Insurers Facing Persistent Challenges
Weak economic growth, an extended period of low interest rates, weak investment income and rising regulatory demands continue to challenge the industry.
The global insurance industry outlook is not good and not going to get better in the short term, according to a study from Conning. The study, “U.S. and Global Insurance Industry Outlook: Economic, Capital Markets, and Regulatory Challenges Continue—Nothing to Be Gained by Waiting for Things to Get Better,” states that weak economic growth, an extended period of low interest rates, weak investment income and rising regulatory demands contribute long-term challenges for insurers.
The study presents the challenges and potential insurer responses for the industry generally, with separate discussions for U.S. sectors:
“Sluggish economic conditions affect organic growth potential and overall market development,” said
The initial period of post-recession malaise has now become a base-case for strategic and operational planning, according to Conning. Insurers that resolve to navigate this environment will invest more aggressively in infrastructure improvements and explore alternative distribution strategies, more focused market approaches and broader ranges of investment alternatives in seeking better risk-adjusted returns in 2013 and beyond. If the environment does revert to more normal conditions within the next 12 to 14 months, adopting a more conservative approach and protecting core business positions may be a viable strategy. However, if the sluggish conditions (and intensifying regulatory challenges) extend further, these companies will find the hole that they need to climb out of getting deeper and potentially beyond recovery, the study states.
“Insurers that took a ‘wait-and-see’ approach are now challenged to perform in these adverse conditions, as no clear end is in sight,” said Christiansen. “Competition is increasing, and companies that succeed in this environment will seek performance in targeted strategies in particular geographic or market segments and will invest internally in technology for effective cost management and new market distribution approaches.”
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