Professional Documents
Culture Documents
Insurance 2020 Turning Change Into Opportunity PDF
Insurance 2020 Turning Change Into Opportunity PDF
Insurance 2020 Turning Change Into Opportunity PDF
com/insurance
Insurance 2020:
Turning change
into opportunity
January 2012
Contents
Introduction 01
Contacts 20
Introduction
The future may be hard to predict, but need not be hard to prepare for. Insurers are grappling with the
tough new business, investment and regulatory environments that are emerging from the financial crisis.
The industry, however, also faces far broader challenges. Demographic shifts, the rise in power of the
emerging markets and changing customer behaviour will all help shape the sectors longer term future.
Insurers who can anticipate and plan for change can create their own future. Others who are fast
followers will need to be agile enough to recognise the leaders and adopt similar strategies. The survivors
are likely to be focused on short-term performance. Which one are you?
Our detailed analysis of over 30 key STEEP drivers has enabled us to determine a range of possible macro-scenarios that the insurance industry faces.
These macro-scenarios underpin the implications we have drawn for the future shape of the insurance sector.
Social Customers Distribution disruption in Distribution disruption Distribution destruction, Distribution destruction,
predominantly seeking which multiple channels where integrated multi- where customers buy where self-forming
face-to-face interactions compete for customer channel interaction is directly from carriers. groups of customers
with intermediaries. interaction. the norm. negotiate bulk purchases
from carriers.
Environmental With catastrophic Insurers will continue Insurers will continue Catastrophe modelling Advanced early warning
events on the rise to rely on catastrophe to rely on catastrophe gets more sophisticated technologies and new
models, but regulatory models and sell and uses advanced, early risk transfer/sharing
to accurately predict restrictions will prevent innovative catastrophe warning technologies to mechanisms with public
them, insurers will exit them from restructuring insurance products and private enterprises
innovative risk transfer/ through securitisation catastrophe-prone areas. reduce human and
sharing deals. and reinsurance. property loss from
catastrophic events.
Economic The world moves Emerging market As developed market New emerging market Truly global markets
from globalisation to insurers grow in scale insurers enter emerging insurers move into with products that are
regionalisation and and importance, and markets, margins in developed markets able to integrate multiple
insurers operate in and limit opportunities for these markets decline. and become global parts of the value chain,
developed market businesses. regardless of location.
to narrow boundaries. insurers.
Political Governments in both Emerging markets erect Majority of regulations Emerging markets and The regulatory climate
developed and emerging more onerous regulations focused on banks, and developed markets improves with greater
markets enforce equally than developed markets insurers in developed and enact less burdensome harmonisation across
burdensome regulations emerging markets are able regulations and emerging countries (and within
on insurers decreasing and limiting control to get away with minimal markets relax their states in large countries).
of developed market regulatory changes to regulations to ease the Regulatory harmonisation
insurers. pricing, coverage, rates entry and control of leads to standardisation
and reserves. developed market insurers across products and
into emerging markets. practices.
UK India
23.6%
Germany Brazil
France Russia
47.3%
Canada Indonesia
Japan Mexico
0 5 10 15 20 0 5 10 15 20 25 30 E6 G6 Other Countries
Outside the regulatory arena there are Terrorism. Over the past 30 years, there
Political: several additional political trends for has been an increase in terrorist attacks
Harmonisation, insurers to consider: around the world. Terrorists currently
attack global supply chains once
standardisation and Pressure on the solvency of social
every four days on average.13 Carriers
security and welfare programmes
globalisation of the throughout the world will increase
will have increased exposure as the
frequency of major attacks increases. In
insurance market because of rising dependency ratios.
addition, terrorist attacks often impact
Dependency ratios (defined as the ratio
multiple product lines (e.g. commercial
We see a range of potential outcomes of the number of persons aged under
property, business interruption, workers
from a regulatory perspective. 18 or over 64 to the number of persons
compensation, life and benefits), which
The financial crisis has enhanced between these ages) are expected to
are often modelled independently. As a
communication and dialogue between increase by an average of 14% in the G6
consequence, the potential losses from
and among the US, EU and emerging between 2000 and 2025.11 Using current
so-called uncorrelated risk factors
market regulators: projections, the US Social Security Trust
could be large, requiring substantial
Fund will be depleted in 2037 and Social
If regulators are successful at industrywide or state-provided capital
Security will be able to pay only 78 cents
negotiating and harmonising global to insure losses beyond a certain level.
in the dollar.12
insurance regulations, this could Further detailed modelling is required
lead to greater standardisation of Consumers lacking faith in the solvency to understand the capacity requirements
products and policies, and promote of social security programmes will for terrorism coverage.
more globalisation of the insurance begin to focus on providing their own
Geopolitical instability. Resource
value chain. savings for retirement, as governments
scarcity around the world is magnifying
pare back benefits. This will create
On the other hand, regulators could the risks of geopolitical instability,
new opportunities for life and annuity
continue to develop new but different as evidenced by the current political
insurers, although governments under
(and potentially onerous) regulations upheaval in the oil-producing nations
financial pressure are likely to seek ways
in each market. of the Middle East and North Africa,
to reduce spending while increasing tax
or the Arab Spring. This has caused
In-between these two extremes, it revenue. The preferential tax treatment
resource-consuming nations to reassess
is possible that emerging markets of life, annuity and retirement policies
their energy policies. We anticipate that
will prevent developed market may be viewed as an easy target for
the potential for fewer despotic regimes
players from entering their markets revenue generation. Insurers will
in the Middle East and technological
or put limits on their activities. (An need to adapt nimbly in order to
solutions to resource scarcity will lower
alternative intermediate scenario is weather these changes.
geopolitical risk over the next ten years.
that emerging markets encourage
developed market entry by
removing restrictions and easing
regulatory burdens.)
11 Source: Alliance for Health & the Future, The Dependency Ratio, Issue Brief Vol 2, Number 1
12 Source: Centre for Retirement Research at Boston College, The Social Security Fix-it Book
13 Source: Terrorists attack global supply chains every four days. SupplyChain Digital, April 2011
30% believe new emerging market insurers will move into the developed world to become global insurers.
Source: PwC Research from more than 150 C-suite executives polled at a presentation of the Future of Insurance to the International Insurance Society (IIS), June 2011.
We believe personal lines insurance will emerging markets will lead to severe Projecting future scenarios on a global
change in four fundamental ways: talent shortage. However, insurers scale with countries growing at different
who are able to recruit or retain rates, insurance sectors at different
Greater commoditisation. Price top underwriters and use their stages of maturity, and insurance carriers
transparency, dis-intermediated knowledge to build sophisticated with different strategies and capabilities
direct purchase and virtual social predictive modelling should be is a challenging task. Rather than detail
community-led bulk purchase will able to gain greater market share. all different combinations of scenarios
all lead to greater commoditisation Automated underwriting, more coming out of the 32 drivers, we
of personal lines insurance. In the standard in the developed world, highlight here some key scenarios from
immediate term, insurers in some will be increasingly adopted in the perspective of illustrative insurance
emerging and underdeveloped the emerging markets as the carriers and their strategies. Scenario A
markets will be able to generate good globalisation of the personal lines highlights the story of a hypothetical
margins. As personal lines insurance sector continues. personal lines insurer and how it Creates
becomes more global over time, its own future by expanding globally.
however, these margins will vanish in
a price-based, competitive world.
This diagram shows the areas of primary focus for an innovator and an expansionist. As both look to reshape their business,
much emphasis is placed on front-office activity to disaggregate and re-engineer the value chain. Leaders in these areas will
need to be cognisant of the drivers of change and their implications; theyll need to understand the potential impact on the
business and also how the business is likely to respond. As change will impact functional teams simultaneously, strong
communication, coordination and alignment of thinking will be required to succeed.
Channels Products & Services Information Asset & Liability Human Resources
Channels Products & Services Information Asset & Liability Human Resources
CEO Who do you task with shaping the response to all this change?
Who will drive innovation to anticipate and respond to a changing market?
How do you decide which markets, countries and customer segments to target?
How do you prioritise your investments, and build the capabilities to survive and exploit the
changing market?
CRO How well is risk management embedded in your organisation and will you be comfortable with the risk
assessments on new products, services and distribution channels?
How can you be better prepared to anticipate and prepare for extreme Black Swan events?
CMO How do you transform your organisation into a customer-centric organisation that is capable of marketing
and tailoring products to your consumers changing attitudes and behaviours?
CTO How do you ensure the organisation is not only aware of the emerging technology trends, but is also actively
involved in experimenting with new technologies as they come to market?
CIO How do you ensure that you build an information advantage enabled by rich, insightful data, fully supported
by a cost-effective technology platform?
Head of How are you ensuring that you can select and price risk appropriately, based on your risk appetite?
Actuarial
Head of Can you exploit new sources of information to improve better risk selection and pricing?
Underwriting
Head of Can you transform your organisation from paying claims to actively managing the losses based on real-time
Claims data and loss management techniques?
Head of HR How do you ensure that you continuously attract and retain the right talent within the organisation
especially when the talent has to be culturally aware, multidisciplinary and global?
Irrespective of whether you are a developed market, emerging market, or global insurer, you need to
anticipate these changes and prepare for growth.
PwC has developed and facilitated three types of workshops to help clients plan for the future:
This paper covers only a little of the picture and there is much
more to share and discuss. To find out how PwC can help you
understand whats beneath the surface and support you in
the creation of your future, please contact the team listed
on the next page.
Anand Rao
Partner, PwC (US)
+1 617 633 8354
anand.s.rao@us.pwc.com
Mansoor Bajowala
Director, PwC (US)
+1 312 298 3817
mansoor.bajowala@us.pwc.com
John Wynn
Global Insurance Advisory leader
Partner, PwC (Hungary)
+44 7802 948 447
john.wynn@hu.pwc.com
Jonathan Simmons
Canada Insurance leader
Partner, PwC (Canada)
+1 416 869 2460
jonathan.simmons@ca.pwc.com
Paul McDonnell
US Insurance Advisory Co-leader
Partner, PwC (US)
+1 (646) 471 3986
paul.h.mcdonnell@us.pwc.com
PwC Insurance 2020: Turning change into opportunity, January 2012 21
www.pwc.com/insurance
This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information
contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness
of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers does not accept or assume any liability, responsibility or duty
of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.
2012 PwC. All rights reserved. Not for further distribution without the permission of PwC. PwC refers to the network of member firms of PricewaterhouseCoopers
International Limited (PwCIL), or, as the context requires, individual member firms of the PwC network. Each member firm is a separate legal entity and does not act as
agent of PwCIL or any other member firm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the acts or omissions of any of its member
firms nor can it control the exercise of their professional judgment or bind them in any way. No member firm is responsible or liable for the acts or omissions of any other
member firm nor can it control the exercise of another member firms professional judgment or bind another member firm or PwCIL in any way.