Restricted credit, reduced liquidity, a lack of growth, enduring high inflation, US budgetary issues, increased political and systemic risk (driven largely by the failure to resolve the Eurozone crisis) and the impact of low interest rates on capital markets and on bond and shareholder values are putting near-unprecedented pressure on insurers.
Political and supervisory bodies including the G20 continue to reform the financial services sector at all levels. At the same time, regulators themselves are changing their respective structures and frameworks, encouraged in part by the International Association of Insurance Supervisors (IAIS) October 2011 agreement of common regulatory standards. In the US, the market is undergoing significant change as a result of the Dodd-Frank Act and because of new developments arising from the Solvency Modernization Initiative – including the introduction of the Own Risk and Solvency Assessment (ORSA) approach. In Asia prudential and international accounting-related issues – International Financial Reporting Standards (IFRS) for example – remain a concern. And in Europe, insurers continue to gear up to meet the extended 2014 Solvency 2 implementation deadline.
Unsatisfied, uncertain and untrusting consumers remain a problem for insurers across the world. Pension provision is increasingly becoming a political and social issue in many regions, while mis-selling scandals in some countries have weakened investor confidence. And with customer protection regulatory initiatives pending in Europe and probably further afield, insurers will need to make tough decisions about how they’re going to remain competitive and the kinds of relations they want to have with their customers.
Strategic and operational
Following a tough 2011, insurers are reviewing their risk appetite limits and reassessing product lines and exposures in vulnerable geographies – while also continuing to manage increasing regulatory capital and transparency demands. At the same time, the industry is suffering from a global skills shortage. As a result, many firms will need to re-structure their operations and develop capability if they are to both comply with regulations and continue to retain and attract customers.