As the re/insurance industry enters an era marked by shifting inner dynamics and fast-paced changes to macroeconomic conditions, EY analysts have outlined the unique challenges and opportunities set to create the market of the future.
EY said the key long-term determinants of this changing scape were down largely to demographic shifts, policy decisions, macro-economic variables and technological innovations.
Technology, life insurance, and a potential revival of macro economic growth are said to be the major growth areas, while growth deterrents include low-interest rates, macro economic uncertainty, climate change placing a question on the industry’s long-term viability, changing talent requirements, and political risk.
New technologies, such as blockchain enabled smart contracts, could massively speed up processes and transactions and will continue to bring about more efficient business models and new platforms for reaching clients.
The full potential of these new integrated ecosystems and technologies is yet to be unleashed, as the industry makes headway into the fourth industrial revolution that is bound to make re/insurance available to an ever-increasing proportion of global clientele.
And the global insurance sector’s IT spending has been steadily increasing in response to the opportunities being unveiled with the rise of AI and blockchain, growing from $132 billion in 2011 to $185 billion in 2016, according to EY.
The global re/insurance sectors’ growth is being driven by emerging markets, as growth in developed markets remains sluggish and intensely competitive, and with life insurance being the key demand in these newer markets, EY have highlighted it as the line of business with the most potential for expansion.
Driving this demand for life insurance is a fast-growing customer base – economic growth means there’s an emerging middle class which, EY said, “would open up opportunities for protection, savings and health.”
Middle class growth comes alongside an increasingly ageing population as life expectancy grows – spurring demand for retirement and other longevity products.
EY believe that as governments come under fiscal pressure they’ll “reduce social security obligations creating demand for private insurance and wealth solutions,” the analysts added that a secular bear bonds market would be created as “there are signals of this shift happening, which would open up opportunities for insurers.”
Further areas of possibility and growth are cyber insurance, a growing sharing economy, and potential revival of macro-economic growth, while climate change will “be a key determinant of the future risks covered,” EY said.
The opportunities ahead of the re/insurance world are significant, and could see it catapulted into a future where re/insurance penetration has spread out across a large proportion of Asia, Latin America, and even into far-reaching corners of Africa.
Within the developed market, massive improvements in speed and efficiency of processes and customer reach could see the market develop and grow into new social sectors and segments.
But the potential roadblocks ahead of industry growth are equally daunting; EY added that “structural growth is mostly restricted to emerging markets, but accessing it is expensive.”
Low interest rates remain a major challenge, as well as competition from alternative products.
EY said in its 2016 market trends report, that political risks led by unsupportive regime changes in key markets may “prove to be the biggest inhibitors of insurance growth,” adding that “the current macro-economic uncertainty will continue to impact the sector’s growth and profitability.
“The rise of protectionism among newly elected right-wing governments may impact global trade and premiums in certain lines.”
In addition to geopolitical risks, re/insurers also risk falling behind if they fail to attract talent with skill sets to match the rise of technology, and cater to rising customer expectations – as people become used to simpler and more user-friendly experiences and products.
And while technology creates opportunities, it also poses challenges to lines of business such as motor – where “autonomous cars would substantially diminish motor premium volumes, transforming motor insurance from personal to commercial line.” Cyber insurance modeling also “acts as a bottleneck to delivering more comprehensive cyber offerings.”
And looming above all other growth and impediment factors is climate change – which both shapes opportunity, but also brings potential to shake the re/insurance industry’s survival as it represents hidden and multi-dimensional challenges.