The insurance industry is not a single, homogenous block. But most of its key players face many of the same challenges. Capital scarcity, historically low interest rates (an issue especially for life insurers) and regulatory compliance are causing many established names to review their business models, value propositions and customer base.
Merger and acquisition will diminish the competition pool; yet the surviving individual competitors will become bigger and stronger. Steady evolution is giving way to revolution, as the pace of change picks up and customer touch points with brands proliferate. Demographic change, aggressive marketing and mobile device access are shifting perceptions and expectations among consumers. Value protection has become imperative and customers will start to demand value growth once more. Regulation is raising the compliance bar (with a corresponding rise in operating costs).
Success and survival will both require deep strategic re-evaluation of operational capabilities. Emphasis on product innovation must be equaled by focus on distribution and innovative approaches to creating customer access, especially via new digital platforms. Products need to be distributed at lower costs. Above all, a ‘traditional’ industry needs to align with the fast moving demands and desires of a new generation of customers. Understanding of the customer, their buying behaviour and the influence of social media, together with the impacts of regulation, are all crucial. In order to achieve profit, the objective must be to build an effective and cost-efficient operational model and distribution mechanism. Products must be driven by deep customer insight, while satisfying at best cost the current and likely demands of regulation. This will require innovation, agility, creativity and courage. The long-term rewards will be significant.
For insurers, as for everybody else, times are changing. Standing still is not a viable option. Success demands agile alignment with the preferences of a new generation of ‘digital native’ customers. Creativity is called for in every aspect of the business. Innovation needs to be the order of the day in all key areas, including business structure and organization, product and systems design and operational management and delivery. The agility that comes from an innovative approach will equip successful players to offer the market the products it wants, and in the in ways that customers prefer to interact with brands and manage their insurance product portfolios in the 21st century.
The last two years were exceptionally challenging for the insurance industry. The difficulties stemmed primarily from the depressed economic environment. Global life insurance premiums fell and low interest rates put pressure on book values. General insurance rates began to harden in some markets and premiums grew as a result in some business lines. However, overall, premiums declined 0.8% in real terms.
What are the implications for the future? Real growth in the world economy slowed to 3% in 2011 and the outlook to 2013 appears depressed. This will diminish demand for general insurance products at both a commercial and retail level. Life insurance will see increased margin pressure, as pricing becomes more competitive. There appears to be a general consensus that the recession in Europe will continue to year-end at least. Emerging market growth is also slowing down. Even though absolute rates remain healthier than Western Europe and the US, they will be unable to boost revenues to any significant level in the West.