Global economic challenges will make it difficult for insurers to generate growth and profits over the short and long term, however, they might improve their chances for achieving success in 2012 by focusing on new insurance products and on emerging markets in China, India and Brazil.
That’s according to Deloitte’s “2012 Global Insurance Outlook,” which analyzes the insurance industry’s prospects for the new year.
According to the report, emerging property/casualty exposures are prompting coverages for cyber liability, green construction, nanotechnology, global political risk, and professional liability associated with new regulations.
New personal lines products offer private unemployment insurance, as well as protect homeowners whose home values decline below their mortgage.
More life and annuity hybrid products are emerging to meet multiple needs, such as incorporating a long-term care benefit into a life or annuity product or combining term and universal life policy attributes.
In terms of emerging markets, the Deloitte analysts say that with developed economies failing to deliver consistent, large-scale growth, insurers may consider entering China, India and Brazil, where the financial security demands of an expanding middle class could provide significant growth opportunities.
The report notes that insurance penetration rates in 2010 reveal the ratio of non-life insurance premiums to gross domestic product (GDP) is just 1.5 percent for Brazil, 1.3 percent for China and 0.70 percent for India. By comparison, the penetration rate is 4.5 percent for the United States, 4.1 percent for Canada and 3.1 to 3.7 percent for major European countries, according to Insurance Information Institute.
“Global economic doldrums, low interest rates, persistently high unemployment and a sluggish housing recovery have created challenges for insurers,” said Rebecca Amoroso, vice chairman, Deloitte LLP and insurance sector leader. “Yet even in such uncertain economic times, there are opportunities to generate profitable growth by attracting new customers and growing market share through product development, distribution and marketing reevaluation, and reinventing the customer experience.”
Amoroso said insurers must keep transforming their operations to improve margins and drive more profit to the bottom line, using new technologies and management strategies to “squeeze unnecessary costs out of the system, as well as employ their people and capital more productively.”
Sam Freidman, Deloitte’s insurance research leader, said achieving growth and innovation in such a difficult economic environment “might be easier said than done” but there are options for insurers to consider.
In addition to coming up with new products and entering new markets, insurers might want to take social media more seriously. Many insurers have a presence in social media communities, but the report says they have yet to evaluate the impact of their efforts and benchmark their work against competitors using analytics.
Analytics can also be used to gather cross-selling insights about buyer needs, providing an advanced form of customer relationship management throughout the customer’s life cycle, according to Deloitte.
Another useful strategy for insurers may be to pursue mergers and acquisitions. Deals in 2011 tended to be niche acquisitions with buyers adding new product lines and distribution channels, and expanding geographic reach into emerging markets, according to the report. With more carriers undergoing strategic reviews for potential mergers and acquisitions, Deloitte analysts say there is potential for an uptick in bigger deals in 2012, particularly if organic growth remains challenging over the short-to-medium-term