new strategies for european insurance

8/3/2019 New Strategies for European Insurance

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By:-

DEBASHISH DAS(B4-12)


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For many customers, insurance policies are instruments for

meeting unpredictable cash needs: a premium paid in advance

gives the insured the right to get cash when a clearly defined

event happens just like financial options traded in derivativesmarket today.

Rather than paying premiums to an insurer or reinsurer to

cover their risks, these companies are de facto buying an

"insurance option" - an instrument thatguarantees cash as andwhen losses occur, regardless of any specific line of business.

If these new instruments become common currency, they will

threaten great chunks of traditional insurers revenue.


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The predictable risk is no longer insured, as the company will

itself be able to provide the necessary cash.

Instead of buying an insurance policy, a company could issue

"risk bonds." Normally, buyers of these bonds would receive

an annual premium, but in a year when unpredictable risk

occurs, they could lose part of the principal of their investment.

In effect, insurance risk could start to be securitized just like

credit risk.


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Some big reinsurance companies like Swiss Re are planning to

launch a product in combination of insurance risk with other

such as currency risks.

Predictable risk could easily represent 40 to 50 percent of the

total premiums paid by corporations today, and 80 percent of

UK companies already retain a significant proportion of their

own risks.

These would risk the business of middle level insurance

company to lose its market share.


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The degree to which traditional insurance companies already

participate in these markets depends largely on national

regulation and the domestic welfare system.

In others, private insurance companies are allowed to compete

on a more or less marginal basis.


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As the burden of social costs continues to rise across Europe, it

is difficult to imagine that governments will not increasingly

welcome the introduction of similar kinds of private insurance

products.

The historical (and legally enforced) separation between

accident (P&C), life, and health insurance business is therefore

becoming an increasing burden for insurers wanting to offer acomprehensive package of personal cover.


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Life insurers manage 10 to 15 percent of the world's financial

assets, accumulated thanks to generous tax incentives from the

state for those who take out life polices.

"Bancassurance" now represents more than 20 percent of the

individual life market in the UK and half of the French market.

Now, banks are also opening their own LI business.


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In the UK, banks are aggressively selling personal equity plans

(PEPs) as tax efficient rivals to life products.

Insurers, however, have largely been slow to wake up to thefact that they are now in direct competition for asset

management money. Some have turned their investment

function into a profit center, or acquired asset management

expertise.

Example: The acquisition of Kemper ($60 billion under

management) by the Zurich Insurance Group, and the

acquisition of Barings by Dutch insurerING.


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In Switzerland, health insurers have started byoffering clients a whole range of real services:a selection of hospitals, a network of

physicians, and direct delivery of drugs. ThisUS-inspired approach, known as managedcare.

In Germany and Belgium similar practiceshave been adopted.


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One last role that insurers could play is that of transaction

specialist. Clients would use insurers not because they smooth

their cash flows or invest their money.

Allianz, through itsAPS-unit {Allianz Pension Services),

offers a full service for the administration and handling of

pensions.

Some corporations are starting to use their insurers as

administrative partners for whole employee compensation

programs and related insurance cover ensuring that they have

an efficient, logistical system to track.


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1. Insurance companies will take the right operational andinvestment measures only if they have a clear vision of whereto go.

2. Strategic advantage will go to those that are first into newareas because they will capture the best partners and the mostattractive customers.

The opportunities are there for early entrants who identifyareas in which they can offer new, clearly differentiated value

propositions.

new strategies for european insurance

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