EY 2014 Global Insurance Outlook

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The global insurance industry is emerging from economic uncertainty. Many signs point to significant pockets of opportunity for top-line and bottom-line growth.

This report contains:
• Asia-Pacific insurance outlook
• Canadian property-casualty insurance outlook
• European insurance outlook
• Latin America insurance outlook
• US life-annuity insurance outlook
• US property-casualty insurance outlook

For more information on EY's insurance services, visit: http://www.ey.com/GL/en/Industries/Financial-Services/Insurance

Published in: Business, Economy & Finance
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EY 2014 Global Insurance Outlook

  1. 1. 2014 Global insurance outlook
  2. 2. Page 2 Contents ► Executive summary ► Asia-Pacific insurance outlook ► Canadian life insurance outlook ► Canadian property-casualty insurance outlook ► European insurance outlook ► Latin America insurance outlook ► US life-annuity insurance outlook ► US property-casualty insurance outlook 2014 Global insurance outlook
  3. 3. Page 3 Executive summary 2014 Global insurance outlook
  4. 4. Page 4 The global insurance industry is emerging from economic uncertainty. Many signs point to significant pockets of opportunity for top-line and bottom-line growth. 2014 Global insurance outlook
  5. 5. Page 5 Executive summary ► We explore opportunities and challenges confronting global insurers in Asia Pacific, Canadian life and property- casualty, Europe, Latin America and US life-annuity and property-casualty markets. ► Complex challenges lay ahead, resulting in the prospect of slim profit margins in 2014 and fueling the need for greater customer centricity across operations. ► Common issues include: a protracted low interest rate environment, slowly improving economy, and compliance and governance burdens from increasing regulation. ► Latin America offers substantial growth potential in specific niches. 2014 Global insurance outlook
  6. 6. Page 6 Executive summary ► Rising individual wealth and aging populations in Asia Pacific are enticing product expansion and revenue. ► Europeans are focusing on keeping pace with regulation, simplifying operations, retooling investment strategies and investing in technologies to meet enhanced customer expectations. ► US insurers look to leverage technology solutions to improve underwriting, product development, claims and distribution. ► In a highly competitive market, life insurers must deepen relationships with customers to sustain profitable growth. 2014 Global insurance outlook
  7. 7. Page 7 Executive summary ► Technology continues to shape the industry, with legacy systems restraining some carriers’ ability to embrace big data analytics or meet the expectations for digitally savvy customers. ► The need for strong digital operations and rich customer experiences will be an ongoing strategic theme for the industry for some time to come. ► Across the globe, the industry appears to be at the threshold of much better times ahead, with opportunities for growth and competitive advantage 2014 Global insurance outlook
  8. 8. Page 8 Asia Pacific Continuous evolution 2014 Global insurance outlook
  9. 9. Page 9 The increasing individual wealth and aging population will create opportunities to introduce new products that protect consumers’ hard-earned financial and physical assets. 2014 Global insurance outlook
  10. 10. Page 10 Asia-Pacific outlook Continuous evolution ► Slow economic growth and low interest rates are primary challenges, while rising individual wealth and aging populations create opportunities for new products. ► Property-casualty and health insurers may benefit from the new free-trade zone in Shanghai. ► Product development and distribution must be evaluated as regulatory changes open the savings market to new entrants. ► Rigorous solvency requirements unfolding across the region will strengthen the industry’s financial stability, while region-by-region differences will complicate market opportunities. 2014 Global insurance outlook
  11. 11. Page 11 Asia-Pacific outlook Continuous evolution ► With 42% of the world’s internet users in Asia Pacific, empowered insurance consumers rely on the web to research and buy insurance products. ► Data analytics can improve competitive standing, and identify areas to reduce expenses. ► Insurers are improving operational risk management to achieve higher levels of customer satisfaction. ► Asia-Pacific region’s share of the global middle class will nearly double, rising from 28% in 2009 to 54% in 2020, according to EY projections. 2014 Global insurance outlook
  12. 12. Page 12 Canadian life Encouraging signs, but will insurers seize opportunities? 2014 Global insurance outlook
  13. 13. Page 13 As the market builds on positive economic factors, life insurance companies should take advantage of a changing environment and return to a growth strategy. Investments in technology and data analytics will generate rewards. 2014 Global insurance outlook
  14. 14. Page 14 Canadian life outlook Encouraging signs, but will insurers seize opportunities? ► Successful insurers will leverage operational flexibility to seize competitive opportunity. ► Despite more bullish external forces, life insurers must continue to closely monitor interest rates, equity and housing markets, consumer confidence and personal wealth, and employment. ► Renewed focus on asset management and wealth management compels life insurers to develop more innovative, attractive products and improved profitability in tax, sales and asset-liability management. 2014 Global insurance outlook
  15. 15. Page 15 Canadian life outlook Encouraging signs, but will insurers seize opportunities? ► Insurers must improve expense management and underwriting through streamlined processes, stronger data analytics capabilities, outsourcing and more diligent focus on core operations. ► Understanding changing consumer demographic information is critical to guide product and distribution strategies and expand growth opportunities. ► More stringent regulatory and accounting changes compel insurers to improve their modeling capabilities, data quality, data governance, and the level of detail provided by their reporting systems. 2014 Global insurance outlook
  16. 16. Page 16 Canadian property casualty Added impact of regulatory change 2014 Global insurance outlook
  17. 17. Page 17 Consolidation in the industry, mergers and acquisitions and regulatory changes remain high on the agenda for 2014. This is creating a greater need for companies to improve their bottom line through internal investments in technology and operational efficiencies. 2014 Global insurance outlook
  18. 18. Page 18 Canadian property casualty outlook Added impact of regulatory change ► Insurers are looking to develop new products that require broader, cost-effective industry solutions, such as cyber insurance, sensor technology and nanotechnology. ► Those that best leverage technology and enhanced customer-centric processes will put themselves ahead. ► A complete solution that would include cloud-based systems for distribution, product development and claims management would put insurers on the right path. ► Making such investments would decrease operating costs and increase access to data and information across the organization. 2014 Global insurance outlook
  19. 19. Page 19 Canadian property casualty outlook Added impact of regulatory change ► The Canadian insurance industry was turned upside down by catastrophes in 2013 and is recognizing the need to better educate policyholders on differences in coverage. ► Regulatory and accounting changes continue to move at a rapid pace, requiring greater investment in talent and time to keep pace. ► Increased requirements will lead to more focus on data quality, data governance and reporting systems. ► Insurers will need to ensure that their boards have sufficient understanding of the new guidance and their roles. 2014 Global insurance outlook
  20. 20. Page 20 Europe Unlock new opportunities, simplify existing operations 2014 Global insurance outlook
  21. 21. Page 21 Slow economic recovery is pressuring insurers as they seek paths to profitable growth — challenging existing business models, investment strategies, product mix, business processes and operating structures. 2014 Global insurance outlook
  22. 22. Page 22 Europe outlook Unlock new opportunities, simplify existing operations ► In recovering from recent economic turmoil, insurers must simplify their organizations and business models to create more efficient operations that can seize emerging growth opportunities. ► Evolving regulations are becoming more stringent, affecting everything from capital requirements to commission rates and customer care. ► In a prolonged low interest rate environment, insurers must restructure and simplify their organizations to drive down costs and take advantage of emerging growth opportunities. 2014 Global insurance outlook
  23. 23. Page 23 Europe outlook Unlock new opportunities, simplify existing operations ► While an aging population (a 4% increase in the number of individuals 65 and older in the EU is forecast for 2014) and the personal and commercial non-life markets present opportunities to increase sales, insurers must maintain focus on profitability. ► Recognition that the low interest rate environment may persist in 2014 and beyond increases the imperative for insurers to take actions to reshape their investment allocation strategy. ► A stronger digital presence is required in the improving economy, with technologies addressing enhanced consumer expectations as the top priority. 2014 Global insurance outlook
  24. 24. Page 24 Europe outlook Unlock new opportunities, simplify existing operations ► As growth conditions improve, insurers need to be disciplined about their bottom-line profitability and capital allocations. ► In spite of its relative immaturity, the cyber liability market represents a meaningful opportunity for growth. ► Comprehensive, cross-functional enterprise data analytics capabilities will improve customer targeting, product design, pricing, agency management, underwriting, claims and reporting. 2014 Global insurance outlook
  25. 25. Page 25 Latin America Significant opportunities and challenges in a highly competitive environment 2014 Global insurance outlook
  26. 26. Page 26 Rich growth opportunities continue to draw insurers to launch operations or expand their presence in Latin American markets. Growth is well above the rate of most other global regions. 2014 Global insurance outlook
  27. 27. Page 27 Latin America outlook Significant opportunities and challenges in a highly competitive environment ► The pace of growth will continue, compelled by strong regional growth in small business and the modernization of mature industries, which drive demand for insurance protection. ► Despite growing risks of inflation, substantial catastrophe exposures and currency exchange rate volatility, the region presents rich growth potential, especially in specific niches. ► Reduced margins mean growth must come from the top and bottom lines. ► Products and market segments with high growth potential include personal lines and life insurance. 2014 Global insurance outlook
  28. 28. Page 28 Latin America outlook Significant opportunities and challenges in a highly competitive environment ► As regulation evolves toward risk-based capital approaches, insurers will need more sophisticated structures for management, information and capital systems. ► To improve capital efficiency and prepare for digital competition, insurers must overcome legacy insurance technology with new investments to enhance underwriting and innovate distribution. ► Data analytics and underwriting skills are in short supply, compelling the recruitment of talent from universities and more training and development. 2014 Global insurance outlook
  29. 29. Page 29 US life annuity Significant opportunities and challenges in a highly competitive environment 2014 Global insurance outlook
  30. 30. Page 30 In highly competitive market conditions, insurers must deepen their relationships with customers, which is vital to retaining this book of business and maintaining sustained, profitable growth. 2014 Global insurance outlook
  31. 31. Page 31 US life annuity outlook Significant opportunities and challenges in a highly competitive environment ► As stagnant sales and low investment yields constrain profits, insurers must streamline operational models and cost structures, resolving legacy system challenges to achieve long-term operational excellence and profitability. ► Enterprise data excellence is a key objective, furthering existing data transformation programs and resulting in improved data quality, access, integration, security and governance. ► Having rebuilt their capital structure to weather the post- financial crisis, insurers can enhance shareholder returns by improving the yield on investments in products and operations and restructuring capital through captives and debt. 2014 Global insurance outlook
  32. 32. Page 32 US life annuity outlook Significant opportunities and challenges in a highly competitive environment ► Despite the uncertain implementation dates of many complex regulations, insurers must improve their governance structures in anticipation. ► As life insurers confront multiple and often conflicting regulatory requirements, they must enhance their capacity to understand and communicate these changes to decision- makers. ► Investments in people, processes, methodologies and technology will enable insurers to address regulatory requirements for risk analysis, distribution oversight and information transparency. ► Balancing risk and reward in asset portfolios will be essential. 2014 Global insurance outlook
  33. 33. Page 33 US property casualty Focus on margin protection and stronger operating fundamentals to enhance performance 2014 Global insurance outlook
  34. 34. Page 34 In a continuing low interest rate environment, insurers need to increase internal investment in technology and operating capabilities. This presents a rare opportunity for transformation that will guide meaningful improvements through their organizations. 2014 Global insurance outlook
  35. 35. Page 35 US property casualty outlook Focus on margin protection and stronger operating fundamentals to enhance performance ► Enterprise data excellence is a key objective, resulting in improved data quality, access, integration, security and governance. ► In the aftermath of the recession, there is a need to rationalize complex product portfolios, simplify delivery and processing, and reduce frictional costs. ► The still-fragile economic recovery and the competitive dynamics in certain market segments indicate growth is likely to come from pockets of opportunity — global, geographic, product and demographic. ► Robust economic capital modeling and enterprise risk management capabilities are required to assess evolving liabilities, capital structure and business plans. 2014 Global insurance outlook
  36. 36. Page 36 US property casualty outlook Focus on margin protection and stronger operating fundamentals to enhance performance ► Insurers are in various stages of implementing a customer-centric business model that compels a fundamental realignment and integration of internal technology to reach consumers. ► A greater emphasis on risk and capital management exists in the industry, driven by unanticipated losses on both the asset and liability sides of the balance sheet. ► Enhanced record keeping and reporting capabilities are necessary to stay ahead of escalating regulatory demands for information from more jurisdictions. ► Improved governance and risk management systems are essential and should be a clear business imperative. 2014 Global insurance outlook
  37. 37. Ernst & Young Assurance | Tax | Transactions | Advisory About Ernst & Young EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. Ernst & Young LLP is a client-serving member firm of Ernst & Young Global Limited operating in the US. © 2014 Ernst & Young LLP. All Rights Reserved. 1405-1247115 NY EYG no: EG0184 ED none This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice.

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