Fourfactorscreatingaperfectstormintheinsuranceindustry.pdfVIP

Four factors creating a perfect storm in the insurance industry Industry Perspective 21. New entrants Insurance companies have remained relatively constant. Most of them have been in business for a good hundred years. Recently, however, there has been a rise in the number of new entrants marketing, selling or servicing insurance products or providing new capital. A range of new companies is coming in, redefining how insurance is done, and reshaping the economics of the industry in the process. Many of these new entrants are interesting organizations with great capabilities. Google, which entered the UK market in 2011 as an insurance aggregator, is perhaps the most formidable new entrant, from the perspective of a traditional insurer. The technology giant joined the emerging insurance aggregation market, significantly disrupting competitive market conditions and, by some accounts, subsequently helping lower insurance premiums by roughly 30% over the last 5 years. Introducing that sort of intense price competition into an industry which is not overly profitable to begin with, has changed the dynamics of the market substantially. To compound the issue, other companies are entering the fray as well, including retailers and their strong brand names, and telecommunications companies boasting telematics capabilities. Even car manufacturers are starting to embed telematics capabilities into vehicles and, in some cases, to sell insurance directly. 2. Social and economic dynamics We’ve moved into a very low interest rate period, and those low rates are putting a lot of pressure on the profitability of insurance companies. Insurance is an industry that, essentially, takes in money and invests that money before subsequently paying claims. So, with lower investment returns, there’s less profit being generated by the insurance sector. In insurance, there’s a tendency toward hyperbole that makes it seem like the industry is perpetually on the verge of revoluti