An historically steady insurance sector has now become a very exhilarating place to be. Delivering value to shareholders and customers is becoming ever harder in an increasingly competitive and regulation-dominated world. Add to the mixture the effects of globalisation, technology innovation, the extraordinary march of changing demographics and pressures on margins, and it is difficult to find an industry that offers a more challenging workplace for those of us whose careers rely on it.
In the face of all this change, PA’s Insurance Group is launching this occasional publication to provide senior executives with a selection of insights on topics of significant importance in this marketplace.
To request a copy of 'PA perspective on European insurance' please e-mail insurance@paconsulting.com
This first edition addresses the following topics - please click on the links to jump to further information below:
An optimistic view on the current condition of the industry – an interview with Paul McMahon, Strategy and Marketing Director at AXA UK
Unique risks for insurers from the threat of a new pandemic flu
How disaggregation of the value chain can benefit motor insurers
Releasing value through the use of Lean, including a case study from Alka Insurance in Denmark.
You will also find an overview of market trends for non-life insurance, and we take a closer look at what is happening in Scandinavia.
We hope Perspective offers you an informative and interesting read and, of course, we welcome your feedback.
Article summaries
Interview with Paul McMahon, Strategy and Marketing Director at AXA UK - The key challenges facing UK life insurers
Paul McMahon is very positive about the future of the UK life and pensions industry. However, he is keen to point out that there is plenty to be done to ensure success. The industry needs to become more innovative and significantly improve the way it develops, markets and sells its products. He starts this interview "We are in a very attractive position compared to many other industries given the organic opportunities in the UK life and pensions marketplace. However, as an industry, we have singularly failed to seize that opportunity, as reflected by the industry's current levels of market penetration. For organisations like AXA, the fundamental prerequisite of success is identifying where the breakthrough opportunities are that enable differentiation - and determining how to seize them."
Insurers need a better way to plan for the impacts of pandemic flu
The globally spreading H5N1 virus (‘bird flu’) has to date met all prerequisites but one for the start of a human pandemic – the ability to spread efficiently and sustainably among humans. Experts within the United Nations, World Health Organisation and elsewhere estimate that only one or two additional mutations may be needed before this can occur.
There are many difficulties in understanding what the impacts may be should the disease indeed turn into a global human pandemic. If a pandemic begins, when will it occur? Where will it hit? Who will be most susceptible to illness or death? How long will it last? How many waves of infection might occur? What will we and/or the government do in response? Many critical pieces of information – about the disease itself, how people and governments will react to pandemic conditions, and how adequate and available health care facilities and personnel will be – cannot be known at present. Yet it is exactly these variables that will dictate how a pandemic may unfold in any given city, country or region.
In this climate of uncertainty, insurers face the complex task of preparing for all the possible outcomes from a pandemic. PA has therefore built a preliminary simulation model that offers inght into the range of population impacts that may result from a human pandemic.
Strategies for profit - Benefiting from disaggregation of the motor insurance value chain
Our work with motor insurers across Europe suggests that enhancing profitability will no longer imply selecting either a revenue growth or cost containment focus. To the contrary, institutions that thrive will demonstrate skill and creativity in pulling on both these profit levers simultaneously.
In many European markets motor insurers are already facing a severe profit squeeze and those that have not yet suffered are right to fear the prospect. Companies must ensure the business is focused on the customer and a key challenge is to understand what is valued by different customers as well as how much and when they are prepared to pay.
Those committed to unlocking profit opportunities and prepared to think creatively have no shortage of possible choices. The article concludes that disaggregation of the motor insurance value chain is not only possible and happeneing already in key markets, but that it is inevitable and desirable in all.
Get stronger - 'Lean' on your people
Pressures on insurers continue to mount. Customers demand even better service. Markets demand improved combined ratios. And regulatory changes seem never ending. Only those organisations able to address these challenges simultaneously will thrive.
In response, some companies are applying approaches such as Lean, an improvement technique with origins in the Japanese car industry and extensively used by manufacturing firms. Those organisations that have succeeded in deploying Lean have delivered impressive results. For others, however, a breakthrough in performance has proved illusory despite the promises. This article examines why and provides case studies on successful organisations.
Market trends - non-life insurance
Although underwriting is currently delivering profit in some markets it is clear that achieving this is becoming more difficult as a result of increasing competition from non-traditional market sources, foreign entrants and new operating approaches.
In summary, analysis shows that premium growth has been strong in Sweden, Denmark, the UK, the Netherlands and Norway but weaker in other European countries, and underwriting profits are being achieved only in the UK, Norway and Denmark.
Focus on the Scandinavian insurance markets
Over the past decade the Scandinavian life and non-life insurance markets have grown with an annual compounded growth rate of 7.3% and 4.1% respectively. The life insurance market has a high natural growth rate because of annual salary increases and related premium regulations and because assets grow in accordance with return (except in a bear market !).
Increased focus on pensions and pension reforms in Scandinavia has given an additional boost to corporate pensions. Risk products have better prospects than private pensions, and we expect continued growth in more customer-oriented protection products such as health insurance.
In the non-life market, long-term growth is more linked to GDP and levels and perceptions of risk. Premiums have been substantially strengthened over recent years, especially after a period with such an unusually high number of natural disasters around the millennium causing high payouts. Profitability is at a record high, with combined ratios at around 90% for the largest players, indicating a business at the top of its economic cycle.
The article goes on to observe that bancassurance is the dominant business model, that non-life companies are forging distribution alliances, that there is increased pressure on profits, and discusses whether Scandinavian players need to look outside the region for growth.
To request a copy of 'PA perspective on European insurance' please e-mail insurance@paconsulting.com
We would also be interested to hear from you if you have any feedback on this newsletter's content, if there is a particular topic you feel we should cover in future editions and if you would like to receive future editions direct, also via insurance@paconsulting.com
