Challenges and Opportunities of the Global Insurance Industry

Introduction The world-wide indemnity diligence seems to score escaped the worst of the pecuniary crisis in comparison to other pecuniary institutions. Day to day business has been relatively unaffected only when the bea that gave the most cause for care has a nearn from exposures to pretendy financial instruments. The Reactions Magazines Global Insurance Conference 2009 was held in Swissotel, Zurich, Switzerland. At this congregation the financial service effort tried to re destine itself following the worst crisis for years. (www. euromoneyseminars. com). Insurance is an open fabrication.Like other companies policy is facing gaind competition from world(a) players. It has been difficult for insurers to accomplish useful growth, so they pack to improve this. They provide need to adopt wise-sprung(prenominal) advanced approaches to expand their dispersion networks. This essay is divided into two sections. The first talks round the types of beats that are pres ent in the global amends manufacture. I pull up stakesing take each of these points and discuss them in detail growth, governance and stake watchfulness, market reporting, mergers and eruditenesss, human capital and lastly configuration and regulation.The second section realises at the opportunities that are accessible to the global indemnification industry within the next cardinal to twenty four months. They include fortuity modelling, disaster planning, manageing the industrys re put upation, grow globally, innovative overlaps and sales pitch and Focus on readdressing product and dissemination strategies. The indemnification industry is always looking for new opportunities in different services and geographies. To take reinforcement of these opportunities insurance companies need to re-examine their strategies and be prepared to drive basic changes in the way they work. The radical function of insurance is to act as a run a risk remove mechanism. The basic pr inciple of insurance is that the losses of the few are paid by the many. Its underlying purpose is to provide protection against the risk of financial loss, thus giving peace of mind to the policyholders. (www. peerpapers. com) Challenges are getting bigger for insurers as an incr assuagement in pressure for bigger profit margins. This means taking a hard look at reducing termss and top line revenue growth. Making a profit is due to the cogency to accurately assess risk and look after customer relationships over time in erect to get financial success.I am going to look at the following six challenges. 1. 1 Growth After a spell of cost cold shoulderting and readjustment, insurers are again moving up a gear and trying to strive for managed growth. While growth is valued by investors, it is hard to get wind in the fairly mature insurance industry. To be victorious in the future companies lead need to create and design new products and services, cross sell more than effective ly, strengthen their ties with brokers and agents and avail of any opportunities presented by emerging markets such as china and India. (www. pwc. com).Further demand for pensions and health insurance is equivalently to rise in the Western world as the universe ages and lives to enjoy a spaciouser retirement. Costs will re important critical however to meet the ever arbitrary demands of todays customers is liable to be the main point of contention. There are new openings from the increasing wealth of customers in new markets e. g. China. As their insurance industry is one of the fastest growth in the world with GDP at 3. 2% and the end of December 2008, they stand far behind the global average of insurance industry which stands at 7%. www. lloyds. com) Saturation of insurance markets in the certain world has made the Indian market more attractive for international insurers according to Booming Insurance Market in India (2008-2011). This is due to its huge race base and large untapped market. (www. newsblaze. com) 1. 2 Governance and Risk Management Natural calamities are other challenge facing the industry. Global warming has caused a change in weather patterns which perk up caused a shift in the underlying probability of insured loss by storms, floods, wind and heatwaves.Natural disasters like hurri tummyes Katrina and Rita whose losses amounted to $61. 5 billion (www. duncansadviceonmmoney. vox. com) These disasters posed some very serious problems for the insurance industry as they are faced by difficult and uncertain financial burdens because of this this has shown the importance of quality data and normalization of model outputs, effective validation and too the experience and initiation of the underwriter. Structures will have to be put in place to tackle the threat of climate change.The development of Enterprise Risk Management (ERM) capabilities servicing to protect insurers from damages to their story and provide a platform for strengthen ing governance, decision making and compliance with regulations. Pricewaterhouse- Coopeus (ERM for the insurance industry) revealed that many insurers have difficulty implementing and enforcing ERM in the face of containing data, systems and governance challenges. Also found in this study were examples of how resourceful and efficient management and helping to overcome these hurdles and bring greater taste to the insurers ERM missions. www. pwc. com) 1. 3 Market Reporting Insurers are facing a major overhaul of market reporting. This contains the dart of the market Casistent Embedded Value Principle, a planned move to a finalised IFRS level for insurance contracts and the increase risk and capital management disclosure foreseen by EU Solvency II Scheduled for implementation in 2012, it is a new regulatory regime designed to provide a principles-based supervisory framework for European insurers and reinsures.Solvency II is a risk-based system and is existence built to meet the cha llenges of rapidly developing financial markets. It will also bring an change magnitude level of hydrofoil and harmonisation to the sector. (www. towersperrin. com). These changes are likely to set a model for global disclosure for others to follow in relation to risk. The observe elements , include the doable ad alternative of IFRS(International Financial Reporting Standards) in the US form 2014. Implementation of Solvency II and IFRS reporting will be demanding.The good news is that corresponding timings and basis of valuation could open up cost nest egg in areas like data, modelling and reconciliation. These changes help to increase stakeholder confidence by enabling insurers to show a single view of their business that shows more clearly how it is run on the inside. A survey by (IFRS 2007) insurance states that companies will need to provide more risk study and explanation to meet the exacting expectations that have come about from market events. (www. pwc. com) 1. 4 Merg ers and Acquisitions Although funding is a challenge from time to time.Mergers and Acquisitions is life-sustaining for business to expand complementary earnings streams, realise opportunities for cost saving synergies and reinforce their existence in fast increasing emerging markets. Emerging markets are underinsured and these present potential business for the insurance market. deep down ten years China is expected to become a leader in the global insurance market, while India is set to double its digits in the growth rate. However, due to cultural conflicts and protectionism could stop growth in economies. In the near future, the insurance industry is liable to be a very active degree for mergers and acquisitions.US insurance companies attractive evaluation will make it easier for insurers in the EU to infiltrate the US market. (www. pwc. com) 1. 5 Human Capital All organisations in the world realise the importance of people in the conduct of their business therefore the slip of classifying their employees as assets. The human resource management school of legal opinion tends to focus on the enrichment of the knowledgeable worker in confiness of its theory. Human resource planning should be part of the total resource planning equal to planning devoted to capital development and materials and equipment purposes. numerous insurers are facing an skills shortage in their custody. Training and development of staff is now on the order of business as a rule in all organisations. Improved productivity is expected to result in trained and motivated workers. The employee training programs are intended to provide them with more knowledge and skills so they can do their job to the best of their ability. Training is a visible pay-off and is seen immediately whereas development is future- orientated.. Lessons are being learnt on a continuous basis in the requirement of human capital in the new economy in comparison to the old economic labour force. M Morley et al 2004). This investment in recruitment and career development lags behind other financial sectors. They look at short term fixes rather than looking at the long term prospects. However, looking to the future demographic shifts accelerating globalisation look set to change the shape of the labour market and make it more difficult to attract and hold good people. (www. pwc. com) 1. 6 Compliance and Regulation Growing regulatory demands are bringing increased problems to insurers. Solvency II is included to require a critical check of capital and risk management along with sustaining information and documentation.The EU Reinsurance Directive gives a standard system of regulation and mutual recognition across Europe. This includes an ease of the regulatory limitations on securitisation which could give way for a large increase in risk transfer to the capital markets. Also they give a new definition of reinsurance that will prevent several contracts. Insurers are also facing a ceiling on regulatory changes including anti-money laundering and harder conditions on consumer protection. A get word challenge is to know how to include these requirements into business as usual. Enterprise wide risk management can assist in providing ways to do so.They can help by giving a greater understanding of the trade off between reenforce and risk which will result in a brighter capital allocation. (www. pwc. com) As I have discussed in the challenges previously opportunities in the next twelve to twenty-four months can be found by global expansion adopting the latest technologies to give break service delivery and provide services to meet the exacting requirements of the next generation of retirees. The insurance industry is in the process of undergoing transformation as a result of the following three factors sector specific, big and operational.Increased regulation requirements outsourcing, globalisation, new distribution channels, more modern IT systems and climate change a re adding to the increased volatility in the insurance industry today and they are now spatial relation themselves to be successful in the future that requires many changes in the way they do their business. China is one of the fastest growing insurance industries in the globe. China Insurance sector hope 2013 is the outcome of much research and in depth study of the insurance market in China. Between 2009 and 2013 it is expected to grow CAGR of 28% 30%.Chinas insurance industry is already out of the financial crisis and is expected to make great headway in the coming years. In 2008, the industry grew in the fastest pace since 2002, due to the rising insurance sentience level and government support. Insurance products which include life, health, and personal accidents accounts for the majority of growth. Property insurance products are also growing rapidly and are basically divided into two segments motor and commercial property insurance. Non life insurance products i. e. that is product liability, credit and marine insurance etc.These will decide the long term viability of the non- life insurance market. 2. 1 Disaster Modelling The tragic impact of the Asian Tsunami, as well as the worst Japanese typoon in 2004 was the year of improbable disasters. As a result, this forces us to look at how we prepare for such risks. Hurricane forecasting began in the 1980s, forecasters have tried for many decades in spite of being unsuccessful to deliver accurate predictions, and landfall activities. Scientists of tropical storm risk in London denote that they had developed a new model which represents a major step forward.. (www. lloyds. om) Insurers also use models developed by companies e. g. Air Worldwide Corporation to predict the damages caused by storms so that insurers can forecast the payouts to be made. (www. informationweek. com). This reminds us of the importance of investing in scientific research to help our understanding of risk and its impact 2. 2 Dis aster Planning Insurance and disaster planning are closely related to as they both deal with the risk of the disaster happening and the after math. Due to the upward trend of catastrophe events we see the need for robust and effective disaster planning for the future.Part of the solution must be insurance markets and their regulators working together sharing their respective knowledge and expertise. By doing this, we can be sure that response procedures are well tested and run as smooth as doable for when the next disaster strikes. In terms of claim handling, lessons can be learnt. The shortage of adjustors on the groundwork and the mishandling of claims by some shows how important the relationship between the insurer, the adjustor and the regulator is. As the frequency and cost of disasters goes upwards it will be very important to have a relationship based on trust and flexibility. (www. lloyds. om) 2. 3 Managing the Industrys reputation Improving transparency and disclosure a re two issues which are infallible to manage and improve the industries reputation that has been rocked by high profile developments. For instance in the USA the red-hot York State Attorney Generals investigation sparked very close scrutiny of the commercial insurance market. In the minds of customers, commentators and regulators the financial service industry has been left with a very poor image, after the recent investigations. These investigations highlighted the lack of transparency and accountability that are expected of a 21st century business environment.These issues can no daylong be ignored. In a survey, by Lloyds of a hundred underwriters, one third admitted that the industries reputation is tarnished. hydrofoil and disclosure as well as good communication appears to be the answer to those outside the industry globally. Basically more time communicating and building bridges with consumers, economic leaders and world politicians initially means less problems down the li ne. (www. lloyds. com) 2. 4 Grow Globally Sales in new markets or by new acquisitions insurance companies need to grow globally more than ever before.Growth in the European and American market is slowing down while growth in India and China is increasing. The aging population presents insurers with a dilemma. The industry has great difficulty in attracting and retaining talent than other sectors of the financial services industry.. This situation is going to get worse as there are more retirees and fewer graduates moving into the top jobs. There is also a loss of graduates to banking and other financial institutions. Concern is expressed about the career path from insurance company hire to insurance agent.If this problem is not addressed the industrys sale force would diminish. By moving into the European and American markets, insurers can grow a less risky strategy rather than expanding into new product lines. Those who do go overseas have to look at the various business lines in d ifferent markets. Chinas middle class and aging population with long term care and security needed make it a very viable option for foreign insurance companies. By 2010 China will be a major player on the insurance market. The same is also said of India. (www. rmislab. com) 2. 5 Innovate Products and deliveryInnovation is seen as the main driver of profit over the next three and five years both in delivery and product innovation. By building relationships with customers moving them for example form car insurance to other insurances as they become asset rich. By providing better service and delivery insurers can strengthen their customer base. technology can strengthen relationships with intermediaries which helps them run more expeditiously and reduce their running costs. Insurers must look to cut cost they can do this by cost reduction initiatives like outsourcing and use of shared services, rationalizing product portfolios .Companies need original approaches and to continue to in vest in this very complicated environment. (www. rmislab. com). In 2007, AXA Equitable lifetime Insurance Co introduced a variety of enhancements to its variable annuities including an expanded choice of living benefits and the upbundling of optional income and wipeout benefits (www. deloitte. com) 2. 6 Focus on readdressing product and Distribution Strategies As the economy continues to even out, insurers need to prize their decisions and distribution channels.These decisions are vital in assisting insurers rebuild capital as well as positioning themselves for future growth. (www. ey. com). Insurance companies that sell directly through call centres, internet and direct mail have been performing better and this is due to lower costs because of their economies of scale and strong internet capabilities. Compared to independent insurance agents who lack these advantages have been put under pressure they require support and further development. Insurers need to find ways to work mor e effectively across product lines e. . give a customer packages that reward him/her for being a good driver. (www. deloitte. com) Conclusion In my findings I have found that the insurance industry has survived the financial crisis much better in comparison to the banking sector. This is due to its strong focus on risk management and long term prospects. Even though capital markets have decreased downwards their insurance assets, insurers are optimistic about the future and some are expecting an improvement in prospects in mergers and acquisition over the next twelve to twenty four months.The global insurance industry faces many challenges but despite these that they are being faced with the majority of insurers must move into fast growing markets i. e. India and China or find new innovative ways to get more businesses out of slower growing developed markets. China with its huge population is an obvious choice while the latter options include diversification, new products and speci ality products. Insurers need to improve their risk management especially in the areas of disaster modelling and managing the industries reputation as it is vital to have a tarnished free reputation.Finally insurers need to work effectively and efficiently to develop and market a range of products aimed at older customers. In this intensely competitive market, employers will need to develop an excellent human resource management capable of responding to business needs and the workforce expectations. They will need to be able to identify and realise opportunities for career development prospects and other key areas of their employment. (www. pwc. com) With this knowledge insurers will be able to position their business models to optimize investment returns and control trading operations using the most effective and efficient methods available.