Hello
For a case study at school I need to answer the following question. As I have no knowledge about this industry I would be very thankful for some ideas and help...
"Which are the 3 main determining factors that influence the insurance industry globally at the moment and why?"
I think the answer could be something around the following factors, but some ideas and explanations would be very helpful:
- demography --> older, bigger people etc.....
- increasing complex technology --> process automation, nanotechnology, Internet (transparent markets), etc... --> risk management
- consolidation, acquisition, financial markets
great forum (sorry for my english by the way...)
Thank you in advance
Steve
main determing factors --> insurance industry
Moderators: Josh, independent guy
Each state has their own insurance regulations. Insurance, for the most part, is regulated on a state by state basis.
Add to that the different types (or lines) of insurance - they're broken down between Property/Casualty and Life/Health. Each line of coverage has it's own underwriting requirements and factors.
As the prior poster noted, government regulation (as noted, in the US, each state has their own regulations) is the largest determining factor. From there, geographic and demographic factors come into play (for instance, on the Gulf Coast, which is subject to hurricanes/tropical storms, proper underwriting for property exposures is required).
To come up with "3 main determining factors that influence the insurance industry" is almost impossible, given the diversity of the industry.
Add to that the different types (or lines) of insurance - they're broken down between Property/Casualty and Life/Health. Each line of coverage has it's own underwriting requirements and factors.
As the prior poster noted, government regulation (as noted, in the US, each state has their own regulations) is the largest determining factor. From there, geographic and demographic factors come into play (for instance, on the Gulf Coast, which is subject to hurricanes/tropical storms, proper underwriting for property exposures is required).
To come up with "3 main determining factors that influence the insurance industry" is almost impossible, given the diversity of the industry.
Stevey, I agree with Porter that Government Regs have changed the insurance industry in California. The other item that is affecting the industry, in my opinion, is the current economy. With the Dow between 13 and 14 and the prime rate around 5.25% the insurance industry is again chasing the dollar. I believe they are not writing to an underwriting proft and looking to make money on the investment side. I have been in this business for 33 years and this appears to be part of the cycle.
Another factor driving the market is the lack of CAT claims in 2006 and so far this year. This factor can change in a second if we have some CAT losses later this year.
Just sharing my opinion......
Another factor driving the market is the lack of CAT claims in 2006 and so far this year. This factor can change in a second if we have some CAT losses later this year.
Just sharing my opinion......
Main Determining Factors
Stevey, I would also add that the strength or weakness of the investment world also greatly affects our industry. Since insurance companies have incredible sums of money to invest profits can rise and fall along with the stock indices. Currently much of the insurance world is in a "soft" market, meaning that rates are falling and insurers are more willing to entertain more difficult risks. Much of this is due to the strong results in the investment world over the past several years.
Please remember that you are asking what affects our industry, not individual accounts we insure. That's a much different story.
I'd say the top 3 areas are government regulations, investments and legal decisions.
Kevin Raz
Please remember that you are asking what affects our industry, not individual accounts we insure. That's a much different story.
I'd say the top 3 areas are government regulations, investments and legal decisions.
Kevin Raz
Don't forget about technology. Advances in medical technologies and automobile safety features/design have a significant impact on loss severity. Also other technology advances impact our industry-- the internet allows us to shop for insurance, file claims and research insurers from our living room. It also allows agents to communicate with home office more efficiently. Computing advancements have made the underwriting and pricing processes much more sophisticated.
For me, the top 3 are the economy (macro) which would include both interest rates & investment return, regulation (federal and state), and technology.
p.s. Stevy might not understand what a CAT is... it's a catastrophe loss like a hurricane, earthquake, or flood.
For me, the top 3 are the economy (macro) which would include both interest rates & investment return, regulation (federal and state), and technology.
p.s. Stevy might not understand what a CAT is... it's a catastrophe loss like a hurricane, earthquake, or flood.
These are all good posts. The initial question mentions "globally", and I think that the biggest factor when you consider the international scene has to be government regulations. So many other countries are partly or fully socialistic that the government provides most if not all of the benefits, both Health and P/C.
An additional factor here in the US is the litigation tactics of the lawyers and courts. This is not an issue in much of the rest of the World, indeed many countries have specific regulations that bar lawyers from sharing settlements, and many countries only allow actual losses to be covered in the event of a liability claim... no "pain & suffering" or loss of consortium... you get the picture. Good or bad, we are quite different here in the US.
Swymmer
An additional factor here in the US is the litigation tactics of the lawyers and courts. This is not an issue in much of the rest of the World, indeed many countries have specific regulations that bar lawyers from sharing settlements, and many countries only allow actual losses to be covered in the event of a liability claim... no "pain & suffering" or loss of consortium... you get the picture. Good or bad, we are quite different here in the US.
Swymmer
Thank you very much for the great help...
What about things like mergers and acquisitions, alliances,
degree of company-internal value-add, outsourcing, ...?
For example a proposition like: "The big insurance players are focusing more on their core strengths/business (because of the stock market losses in 2000/02), so they lower the degree of company-internal value-add and build alliances (or outsourcing, etc)...
And what about the emerging markets (big growth compared to the mature markets? Is that not a very important factor at the moment ... for example for a good strategic position and further growth?
Thank you
stevey
What about things like mergers and acquisitions, alliances,
degree of company-internal value-add, outsourcing, ...?
For example a proposition like: "The big insurance players are focusing more on their core strengths/business (because of the stock market losses in 2000/02), so they lower the degree of company-internal value-add and build alliances (or outsourcing, etc)...
And what about the emerging markets (big growth compared to the mature markets? Is that not a very important factor at the moment ... for example for a good strategic position and further growth?
Thank you
stevey
What a good question for everyone to think about. Most responders, I think, unfortunately missed the interesting idea and just responded with thoughts on what impacts their own world.
Think of insurance as a simple process described by 3 parameters - "amount of money in", "return on money while its held" and "amount of money out".
So the performance of insurance as a business depends on how well one works these three controls.
Amount of $ in is determined by marketing & changes in legal climate to a minor degree - but more by performance of the entity in equity markets. Consolidation is an obvious way to get a major rapid influx of $.
Return on $ is determined by overall performance of global markets and by regulations governing investment. This is the parameter that is easiest to "tweak" through creativity, both for good & evil (e.g. Barings, LTCM,...).
Amount of $ out is determined by claims paying strategies. I'd guess that, in terms of global performance, this probably doesn't have nearly the impact of the other 2 parameters.
If 50 years is short term (?) - I'd say that far & away the single largest impact on the global insurance/financial industries will clearly be climate change.
This is, by the way, not a very good forum to post your question on. I'd guess you'd get a lot more interesting/insightful responses from a RIMS forum.
Think of insurance as a simple process described by 3 parameters - "amount of money in", "return on money while its held" and "amount of money out".
So the performance of insurance as a business depends on how well one works these three controls.
Amount of $ in is determined by marketing & changes in legal climate to a minor degree - but more by performance of the entity in equity markets. Consolidation is an obvious way to get a major rapid influx of $.
Return on $ is determined by overall performance of global markets and by regulations governing investment. This is the parameter that is easiest to "tweak" through creativity, both for good & evil (e.g. Barings, LTCM,...).
Amount of $ out is determined by claims paying strategies. I'd guess that, in terms of global performance, this probably doesn't have nearly the impact of the other 2 parameters.
If 50 years is short term (?) - I'd say that far & away the single largest impact on the global insurance/financial industries will clearly be climate change.
This is, by the way, not a very good forum to post your question on. I'd guess you'd get a lot more interesting/insightful responses from a RIMS forum.
Major Influences
Government Oversight
Litigation climate
Weather / Geography of risk location
Litigation climate
Weather / Geography of risk location
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gregcw
- Insurance Journal Addict
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- Location: Newport Oregon
Main Deatermining Factors
In reviewing all of the responses, although all of them are determining factors I agree with kevinraz and badger. I've gone through and listed the three that I think are most determining are:
1. Department of Insurance Regulation - definitely in the top three because it will determine how we do business
2. Economy - because of the effect on how much needs to be reserved for loss and how the interest income affects the value of the reserves. This affects how much needs to be set aside and how much is available for other areas like marketing.
3. Litigation - because the cost of litigation, whether frivolous or legitimate adds to the cost of claims and the amount of necessary reserves. Lawyers working on a contingency basis also increases the claim and the ultimate cost of the claim.
One comment is that almost all of the answers are related to the Property & Casualty side of the businss. On the Life & Health side of the businss Number 3 would change from Litigation to Mortality rates for ultimate costs of claims for Life Insurance and Costs of Providing Care due to the increased costs of medical technology for Health Insurance.
At the individual company level, Risk Selection and Demographics would be a large contributing factor to a companies porfitability. This would apply to both Property and Casualty and Life and Health
1. Department of Insurance Regulation - definitely in the top three because it will determine how we do business
2. Economy - because of the effect on how much needs to be reserved for loss and how the interest income affects the value of the reserves. This affects how much needs to be set aside and how much is available for other areas like marketing.
3. Litigation - because the cost of litigation, whether frivolous or legitimate adds to the cost of claims and the amount of necessary reserves. Lawyers working on a contingency basis also increases the claim and the ultimate cost of the claim.
One comment is that almost all of the answers are related to the Property & Casualty side of the businss. On the Life & Health side of the businss Number 3 would change from Litigation to Mortality rates for ultimate costs of claims for Life Insurance and Costs of Providing Care due to the increased costs of medical technology for Health Insurance.
At the individual company level, Risk Selection and Demographics would be a large contributing factor to a companies porfitability. This would apply to both Property and Casualty and Life and Health
Gregcw
Advertising: When a company or a pioneer comes up with something new and fresh, other companies follow suit worldwide. Think about cell phone industry. When the first company offered nights and weekends free, all followed suit. The insurance industry is similar to the rest. Watch what happens to accident forgiveness. I bet many other companies will start offering similar programs.
Courts: The laws and judgements made on high profile cases changes the industry as a whole. If one company takes a big loss or wins a big settlement others are watching.
Natural disasters and diseases: When a mold first broke ground in Texas, many Texans have never even knew it exsited. However, the first homeowners class action lawsuit, raised awareness and millions learned of the dangers of mold. Then all of the sudden, millions of Texas filed claims and forced insurance companies to adjust policies and prices or leave the state. Hurricanes, tornadoes, floods and much more massive damages, evolved insurance policies in similar fashions.
Courts: The laws and judgements made on high profile cases changes the industry as a whole. If one company takes a big loss or wins a big settlement others are watching.
Natural disasters and diseases: When a mold first broke ground in Texas, many Texans have never even knew it exsited. However, the first homeowners class action lawsuit, raised awareness and millions learned of the dangers of mold. Then all of the sudden, millions of Texas filed claims and forced insurance companies to adjust policies and prices or leave the state. Hurricanes, tornadoes, floods and much more massive damages, evolved insurance policies in similar fashions.