The past few years have seen markets fluctuating. Often, when stock markets are discussed as being turbulent, we mean deterioration; but over the last few quarters that hasn’t strictly been the case. Insurers and their investment strategists have returned to more comfortable domains in which returns are guaranteed.
For those buying into insurance policies, both private and institutional insurances have encountered a higher standard of performance, deliverables, and customer service. Following the downturn, many insurers struggled, but those who managed to weather the storm have realised a new way of fulfilling client needs. A great lesson has been learnt in customer retention – not standing still but ensuring ongoing, better relations.
Regulation control
Across financial services, firms have had to deal with tightening regulations while offering better returns to investors. While new capital buffers make sense from a worst-case scenario point of view, those funds could be used to sustain and create more business. And as regulations continue to evolve in national boundaries, organisations – especially multinational organisations – have struggled to keep business on track while complying with the shifting hordes of legislation.
Research into markets has proven this to be the case. In its recent report in tandem with PwC, the Centre for the Study of Financial Innovation (CSFI) argues that regulation has provided a continued and disruptive influence on the market: “Regulation is once again a prominent banana skin across all segments of the industry. The latest wave of regulatory change is not only creating huge operational disruption, but also calling into question longstanding strategic certainties. Costs, prices and returns could soon become unsustainable if the changes aren’t managed effectively.”
With the sheer volume of regulations impacting every aspect of business, organisations have had to reassess the way they conduct themselves in the market. And while a number of the enforced regulations are long-term in nature, as the CSFI report suggests, there are many changes that have been enforced with immediate effect that have led to substantial operational rearrangement.
The report goes on to highlight the cumbersome nature of many of the regulations, and the impact this is having on sentiment: “Concern is driven by the quantity of regulatory reform at all levels, in particular the EU’s Solvency II Directive. The fear is that these initiatives are loading the industry with costs, and distracting management from the task of running profitable businesses, as well as heightening compliance risk.”
It is in this face wave of regulation and legislation that firms must perform to the best of their abilities, while aiming to recover and rebuild following the slowdown in financial markets – a tough task for even the most able firm.
Strong in-house sentiments
And yet, many organisations are seeing the possibilities before the market. In its annual insurance outlook for the year, Swiss Re has identified challenges with accompanying opportunities. The firm’s analysis suggests that globally, the market will show signs of improvement, albeit different regions are showing mixed signs. Despite interest rates rising in many regions, long-term investments may struggle to pay out decent yields. Non-life premiums will rise by around 1.45 percent in advanced economies, while emerging markets will see a growth of eight percent in the sector. Across the board, life premiums will rise by four percent for the year, while property catastrophe reinsurance will remain under pressure. So, while clawing back into investment opportunities is proving difficult, it seems that going back to the core business of purely serving clients while improving within that market is a on the horizon and a distinct focus area for insurance providers.
Searching for yields in financial markets has been difficult over the last few years. With bond markets showing some signs of recovery in certain geographies there may be options ahead, but the stagnation that has stifled markets in the last few years generally riffles on.
A lifetime promise
Each segment of the insurance markets has been presented with a unique challenge to overcome between now and the next round of regulations. In the life insurance sector, central bankers’ persistent reliance on low interest rates has hurt saving product potential and investment returns. Other concerns are associated with the structure of the industry and political interference in the form of pension and healthcare reform. For non-life insurers, the growth of cyber risk has raised concerns for many practitioners, as underwriting online unknowns becomes more and more difficult to quantify. The segment has also become more and more aware of climate change over the last few years, as it has with catastrophe risk – the two of course being entwined. Reinsurers have become concerned with new types of capital and excessive capacity from sources such as hedge funds and other equity providers. On top of that, issues have been raised from a number of quarters about a lack of ability in risk management across financial services in general.
Concerns raised by brokers and intermediaries have been illuminating insofar as they have highlighted the need to recognise the changes hitting the industry. Recent reports have suggested that change management and a tighter focus on distribution channels are of utmost importance for brokers aiming to evolve with their clients’ requirements. A sign of the times perhaps that preparedness is one area considered lacking in many firms – understandable given the issues confronting managers in an ever-changing regulatory environment. In some cases, clients and reinsurers have identified a tendency in insurers to react to change a little slowly, causing knock-on ramifications for others in the industry, and a perception of a lack of determination and resources. One reinsurance provider however, recently pinned that on the influence of legislators, in that ‘over-regulation stifles creativity’. As organisations and their managers come to grips with the changing industry, surely regulators will produce a forward-looking and diverse marketplace?
At the same time, uncertainty within geopolitics has pushed up premiums and kept companies on their toes. The nuclear deal with Iran has suggested a dialogue may take place soon, but with indecision surrounding the future of the region, few multinationals are yet to take the next step in moving into the market. China’s ambivalence over the yuan has raised question marks over much of Asia, as Greece continues to influence much of the narrative in Brussels while Brazilian growth stifles, forcing economies across South America to look hesitant.
With the many challenges facing the industry forcing changes, insurance players have re-evaluated the way they do business. Many have disappeared in that process. Here, we celebrate those firms that have successfully navigated the year’s trials in the World Finance Global Insurance Awards, 2015. We’ve scoured the globe to once again uncover the top national performers in each sector, with the judging panel putting together a list of those firms who stand out from the crowd.
