Article Synopsis :
This paper looks at the insurance sector in the Netherlands and ultimately comes to a very similar conclusion to the Hogan Lovells paper on the North American market.
That is, changes in technology, society, customer behaviour and legislation are transforming insurance. Insurers, supervisors and policymakers need to work together in order to safeguard a sustainable, stable and safe environment that better serves society.
The contraction of individual life policies is anticipated to reduce as it has in other markets. Low-interest rates, tax changes, increased competition from savings products and reduced confidence as a result of miss-selling scandals have all contributed.
Insurers need to scale back, cut costs and adapt and even consolidate to survive. How big future market might be is anyone’s guess. There is even less clarity about group life insurance, but what is clear is that most group pensions administered by insurers are defined contribution schemes, which require a different business model.
Technology innovation may significantly reduce total premium volumes in the non-life sector. This is good for society and insurers will have to adapt. Or expect to be less profitable.
The competition will increase from new entrants in both life and non-life markets. This is driven by demand for different products and the technology that can deliver them. Unencumbered by the legacy systems of the incumbents, these providers are more efficient and better able to meet specific needs from customers.
Foreign insurers are likely to offer the greatest competition. Solvency II has levelled the regulatory playing field and foreign players may invest and benefit from economies of scale. They may be able to offer corporate clients a more comprehensive range of cross-border services than smaller domestic insurers.
It is not only other insurers that the incumbents must watch out for. Banks, pension funds and other financial service providers are trying to get a share of the insurance market, as are intermediaries and financial brokers.
The paper identifies five themes that it believes should be tackled. They are:
- Size of the life insurance sector;
- Size of the non-life insurance sector;
- Competition: Recommendations for insurers and new market entrants;
- Internationalisation; and
- Shifts in the value chain.
By tackling these themes first, it should be possible to develop a sustainable, stable and efficient insurance sector that offers commercial opportunities while protecting consumers.
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Digital Insurer's CommentsThere are many similarities between this paper, produced by the Dutch central bank and that produced by the UK’s Digital Innovation Panel in recent months [https://www.the-digital-insurer.com/unlocking-digital-competition-april-2019/].
We shouldn’t be surprised, as insurers in mature European markets encumbered by legacy systems and little flexibility in their business models have much to lose to the new disruptors.
But if the regulators are getting up to speed and are willing to meet them halfway, insurers need to get off the fence about which direction they’re planning to take their businesses.
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