Global Insurance Industry Outlook
Issues on the horizon 2007
Insurance companies today find themselves juggling a variety of challenges as they work to improve profitability, grow, and compete. Life insurance companies, for example, must find ways to contend with the demographic changes that are altering their customer base – learning to serve more effectively the soon-to-be-retiring Baby Boomers, as well as the more technically sophisticated younger individuals now beginning wealth accumulation. For their part, property and casualty companies face complex and increased exposure to significant risks due to factors such as terrorism and natural disasters.
Across the industry, however, insurance companies face a range of common challenges. They need to develop innovative bundles of products and services to drive top-line growth. They must pay increasing attention to the distribution network, taking into consideration agent relationships, direct selling, and the evolving opportunities that continue to be presented by the Internet. And they must keep up with increasing regulatory scrutiny around security and capital requirements, as well as escalating attention to fraud, money laundering, and other wrongdoing if they are to avoid the financial and reputational risk of noncompliance.
In addition, insurance companies must attend to all these challenges against a backdrop of ever-increasing competition in a marketplace with some mature segments that are not growing at a rate that matches the growth objectives they have established. Thriving in this competitive landscape means working continuously to improve the ability to reach customers, and to balance the need for increased efficiency and cost control with the constant requirement for high levels of service.
Today, insurers are increasingly competing across borders as they look to penetrate new markets. Among the major developments in 2006 were the expansion into the U.S. market of U.K.’s Aviva PLC through its acquisition of AmerUS for $2.9 billion, and the purchase of the Winterthur insurance unit of Credit Suisse Group by France’s AXA SA for $9.9 billion.1 As insurance companies scan the globe for opportunities, rapidly-growing emerging markets, such as China and India, are drawing some of the keenest interest.
Throughout the various plans and initiatives being launched by companies, however, one factor will be critical to success – the ability to execute well. To succeed in the coming years, companies will need to shorten the time it takes to turn strategy into action, and implement their programs with high levels of precision and efficiency. They also need to be astute to the potential to leverage the effort and resources used to solve one problem to also benefit others they face.
The challenges facing the industry are clearly significant, but the changes they require are also bringing new opportunities. In the coming year, Deloitte believes that the following areas are key opportunities for insurance companies to drive significant benefits.
- The growth imperative. Driving growth has become a key objective for most insurance companies.
- Leveraging analytical tools: Deeper insight, better operations. Insurance companies have used predictive analytics to support underwriting efforts for several years, but today, advances in technology and methods are opening the door to the use of analytics in a broad range of business processes.
- Managing the complexities of compliance. Growing regulatory requirements are bringing increased scrutiny to governance, information security, monitoring, and reporting processes in insurance companies.