BY STEPHANIE SLADE
Insurance providers remain optimistic about their industry's growth prospects despite a "perfect storm of shifting variables" and increasing market complexity, according to a new survey from State Street Corp.
The insurance executives surveyed acknowledged a number of challenges related to regulatory changes, the need to bring new products to market quickly and a desire to diversify into alternative asset classes as more traditional strategies are increasingly associated with lower yields.
Yet, 42 percent of those surveyed believe insurers' profitability will increase over the next five years, compared to just 19 percent who said profitability would decrease.
The survey respondents represented a mix of life, health, property/casualty and reinsurers.
One reason for their confidence may be the potential for expansion into Asia-Pacific and other underserved regions.
"I think if you're a large insurance company in the U.S. or in Europe, you look at that market as a logical expansion for your franchise," State Street Executive Vice President Scott FitzGerald said. "Certainly with China, I think you go where the people and where the money is."
Some 16 percent of insurers globally listed expanding into new markets as their top strategic priority, behind enhancing product offerings (28 percent), strengthening the distribution model (24 percent) and proactively managing capital to improve return on investment (23 percent) -- but ahead of optimizing their mix of business lines and products (11 percent).
Although eight in 10 see obstacles to expansion, State Street said the difficulties facing companies looking at entering new markets mirror those facing the industry as a whole: developing innovative products and bringing them to market, improving the pricing of risks and converting fixed costs into variable costs, among other things.
"I see [the global macroeconomic situation] as being fairly consistent," said Tom Forrester, senior vice president and managing director of State Street Global Services. "I don't see there really being much differentiation at all amongst the three regions, meaning America versus India versus Asia-Pac."
The younger-skewing populations and wealth accumulation in some of the underserved markets makes them a good fit for the insurance industry, according to the company. Still, figuring out how to reach the next generation is an important unfinished task.
"Will the distribution channels of the future be different than what they've been in the past?" FitzGerald asked.
"Going forward," he said, "there's more focus on using the Internet as a means to distribute." He said the use of social media was referenced in the survey as a way insurers may be able to "more effectively tap into the younger demographics, which is really what they're after."
Carriers also appear to see real opportunities to grow and adapt by expanding into new asset classes and markets, adapting to regulatory changes and bringing their technology and data systems up to speed.
"Overall, what came out of the survey is, certainly there [are] headwinds with risk, restructuring and regulation. But there was also a sense from the survey that there was a fair amount of optimism; that there's good room for growth here," Forrester said.
The survey, conducted in April in partnership with the Economist Intelligence Unit, interviewed 307 insurance executives from companies across industry sub-sectors and around the world.
is a freelance writer based in Washington, D.C.
May 28, 2013
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