Change is the order of the day in the wake of the financial crisis

‘Adapt or die’ is the underlying message for the insurance industry in the PricewaterhouseCoopers report, “Emerging from the Storm: The Day After Tomorrow for Insurance”. The report warns insurers that they will have to transform to accommodate changing demands from consumers, consolidation, movement in and out of markets, and increased supervision and regulation.

As little as five years ago, the alternative risk transfer (ART) market would probably have written off much of the report as referring to ‘them’ rather than ‘us’. But today, with ever increasing convergence of the ART and traditional markets, this report has some sobering messages for the industry as a whole.

According to the report, one of the main drivers of change will be shifting stakeholder expectations. The financial crisis has definitely affected the perceptions of customers, regulators, investors and governments; all of whom will interact differently with insurers in the future. 

For now, disillusioned and newly-cautious customers will be loathe to part with their money, but that won’t last forever. Going forward, the key issues that insurers will have to address will be on what terms customers choose to re-engage with the industry and how product and distribution strategies need to change to satisfy customer demands.

Regulators will keep the screws on and there is no doubt that supervision will increase around the globe, with some countries seeming to be vying to be seen to have the toughest regulatory regime. But the report warns that “the limited international co-ordination of regulatory intervention could have unintended consequences for insurers and a knock on impact on financial markets”.

Investors will no longer be interested in asset leverage; instead stability and risk management will be the catch phrases of the next decade. And those companies that display the greatest levels of transparency, and financial and risk disclosure are most likely to gain access to the limited supply of available capital.

The report predicts that governments will eventually divest their direct holdings in supported insurers but that their influence in the sector will continue. Globally debates will continue about the “implicit capital underpinning of being considered ‘too big to fail’, and the increased shareholder exposure for those that are not”.

While change seems inevitable, those insurers that embrace it will be sure to reap the benefits. “Agile and farsighted” firms will have a “once-in-a-generation opportunity to catapult themselves to the front of what will be a very different racing order with within many geographical markets and businesses.”

And the shortage of capital will open up the market and create fresh opportunities for organic growth and restructuring. Predictions are that “many insurers will find that they have a much larger market share and less competition than before in certain markets”.

If the report is to be believed then British politician Harold Wilson could well have been referring to the insurance industry when he said: “He who rejects change is the architect of decay. The only human institution which rejects progress is the cemetery.”

For further information please contact:
Herman Schoeman, MD of Guardrisk
Telephone: 011 669-1001

Issued by:
Melanie Davis, PR@Work
Telephone: 011 615-3309 / 083 225 7450