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While the global insurance sector has been less directly impacted by the recession in comparison to other financial services businesses, most insurance companies around the world were surprised by the depth and magnitude of the downturn, according to a recent report from Ernst & Young.
The report concluded that insurance companies must now focus on evaluating and assessing potential exposure to extreme risks if they are to better anticipate, manage and respond to future stress events.
“For the past year, progressive insurers have been responding to the pressures of an evolving economic landscape in the world,” said Peter Porrino, Ernst & Young’s Global Insurance leader.
“Speaking to our clients we have heard how companies around the world are deploying approaches to manage credit exposures and regulatory capital, as well as focusing on redesigning and re-pricing certain products. Executives are not only applying strategies to manage and protect their businesses, they are also focusing on growing and reshaping their organizations and considering how best to guide them in the future.”
The report highlights a number of lessons that insurers around the world have learned from the crisis, such as that most insurers have learned to secure a capital buffer over and above what is predicted by economic capital models; an enterprise-wide approach to risk management is important to future success; sophisticated insurers are re-evaluating the size and shape of their business from the top down; insurers are divesting certain businesses or product lines and reinvesting in their core businesses for future growth.
The report added that the insurance industry is well-placed to take advantage of new market and product opportunities. The ‘third age’ retirement sector requires new savings and pensions products, which insurers are well placed to deliver because of their experience in underwriting older age mortality. In addition, geographies such as Southeast Asia, Latin America, the Middle East and Eastern Europe represent opportunities to deliver insurance products to a growing customer base. However, insurers must embark upon the right strategies and mode of market entry if they are to be successful.
“The insurance industry has done well to emerge relatively unscathed from the downturn but we are now entering a new and changing world,” explained Lex van Overmeire, insurance leader for Europe, Middle East, India and Africa (EMEIA).
“Insurance leaders able to demonstrate ingenuity, the courage to make tough decisions and the foresight to apply lessons from change will guide their companies to success in the sector. At the same time they also have to restore confidence levels with customers as well as investors and other stakeholders, in order to create a sustainable future for the sector. These will be the leaders who establish the foundation upon which our new global economy will rise.”
