Global Insurers Expect Modest Growth Amid Swift Pace of Regulatory Change

Insurers concerned they are not evolving quickly enough to be relevant to future generations

Insurers across the world say regulatory changes and sustained low interest rates will continue to be their primary environmental challenges over the next one to three years, according to a new insurance industry outlook survey conducted by global professional services company Towers Watson (NYSE, NASDAQ: TW). While these near-term environmental challenges stand as insurers’ top concern (62%), they also express worries about more fundamental issues such as whether their business models will hold up to new and emerging risks (27%).

North American insurers exhibited more concern over interest rate risks (85%) than their European (68%) and Asia Pacific (61%) counterparts, while anxieties over regulatory changes resonated higher with European (82%) and Asia Pacific (80%) insurers than with their North American (65%) peers. Life and property & casualty (P&C) insurers had similar takes on the main environmental challenges, with the exception of climate change, which no life insurer ranked as a risk.

“With Solvency II implementation a year away, it’s not terribly surprising that regulation ranks top of mind for global insurers,” said Graham Fulcher, Towers Watson’s EMEA P&C practice lead. “However, disproportionate short-term focus on regulation is a long-term cause for concern at a time when insurers have many emerging challenges to think about, such as the opportunities of big data and social media, and the poor underwriting environment. That is part of the danger with an excessive focus on regulation: It distracts insurers from spending adequate time on things that ultimately matter more.”

Most insurers project business conditions to remain flat (60%) or possibly even enter a period of negative growth (17%) over the next three years. Asia Pacific insurers are the most bullish on growth prospects (52%), significantly more so than North American (20%) and European (18%) insurers. Life insurers (27%) showed more optimism than P&C executives (18%) concerning growth. Nearly two-thirds (63%) envision the most likely prospects for growth coming principally through organic means.

“The general projection for global insurers over the next few years is for nominal growth, and that’s likely why multinationals have targeted Latin America and Asia for future expansion. But that is not a development that will come easily. European and North American companies entering these markets must contend with significant differences in business practices, language and culture,” said Serhat Guven, Towers Watson’s North America P&C practice lead.

Survey respondents said technology (88%) and talent-related issues (78%) are their top resource challenges. “In Asia, some companies are establishing internal innovation centers to become market disruptors before they get disrupted, and more insurers might want to consider this approach,” said Michael Freeman, Towers Watson’s Risk Consulting and Software lead, Asia Pacific. “Talent-wise, success and failure often depend on your workforce. Insurers that have the right mix of talented people are more likely to succeed.”

Insurers also reflected on the primary opportunities and threats to their business. Beyond regulations (57%), other emerging opportunities or threats included changing distribution channels (47%), the pace of innovation (39%), big data (30%) and social media (9%). “There are numerous emerging opportunities that insurers can capitalize on to grow their business,” said Guven. “However, in many cases, companies react with incremental changes rather than taking more radical steps. Many insurers in our survey are now questioning whether this approach will enable them to keep pace with the market.”

About the Survey

Towers Watson conducted its global survey of insurance companies with a total of 365 executives, representing all regions of the world, and a fairly even split between life and P&C.

About Towers Watson

Towers Watson (NYSE, NASDAQ: TW) is a leading global professional services company that helps organizations improve performance through effective people, risk and financial management. With 15,000 associates around the world, the company offers consulting, technology and solutions in the areas of benefits, talent management, rewards, and risk and capital management. Learn more at towerswatson.com.

Towers WatsonJosh Wozman, +1 [e-mail]