Over the next five years what type of business do you see taking a market lead?
Insurance & Reinsurance (3rd edition)
The Brazilian economy has surprisingly detached from the political crisis and has been showing signs of recovery. The insurance market, which has always robustly resisted Brazilian economic crises, is now in a situation that is conducive to its development. Currently, the main segments of the insurance industry in Brazil are, in order of revenue: health, property and life insurance. In the coming years, there is likely to be an expansion in surety insurance, particularly in relation to infrastructure development projects. Rural insurance, D&O, and individual life insurance are also expected to grow.
From a litigation and loss adjustment perspective, many insurance claims have arisen out of the poor economic conditions that have undermined the capacity of some civil construction companies to comply with their contractual obligations. In addition to economic vicissitudes, problems arising out of corruption scandals at Petrobras have had serious repercussions in the fields of surety and D&O.
In relation to the risk posed by the increase in longevity, which is the main emerging risk in the Brazilian market, a binding precedent, issued by the Superior Court of Justice, has introduced a creative solution for individual private insurance policies: a specific life-expectancy table for the Brazilian population, updated periodically, with policies featuring a contractual clause linking the adjustment of the benefits to the evolution of the life-expectancy table (Special Appeal 1.568.244/RJ). It is also important to note that several relevant judicial and arbitration cases will be decided in 2019, mainly in the D&O, engineering and surety areas. Furthermore, despite the existence of some worrying situations in relation to the large number of lawsuits before the courts, there has been a clear evolution in the case law in relation to the application and interpretation of Insurance Law.
It is hard to predict which line of insurance will become market leaders. However, there is no question that cyber insurance will perform an important role in the insurance market. According to the Interim Measures for the Supervision of the Internet Insurance Business (currently effective) issued by the CBIRC, insurance companies can operate cyber insurance business in the following areas:
(1) personal accident injury insurance, term-life insurance and whole-life insurance;
(2) household property insurance, liability insurance, credit insurance and surety insurance insured for applicants or insurants personally;
(3) property insurance business which could achieve full services of sale, underwriting and settlement of claims independently and completely online; and
(4) other insurance stipulated by CBIRC.
Experts and Scholars are expecting the release of district restrictions on cyber dread disease insurance. However, in the Regulatory Measures on Internet Insurance (Draft) published by CBIRC in October 2018, cyber dread disease insurance is still excluded from being sold in districts, cities or provinces where the insurance company does not have any branches.
The next five years are likely to be a period of change. Technological changes, both in the way insurance products are written, sold and administered, and also more general-ly in the way individuals live their lives, are likely to unfold in the next five years. Due to the technological changes, cyber threats have become a new huge challenge. Insurers that can offer credible solutions to both mitigate and manage cyber threats and adapt to the changing risk environment are more likely to take a market lead than those in-surers on traditional product lines.
In addition, M&A insurance products, in particular Warranty and Indemnity insurances, have become increasingly popular on the Danish market, both relating to real estate and industry related transactions, and this appears to be a growing trend that will de-velop further in the years to come.
We are neither brokers nor fortune-tellers. We think, however, that in a market like the Swiss market where banks, securities dealers, asset managers and other financial institutions have a predominant position, financial lines insurance is an important business line and it may gain importance within the coming years. Moreover, digitalisation and the control of data may become decisive factors for business success in insurance.
On a global basis and locally, it is expected that there will be sustained economic growth, rising interest rates, with higher investment yields which will stimulate the insurance industry in South Korea. In this back-drop and in a high-penetration jurisdiction such as South Korea, a number of insurance products are in the spotlight and are expected to grow such as reinsurance to relieve burdens of IFRS 17 and the K-ICS implantation, cyber security insurance with a highly-connected country, supplemental health insurance in response to various regulatory changes to the insurer health insurance market, as well as niche markets for pet insurance with the ever growing number of pets and pet-owners and travel insurance with increasing number of South Korean business and leisure travellers.
Infrastructure investment remains the highest goal of the Peruvian government; therefore, the building industry and the insurance products associated to the latter will the construction sector and the insurance associated with this sector will lead the market for the next five years.
At this juncture, there is significant demand from insureds for cyber risks and financial lines insurance. This reflects a certain number of wider trends, such as the increasing digitalization of our day to day lives, or the increasingly demanding regulatory environment businesses are faced with (coupled with the significant development of “white collar crime” prosecutions in the last decade).
Medium term, however, product liability business should develop significantly, as the budding trend of tech-driven automation (driverless cars, robots etc.) will tend to shift liability from individuals to manufacturers.
For the market leaders of tomorrow, it will be even more crucial to encounter the opportunities and challenges of digitisation and to transform their business models accordingly, to come up with attractive and flexible products and to manage the client interface successfully. Further, due to the existing market pressure, we further expect increased consolidation activities and insurers continuing to consider growth opportunities in other markets, including emerging countries in Asia and Africa.
As Israel is a leading force in innovations in many areas, we are beginning to see some new ideas in Insurance technology, which are adopted by existing insurance companies.
One can see that I.O.T. (Internet of Things) will be incorporated in handling claims (mainly motor claims). More digitalization will be introduced to marketing of private insurance products, such as comparison between proposed rates and A.I will be implemented to reduce insurance frauds.
The development in technology created several products which are introduced as part of a traditional product. Cyber Insurance is now an important part of any office insurance, in addition to stand-alone cyber products.
Professional Liability for hi tech companies became a very popular product especially in Israel in view of the vast number of hi tech companies.
The types of businesses which are likely to take a market lead across the insurance and reinsurance sector are those which are able to respond and adapt their business models and processes to changing consumer demands and the pressures from emerging regulatory challenges.
While businesses linked to the resources and construction sectors are expected to remain strong in Australia, it is likely that businesses related to information technology/cyber will gradually overtake those sectors over the next five years.
The rapid pace of technological changes in the industry and shifts in the demographics of the Australian consumer base are driving consumer expectations as to their interactions with the insurance industry. In addition, the increased regulatory scrutiny of the insurance and reinsurance sectors, changes to the life insurance remuneration model and changes to product design requirements has been accompanied by an increased focus on consumer protection measures. Industry players will need to dedicate resources towards these developments to implement processes and procedures to ensure compliance with the changing regulatory environment.
As indicated digital innovation will dramatically affect insurance companies not only in their internal structures, but also will provide an extremely profitable, albeit challenging, source of business, the electronic and cyber insurances with the development of “internet of things” and the “GDPR loss events” will certainly be booming in the next few years.
Another aspect that in Italy might take off in the next five years are Cat-Nat policies.
Earthquake/ seaquake coverages are rare and underdeveloped and a technically savvy Insurer could couple the coverage with the currently available computerized systems of early warning for the arrival of a quake with the automatic timely switching off of specific machines sensitive to these natural events like turbines and/or hydroelectric plants.
Cyberattacks have come to pose a severe and present risk that Japanese companies have to cope with, as they are capable of rendering any countermeasures ineffective. The Ministry of Economy, Trade and Industry of Japan issued the Cybersecurity Management Guideline in December 2015, which clarifies that cybersecurity is a business challenge and that managements of Japanese companies have to take appropriate actions to protect their companies. To respond to such situations, insurance companies have developed insurance products to cover the costs of information leakage or damages caused by a cyberattack. Indeed, it is reported that the sales of cyberattack insurance will be four times of the sales in 2017.
In relation to cyberattacks, the virtual currency exchange business is currently under big debate in Japan. The FSA recently started regulatory oversight for the virtual currency exchange business operators. With this regulatory move, the virtual currency market is actively expanding, and, at the same time, posing concerns that purchased virtual currency may be lost if the virtual currency exchange business-provider becomes a subject of a cyberattack, operational mistake or wrongdoing. In fact, in January 2018, one large virtual currency exchange business operator was cyberattacked and lost around USD 550 million of its customers’ virtual currencies. It is expected that such insurance products will provide a sense of security to the virtual currency market and make the market more active.
Increased longevity may affect the strategy of insurance companies. Recently, the Institute of Actuaries of Japan published the Standard Longevity Table 2018 (previously amended in 2007), indicating significant decreases in projected death rates. With this trend of further increasing people’s longevity, it is reported that insurance companies will lower the fees for life insurance by 5% to 10% for newly entered insurance contracts. It is also reported that demands are gradually shifting from life insurance to products covering living costs when the insureds become unable to work, reflecting the increased longevity.
Observing current trends on the Polish insurance market shows that the most important challenges in the insurance industry for the next 5 years will be, among other things, adaptation to many new regulations (as noted above: IDD, General Data Protection Regulation, PSD II), progressive automation of the industry, emphasis on a more individual approach to the customer, building customer confidence and professionalisation of the services offered.
For the past several years, the approach of insurers in Poland was focused on building market share (sales' volume) rather than on the quality of the product. However, competition, customer awareness and knowledge are increasing. This is forced by the changes in the law (both at the EU and the Polish level), the KNF's approach and the activity of consumer organisations. This means that insurers are under pressure to implement new ideas, innovations and offer more specialised products dedicated to specific groups of recipients with lower prices. Competition between insurers and insurance intermediaries will force them to focus more on the quality of their offer with a wider range of specialised products, which will be better adapted to customer needs. Generally, market players are expected to pay more attention to their reputation and take more care of the image of the whole insurance industry.
Furthermore, with an aging and wealthier population one of the presumed trends for the future will also be the development of a range of health insurance or pension products, which at the moment are still undeveloped in Poland.
In the next five years, the Chilean market should have sufficient penetration to enable the promotion of massive multi-risk insurance, cyber-risk both at the level of large companies and SMEs (small and medium-sized enterprises), as parametric insurance in catastrophic risks associated with large industries. On the other hand, the possible reform of the pension system could open an interesting business gap for Life Insurance Companies, allowing them to participate not only in the retributive stage of the pension (retirements), but also in the conformation of the funds to be pensioned, either in a main or complementary way.
The opening of the Mexican energy sector requires insurance capacity for the Mexican market on a large scale. It is a sector that will grow intensively, in lines such as maritime, civil and environmental liability. The mandatory insurance coverage required by Mexican agencies to operate, surety and transportation will further enhance the foregoing and creates legal challenges on setting proper arrangements to place this coverage by Mexican insurance companies with adequate reinsurance coverage.
We are also seeing growth in cyber insurance related products, including insurance to protect new risks such as privacy and data protection. The changes in the Mexican legislation and incorporation of privacy, data protection and fintech legalislation is providing a clear framework to contribute to the growth of these lines of products.
We will continue seeing growth in financial lines, D&O insurance, in reps and warranties and tax insurance products, fraud related products and surety.
There is tremendous potential and urgency to develop an efficient health insurance sector; however, that will require better regulation and a change in health public policy. In this regard, it is likely that the new government that resulted from the 2018 federal election will implement changes in the health sector that may favorably impact the development of the health insurance business.
We expect that life and health insurance will continue growing, and provided that the financial stability is maintained, that life-saving products continue growing among the ever growing middle class population.
Automobile insurance will also continue growing fueled by the mandatory automobile liability insurance schemes currently implemented and hopefully, finally, being enforced.
We are seeing a swift development of parametric insurance for catastrophic risks, not only applied to agricultural crop insurance but also expanding into property and casualty. We are optimist that the regulator will continue welcoming the development of parametric insurance and its implementation development in the Mexican market.
Despite the numerous reforms to the financial laws, the opening of the market to foreign investment and the easiness of doing business in Mexico, the large gap in insurance coverage has not receded and Mexico continues to be an underinsured market continuing to make it as attractive as ever. There is expectation that new technologies and insuretech will help reduce the gaps in underinsurance and contribute to improve financial inclusion among the Mexican population.
As discussed above, a major theme for the industry will be technology and further digital innovation. We expect to see significant investment in Insurtech as well as advances in the application of DLT and artificial intelligence to insurance business. Digital innovation will play a part at every stage of the customer journey and will allow insurers to both drive cost saving through innovation and use data and analytics to provide more personalised products.
Cyber risk continues to be an area of growth, fuelled by an increasing number of high-profile data breaches affecting both companies and governments. As customers become more aware of the significance of cyber security and the consequences of its failure, insurance products that can offer credible solutions are likely to show growth ahead of traditional product lines.
In recent years we have seen high levels of consolidation due to regulatory and market pressures in Europe. We expect to see some further consolidation although not necessarily at the same high levels. In preparation for Brexit we have seen some shifts of business from the UK to the EU27 and although most (re)insurers have their Brexit preparations now in place we may see further activity as the Brexit process unfolds or develops.
Buyers are likely to include investors from outside the traditional insurance markets, including private equity. For life businesses the quest for returns is likely to result in insurers investing in different asset classes such as infrastructure projects.
We also expect to see significant growth with respect to insurance-linked securities ("ILS"), with the UK and Singapore emerging as new centres for the market. In particular, work done by the UK regulator in establishing a UK ILS regime which is adaptable enough to compete with the capabilities of other jurisdictions but from within the UK's well regarded regulatory and tax regime will, we expect, lead to growth in this area.
There has been a consistent increase over the last few years in the issuance of policies to cover cyber security risks, directors and oﬃcer’s liability, errors and omissions liability and employment practices liability (including liability arising from sexual harassment claims) and the claims arising thereunder. These forms of insurance are likely to grow further and capture a large market share over the next ﬁve years, though the more traditional lines of business such as property will of course continue to remain dominant.
The marginal growth in premium in the UAE insurance market in 2018 was primarily due to almost full penetration achieved for mandatory health insurance in Abu Dhabi and Dubai. Over the next five years, there is scope for the remaining Emirates, including Sharjah, to follow suit and implement the requirement for mandatory health insurance. Should the remaining five Emirates do so, we may witness exponential growth across the UAE for health insurance.
We expect InsurTech and the cyber insurance industry to grow significantly. Traditional insurance offerings will consolidate, but will remain highly relevant. Insurance undertakings that are able to introduce new technologies, such as artificial intelligence, APIs, digital customer service and the analysis of big data, into their classic business activities will enjoy a competitive advantage.
Although there is no certainty as to which lines of insurance will become market leaders, there is no question that cybersecurity and data protection coverages will continue to grow rapidly. Similarly, there will be marked increases in the amount of products offered to cover quickly evolving technological advancements, including the growing personal and commercial use of drones and autonomous vehicles.
Also, with a substantial number of the U.S. population reaching retirement age, health and annuity insurers are likely to see increased sales in covers designed to offset ever growing health care and retirement costs.
Indonesian population reports indicate that approximately half of Indonesia’s population is under 30, with millennials (18 to 35 years old) numbering about 80 million. Given this dominant, young, targeted consumer population with a facility and thirst for digital technology, the businesses that are likely to take a market lead over the next five years would be those that focus on technological innovation and are able to adapt to the fast-changing digital world (particularly by cooperating with fintech companies).
Subject to the success of OJK’s financial literacy program (which seeks to educate the public on financial services and products), smartphone penetration, and the issuance of positive new regulations for digital marketing channels, it would appear that micro-insurance products and retail insurance, particularly those generated from online transactions, would likely lead the new markets in coming years.
Most businesses and industries, including insurance and reinsurance, are rapidly adopting digital innovation for their operations. It is predicted that businesses relating to information technology will gradually take a market lead over the next five years and the demand for relevant insurance products, such as cyber-crime and data protection policies, would also increase as a result.
Individual private pension insurance will gain attractiveness among the Austrian workforce. Demographic change will further reduce the ratio between the working population and pension receivers, thus putting additional pressure on the state pension system. As a consequence, the gap between final salaries and pension earnings is widening. Taking into account that the proportion of private pension insurance is still comparatively small in Austria, we estimate that demand for private pension schemes will increase significantly over the next five years.
As regards liability insurance we expect the D&O insurance market to grow on consolidated premiums. At the same time W&I insurances and other types of transactional risk insurance will gain in importance. In light of a strong rise of cyberattacks and dependence on technology, a similar trend can be predicted for cyber insurance policies and related products.
In addition, we expect further growth in the property insurance sector due to the rise in property prices in Austria.
Emerging Technologies and Risks
Due to the ever-growing influence technology has on the insurance industry, we believe that the market leaders over the next five years will be the companies who embrace the technological changes and steer away from the traditional insurance business model. While new technology has posed significant challenges to the insurance market, we believe it is those who embrace the benefits of the new technology and use it to their advantage in creating new, inventive insurance products who will emerge as market leaders in the coming years.
It is evident that the market for cyber insurance is growing at a very fast pace and is one of the most prominent growth areas in the global insurance market. Fitch have commented that they expect the market for cyber insurance premiums to increase by €20 billion by 2020.
Cyber insurance is growing at a similarly steady rate in Ireland, although it is still quite a new product on the Irish market with an increasing number of Irish insurers offering this type of protection. According to the 2018 PWC Pulse survey, 71% of Irish insurance CEOs believe that the majority of businesses will have cyber insurance in five years’ time. The growth in this area can partly be explained by the introduction of GDPR on 25 May 2018, which saw a significant influx in businesses seeking this type of insurance. The growth of cyber insurance is expected to continue in Ireland over the next few years.
Drones have become a growing area of interest in the insurance industry with new legislation being proposed to tighten existing drone regulations. The Small Unmanned Aircraft (Drones) Bill 2017 introduces an obligation for commercial drone operators to obtain insurance for any liability arising from drone operation and will make it a criminal offence to be commercially operating a drone without having obtained this insurance first. The bill is currently at second stage in Dail Eireann.
The motor insurance industry will face a particularly challenging task with dealing with the emergence of autonomous vehicles. The UK has put forward a new insurance model to combat the issue where both the driver and the driverless technology would be insured under one policy. The Irish legislature have not made any significant steps in tackling the challenge presented but it is likely that they will follow the UK approach. There has not been as much of an emphasis placed on autonomous vehicles in Ireland as, according to the 2018 PWC Pulse Report, most leading Irish insurers do not believe that driverless cars will be widely accepted in Ireland in the coming years and thus may not be focusing on the development of this area.
Developments in M&A
While Brexit and other concerns surrounding the global economy led to a decrease in insurance M&A in the past number of years, according to the 2018 PWC Pulse Report, one in 16 Irish insurance leaders believe that a merger or acquisition will be their largest opportunity for growth over the next three years and the insurance M&A market seems to be more buoyant in recent times.
Developments Related to Third-Party Funding
The Irish Supreme Court, in the case of Persona Digital Telephony Ltd & Another v. Minister for Public Enterprise, affirmed the fact that third-party funding of litigation is not authorised by law in this jurisdiction. They further held that due to the separation of powers, any changes to the existing law with regards to this is a matter for the legislature to deal with, not the courts. However, the Irish High Court has previously confirmed that after-the event insurance is valid which now makes it the only lawful third-party funding in Ireland. The English market has witnessed a significant growth in after the event insurance in the past year.
Transactional insurance products (including Warranty & Indemnity insurance), are becoming increasingly popular.
In view of the increased threat of cyber-attacks, insurers offering cyber insurance products (including products where insurers offer services to help insured guard against attacks and losses in the first place) are sought after in all market segments. Perhaps the area in most need of such products and where insurers could take a market lead is the medium and small business section where there is little or no in-house IT capability. Cyber insurers offering such tailored products over the next five years will probably be in a position to take the market lead.
Another growing trend worth mentioning is the domestic Norwegian insurers' tendency to focus on personal insurance products, whilst special risks products are increasingly becoming the domain of foreign insurers. This is probably a trend that will continue for the next five years as well.