For each of our markets we have considered the business imperatives, business trends and the impact that emerging technologies and solutions may have in addressing these.
Imperatives
In the personal market, price comparison Websites have enabled customers to better compare offerings and this has created price pressures. As more potential customers grow accustomed to using such online tools, slight price differentials between companies will have a significant impact on the customer’s decisions. To add to this, in both personal and commercial markets we are seeing claims inflation and the cost of fulfilment rising.
There has been a softening of rates and restructuring of distribution models in the commercial markets over the past year. This trend will continue as providers cope with the impact of the global financial crisis on their present distribution models.
The new regulatory framework with Solvency II and its implications will effectively change the way business is done. Compliance will be considered as critical (IFRS, Re-insurance Directive, etc.), along with corporate governance, internal control, and risk management.
While prospects for the insurance industry in the Asia-Pacific region are bright, there will be many challenges over the course of its development. Mainland China and India are more receptive to foreign companies; however, in Taiwan and Indonesia, many multinational insurers have had to discontinue their engagement due to poor market conditions and unstable domestic political environments.
Business trends
General
There is market consolidation through mergers and acquisitions (M&A) as insurers focus on core competencies. This includes the growth in the run-off of non-core books. This is leading to increasing complexity around business, product, and process.
Channel distribution will change. The impact of Basel II in the bank sector will mean that the banks are selling their insurance groups to try to avoid further capital requirements and focus their activity in increasing their commissions.
The current financial environment (decrease of selling) makes it more difficult to increase the premium volume, so focus on cost control will be necessary, with additional concentration on both transparency and cost reduction required. The main focus will be on IT and back-office departments. More transparency and a more efficient platform will help insurers to give a better service to banks, brokers, and similar organizations.
There is a substantial increase in the financial information supply chain traffic volumes and quality, due to the increased regulation and the need for transparency. A number of countries will move toward supervisory systems where the national regulator follows both the banking and insurance markets.
Personal Market
New insurance products must cover new needs in a changing and global society. Demographic trends and globalization are demanding new insurance solutions. New assistance services covered by home insurances, long-term care insurance for elderly people and pay-as-you-drive car insurance are a few examples.
As a result of the global financial crisis, many insurance providers are attracting a growing number of customers who seek a sense of security under this insecure financial landscape. Life insurance companies will be the primary benefactor of this shift in consumer psychology.
The Dutch government is expected to continue to increase its scrutiny of life insurance. Government priorities are increasing the cost and return transparency of life insurance, and further regulating acquisition, compensation, and selling practices. The Dutch government is furthermore expected to reduce the fiscal benefits for life insurance.
Life insurers are focused on reducing costs by improving new business, underwriting, customer service, and claims processes. The urgency to do this will increase as a result of the above trends. The trends will furthermore lead to increased competition and further industry consolidation. The sales of mortgages and mortgage-related life insurance, which accounts for a large percentage of the total sales of individual life insurance, has decreased dramatically in the second half of 2008 due to the credit crisis. The expected and possibly prolonged economic downturn will have a temporary negative effect on consumer confidence and the sales of life insurance. In the Netherlands, with the commercial introduction of Banksparen, a savings account with the same fiscal benefits as individual life insurance, the demand for life insurance for estate-planning and wealth-management purposes is expected to decrease permanently.
Commercial Market
In the commercial market, brokers and insurers are buying up small players, creating consolidation and enabling them to better control niche markets. There is also a trend for commoditization and low-end commercial insurance.
Self-insurance continues to be prevalent in the commercial insurance market, with organizations using captives to insure assets where risk can be hedged more precisely. This is leading to more volatility in the market as organizations now only purchase insurance where risk cannot be quantified.
Wholesale Insurance Market
In the wholesale insurance market fees are increasing rapidly. On top of this, insurers are finding that they are now competing with their own customers and retaining a higher proportion of the risks.
Other forms of capital are now competing with wholesale insurance, for example, Investment Banking. Creeping commoditization of re-insurance is also making it much harder to make money.
Asia -Pacific
Despite the sub-prime mortgage crisis and slowing economy, the insurance industry will still maintain healthy growth with support of a strong economy in APAC. Requirement of insurance products will be restrained by crisis only in the short term.
Overall, in the APAC region governments are taking apart monopolies and implementing more favorable regulations. As a result, there is a growing number of multinational insurance firms setting up operations in the Asia-Pacific.
In China, the combined total premium income from property, life, accident, and health insurance reached RMB 562 billion (€62 billion) over the first half of 2008. Yet overall levels of insurance penetration in both China and India are extremely low. Look for the insurance market to take off as China’s rising middle class recognizes the value of insurance as a means to protect themselves and their families from environmental and investment threats.
Compulsory automobile insurance and responsibility insurance products are still the main driver of non-life insurance. But the increase of catastrophes such as earthquakes and tsunamis will make people attach more importance to the value of insurance for home rebuilding and community reconstruction.
IT spending within medium / large insurance groups should stabilize, with some discretionary expenditure delayed and more focus placed on risk- and compliance-related projects, and also those in support of M&A opportunities.
In November 2007, China’s domestic insurance provider Ping An purchased a 5% stake in the Belgian company Fortis Investments. In March 2008, Ping An announced that it will expand to acquire 50% of the Belgian financial group. Given the current global economic situation, odds are high that a Chinese domestic insurance firm like Ping An or China Life will make additional overseas acquisitions.
Life insurance finance products have huge potential of increasing, but a qualified sales team with talent of finance and risk management is essential. Life insurance companies must manage to attract, train and retain enough talent in such an environment lacking a high quantity of it. Small insurance companies may even find it difficult to obtain finance under such an economic environment.
Impact technologies
Technology is a key business enabler to reduce costs and increase Business Intelligence. This can help life insurers realize a competitive edge. CRM and Business Intelligence are widely used for client service strategy. Insurance companies are also seeking to use new technologies such as wireless, Web service, and advanced analysis tools.
Many insurance firms will continue to outsource some of their core activities to meet growing demand by customers seeking safety and stability during the global financial crisis. We are seeing Business Process Outsourcing concerned with externalization of core activities (claims) in addition to noncore services (IT).
Master Data Management can help provide a consistent single view of the customer across multiple systems. Enterprise Content Management, as well as Identity and Access Management, will ensure that secure content is accessed only by those entitled to it.
In response to the increase in claims and cost of fulfilment, better use is being made of procurement techniques. Complete back-office management, including claims management, is being outsourced to organizations further down the supply chain.
Geographical Information Systems will be seen in use in relation to auto, health, property, and casualty insurance.
XBRL will save costs and improve efficiency in handling business and financial information crucial to the new regulatory environments to come.
Service-Oriented Architecture will help to improve agility, while at the same time helping to reduce costs through enabling re-use.
Business Process Management will help to better manage and optimize processes whilst providing better process transparency.
Mobile applications will enable access to real-time information from anywhere for individuals working outside of the office. The mobile is another medium that is becoming increasingly important for advertizing. Now that China, one of the world’s largest mobile markets, has adopted 3G mobile technology, mobile advertizing in the Asia-Pacific region will be more widespread than ever before.
Social software will help reach consumers, in particular those of Generation Y, gather their opinions and offer an insight into their behaviors.
Online advertizing, particularly through Virtual World online gaming, will prove to be an essential marketing channel to tap into the young whitecollar markets of the Asia-Pacific region.
Platforms for governance, risk, and compliance can help address regulatory pressures.
Users who are adopting new Web 2.0 forms of communication will buy insurance on the Internet tomorrow. The financial sector is successfully making the most of Web 2.0 and its tools already.
Becoming a 2.0 insurer is an opportunity for developing a better relationship with customers and for positioning themselves in a more open way. Insurance 2.0 will become a visible reality in the coming years. The insurance industry is already beginning to connect with Web 2.0 and increase its presence on the Internet. The sale of insurance policies through the Internet grows year by year thanks to the new systems for reputation and recommendation of insurance products born in Web 2.0.
Web 2.0 will increase efficiency internally and externally for companies operating in the Asia-Pacific region. However, mature mobile / online Asia-Pacific markets, like Japan and Korea, will benefit the most from these technological advances as they have proven to be early adopters of new technology.
Unified Communications, in particular Voice Over IP (VoIP), will enable insurers to serve customers better whilst reducing their communications costs.
Grid Computing and virtualization can provide agility and help to reduce costs, while reducing energy consumption.
Insurance companies currently use 80% of their time to maintain the legacy, core business systems in APAC. A more capable core business system is required.
The insurance industry has an urgent need for structured data architecture and overall information integration. Development of a structured data management strategy, integrated client and transaction information is imperative.
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