The wringer the markets and regulators have put the European insurance industry through over the last three years is slowing down, says Towers Perrin.
“Against the backdrop of recurring bad news for European insurers the industry is still alive and kicking, and has a brighter outlook in 2004,” says Richard Batty, European regional manager for the Tillinghast business of Towers Perrin (Tillinghast). “Despite the turmoil, European insurers have paid their claims, they are still solvent, and have suffered only minimal downwards ratings in the process. The recent hardening of rates in P/C has helped companies return to profitability and make significant progress in rebuilding their capital. For life companies, the rebound in the markets since March last year has clearly eased the pressure on solvency margins which in some cases was extreme.”
Tillinghast argues that the economic and political instability of recent years means that consumers are more aware of risk and consequently recognise the importance of insurance protection and the financial strength of the provider of that protection. This increased risk awareness also drives a need for better financial advice. By focusing on the quality of the advice offered by intermediaries, the life industry may shake off its poor reputation in this area.
Tillinghast also believes the ageing population and the failure of European state pensions systems will have a positive impact on the industry and open up opportunities for growth for European insurers. As a result of the current low-interest environment and the pension deficit, consumers may now need to plan to save twice as much for retirement, helping to stimulate life industry sales according to the consultant.
“The impending expansion of the European Union from 15 to 25 states will welcome 100 million to the European marketplace, widening the pool of potential customers to the industry,” says Batty. “Although many western European insurers are already active in central and eastern Europe, the imminent growth of the Union is likely to bring opportunities for both life and P/C companies as the purchasing power of these countries rises towards those of existing EU members.”
However in order for companies to realise these opportunities in 2004, there are several issues they must address, says Tillinghast. First, to safeguard against inherent risks, capital deployment must be optimised at group level by using a consistent risk framework and allocating resources to the most promising lines of business. Secondly, investment income clearly can no longer compensate for insufficient pricing. Insurers must therefore become more disciplined in their underwriting and claims management activities, and control costs more effectively than before. Thirdly, companies must take steps to focus on what they do best and inject renewed energy and attention to developing core skills and core business.