The latest Ernst & Young (EY) research into the trends and drivers reshaping the insurance industry may be summed up in a few words: a cautiously optimistic future for the proactive and innovative few.
The report, entitled Global Insurance Trends Analysis H1 2017: Upside Potential, Sideways Risks, sets out the key highlights for insurers:
Mixed macroeconomic signals
A recent rebound in global growth, largely driven by improving prospects in the US and China, plus a gradual rise in employment levels and a recovering commodities market all add up to potential improvement in insurer income levels - both at commercial and personal levels.
However, multiple threats remain in the form of risks from Brexit, rising debt levels for several key economies (e.g. US, Greece, Italy and Spain), possible reversal of the extended bull run seen in global equity markets since 2009 and a potential escalation of tension in East Asia.
Meanwhile, bond yield revival seen last year has been inconsistent in recent months thanks to policy uncertainty, particularly in the US.
Hurricanes to set course
While analysts expectation remained strong, the returns for several insurers particularly in the US and the major global reinsurers may see a correction due to potential losses from Hurricane Harvey and Irma.
In addition, with chances of interest rate hikes gradually reducing insurers’ investment income, any gains may see only a limited upside.
Technology disruption: blockchain rising
Margin pressures on insurers’ existing lines of business are ensuring that they need to identify the right markets, target relevant customer profiles, address new risks created by technology and even change their role from being a post-loss cover provider to preventer of loss.
Blockchain has now progressed beyond the pilot stage, with early adopters looking to gain advantage. Through blockchain, insurers are looking forward to:
- Offering low-cost insurance products catering to potentially high demand segments such as flight delay and cancellation.
- Disintermediating middlemen (e.g. brokers)
- Recording real-time premium payments and receipts across shared networks.
- Providing regulators with controlled policy views to demonstrate compliance.
- Improving claims adjudication through a robust validation engine.
Regulatory landscape: Insurers prepare for impact
General Data Protection Regulation (May 2018): Insurers will have to act fast to address the impending challenges. GDPR is largely welcomed as it will give greater power to individuals and will harmonise laws across all EU member states which, in turn, will make the complex data protection landscape easier to navigate for multinational organisations, including insurers.
New accounting regulations (including IFRS17 Insurance Contracts) present new challenges and opportunities. Insurers need to start formally assessing the potential impacts and mobilise their resources accordingly.