimize claims outcomes, reduce the incidence of claims fraud and mitigate bottom line risks.
  • Regulatory pressures in 2015 include demands on property-casualty insurers to become more disciplined in their risk management, capital planning and operational oversight.
 Canadian Life
  • Although providers of life insurance and annuities in Canada have endured several years of constrained growth, opportunities exist to improve competitive standing by providing products to underserved consumer markets.
  • A key challenge for insurers in 2015 is the need to develop more robust mobile digital technologies, data analytics
    and social media strategies to address growing consumer expectations of more refined product sales and distribution.
  • To boost sales revenue, providers of life insurance and annuities in Canada must make their products easier to understand and compare, in addition to streamlining the transaction process.
  • To enhance customer experience and enable self-service features, life insurers must consider the value of a digital platform enabling the sharing of information with and among intermediaries and consumers.
  • A key opportunity in 2015 for life insurers is to develop solutions absorbing the longevity risks of pension plan actions to lower risk, which are driven by improvements in life expectancy and the low-interest-rate environment.
  • Regulatory pressures continue to intensify, putting the onus on life insurers to improve their compliance and control functions, implementing more robust governance programs to address key business risks.
 U.S. Life-Annuity
  • Growth prospects are promising for U.S. providers of life insurance and annuities, as the overall economy improves, consumer wealth increases and interest rates creep higher.
  • Key challenges in 2015 include growing competition, especially from new capital entrants seeking to disrupt traditional market positions with new models and market approaches, aligning with rising customer expectations.
  • To succeed in this environment, providers of life insurance and annuities must expand their digital capabilities with new Internet, social media and mobile tools that empower customers and distributors with self-service features, while also making insurance products easier to understand, compare and buy.
  • A major opportunity to widen margins exists for insurers that leverage big data and the cloud to transform back offices systems and processes; these decisions must be weighed against the cyber security risks and regulatory issues they present.
  • As many consumers turn to online banking and investment services to manage their finances, they will seek similar opportunities from providers of life insurance and annuities, presenting opportunities for insurers that develop online advice and transactional models.
  • A continuing challenge in 2015 is the need to navigate the wide array of complex capital solvency and risk management regulations enacted in the aftermath of the financial crisis and overseen by competing regulatory authorities with different demands.
 U.S. Property-Casualty
  • Despite slow-to-rebound interest rates and inflationary medical and food costs, strong performance for U.S. property-casualty insurers is expected, with combined ratios returning to those in the years before the financial crisis.
  • A key challenge includes slow premium growth, which continues to be inhibited by rising competition, an overabundance of capital and inexpensive reinsurance, the latter a consequence of low insured catastrophe losses the last two years.
  • The soft pricing conditions are constraining profit margins, compelling insurers to focus on expense management and operational efficiency, reducing costs through technology upgrades, process optimization, selective offshoring and enhanced risk management.
  • The use of data analytics and modeling techniques to improve underwriting and back-office processes remains a potent opportunity for U.S. property-casualty insurers to bolster their competitive standing.
  • On the distribution front, insurers will optimize the channel mix, adding distribution outlets and expanding aggregator and direct-to-consumer models, while providing consumers with enhanced product price transparency and real-time support and service.
  • To address the evolving array of capital solvency and risk management regulations, and achieve compliance with different regulatory authorities, property-casualty insurers will need to invest in more skilled management and data analytics resources in 2015.
 Latin America
  • Insurer growth prospects are generally favorable, although market demand for property-casualty and life insurance products is evolving at different rates, given disparate economic factors across the region.
  • The expansion in Latin America’s middle class and high net worth populations, as well as the region’s technologically savvy younger generations, create opportunities for providers of automobile insurance and mobile technology warranties.
  • As more homes and office buildings are built throughout the region, the need to insure these structures from the damaging effects of natural disasters is a positive trend for commercial property and homeowners insurers.
  • A key challenge for many insurers in 2015 is the need to modernize their operations and distribution models to adapt to rising business and consumer expectations of digital, mobile and Internet interactions, particularly for commercial lines of insurance where intermediaries retain control.
  • On the regulatory front, regions are addressing global standards on capital solvency and risk management
    on different timetables, putting the onus on insurers to continually monitor and evaluate these developments to exploit a competitive advantage.
  • As competition throughout Latin America intensifies
    in 2015, insurers that best leverage data analytics
    and predictive modeling techniques to improve their underwriting and management of risks have the opportunity to make more profitable business decisions.
 Europe
  • European insurers will continue to be challenged on both sides of the balance sheet in 2015, as economic recovery throughout the region is overshadowed by low business investment rates, slower global growth and heightened competition in many classes of business.
  • There is a greater responsibility for insurance companies to interact with the customer, provide a range of digital communication channels, encourage loyalty and brand awareness and tailor products and services to individual needs.
  • A growing number of insurers are scaling up their analytical capabilities to be in a better position to use data in a more connected way, drawing meaningful insights at virtually every stage of the insurance life cycle from customer targeting to product design and pricing, underwriting, claims and reporting.
  • Regulatory initiatives will require greater transparency regarding the information provided to customers, revisions to relationships with distributors and greater governance and oversight over new and existing products.
  • Finance is under pressure to show it can be a better business partner in planning, budgeting and forecasting, adding more value while also responding to regulatory requirements and tax challenges.

For the full EY report from which this was excerpted, click here.

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About the Author

Shaun Crawford leads Ernst & Young’s $1.4 billion global insurance business. He has been in the financial services industry for 27 years, having worked both in consulting or line management with the majority of European life assurers and U.K. retail banks at some point.

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