Swiss Re “Sigma” Study Focuses on Structural Changes in European P/C

May 29, 2000

Swiss Re’s latest “Sigma” Report focuses on the structural changes that have taken place in the European Property/Casualty insurance sector, and confirms that mergers, acquisitions, deregulation and the growth of technology have caused major changes in the industry, and that more are on the way.

“Following the wave of consolidation, in which the big European insurers were able to gain substantial market share in all European markets through acquisitions and mergers, the coming years should mark the age of information technology. The after-effects of liberalisation in the insurance industry are a central issue for companies worldwide, ” said the announcement which accompanied the report.

The report finds that deregulation has increased price competition, especially in driving down automobile coverage rates, with the result that premiums have remained flat, and profits have been eroded.

Another trend noted in the report is the increasing market share of “major European groups,” which went from 18 percent of the market in 1990 to 39 percent in 1998, almost entirely from acquisitions and mergers, rather than from internal growth.

50 percent of that consolidation, which amounted to $35 billion in 1997, involved cross-border consolidations notes the report, which states that, “The general consenus is that M&A activity on the part of the major groups is due more to strategic considerations than to a drive for efficiency.”

Technological changes will play an increasing role in insurers’ operations, affecting traditional agents and brokers, predicts the report. “New technologies offer previously unknown possibilities for automating routine tasks such as administration. Outsourcing will gain far more importance as the new technologies will make it easier to deconstruct the value chain. The internet also opens up a new distribution channel in direct competition with the traditional method of selling via agents and independent brokers.”

The publication, “Sigma No. 3/2000,” may be obtained at Swiss Re’s website : http://www.swissre.com.

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