2016 European insurance outlook – EY report
Article Synopsis :
2016 is a watershed year for European insurers. Solvency II taking effect on 1 January combined with sustained low interest rates and other macroeconomic pressures makes for a challenging year overall.
The “2016 European Insurance Outlook” by EY summarizes the key issues facing Euro-zone insurers.
- Distribution: EU insurers must come to terms with the ramifications of the Insurance Distribution Directive (IDD) expected to come into force across the continent by 2017 carrying a wide range of obligations in relation to product oversight, remuneration and information disclosure that relate to the intermediary channel.
- The Digital Opportunity: Solvency II has captured most board-level attention but now the attention must turn to digital.
- IFRS 4 and IFRS 9: IFRS 9, which deals with changes in accounting for assets, has finally taken off. Most European insurers have completed the gap analyses and impact studies required in readiness for adoption on 1 January 2018.
- M&A: The rapid pace of transformation across the sector and the impact of Solvency II and general re-shaping of business models have driven a marked uptick in insurance M&A across the Eurozone, in both life and general, with insurers keen to achieve economies-of-scale and to position for the significant project spend and business transformation required over coming years.
With this in the background, EY articulates these seven strategic imperatives for Insurers for 2016:
- Low-Interest Environment – Continued low-interest environment will require the industry to consider longer-term inflation scenarios
- Customer vs product – Insurers need to re-align the business to be more focused on customer requirements and experience. Growing in popularity is the use of Robotic Process Automation (RPA) to enable digital front-ends on legacy systems.
- Building Operational Capabilities – Legacy systems are always an impediment to meeting customer expectations in terms of pricing transparency and agility. Digital distribution alternatives must be explored while cutting long-term costs.
- Data Analytics and Customer Expectation – Understanding customers with the help of big data and analytics is key. Turning low-quality data into valuable insight with smarter data management and advanced analytics is a key differentiator.
- Regulation – Solvency II requires insurers to be well capitalized driving changes in asset allocation strategies, restructuring of capital and possible disposal of legacy or non-core assets. There is also significant opportunity in non-traditional assets.
- Cyber security – Going digital increases exposure to cyber attacks. On the bright side, this also means new business for the non-life market.
- Conduct risk – In particularly the UK the industry can expect increased activity around ethical conduct and professional standards.
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Digital Insurer's CommentsSeveral European insurers have invested in core transformation projects motivated primarily by the desired ability to meet not only new Solvency II regulations but rapidly changing market conditions. Tremendous sums are being invested to make legacy insurance operations more agile.
Continued low interest rates, soft-market conditions, substantial new regulations, and the rapid digitization of customers, sounds like an interesting 2016 to us. The ability and agility to zig while the competition zags is most useful in conditions such as these. Speed not size trades at a heavy premium.
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