Over the next five years what type of business do you see taking a market lead?
Insurance & Reinsurance
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.
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.
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 generally 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 insurers on traditional product lines.
In addition, M&A insurance products, in particular Warranty and Indemnity insurances, have become increasingly popular on the Danish market, and this appears to be a growing trend that will develop further in the years to come.
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.
Individuals face an increasing variety of financial risks which might not be covered by public funding. Private individual insurance products therefore play an essential role in protection against social and financial risks. According to the statistics, individual insurance market achieved a significant growth, consumer awareness of where to get health insurance has been raising in recent years. Considering the rise of consumer awareness in this area, individual insurance market will be grown in future years.
Emerging technologies and risks
The market for cyber insurance is growing and is seen as one of the biggest growth areas in the insurance industry globally. According to industry data, the global cyber market was estimated to be worth around $4.3bn in premiums in 2017. Fitch believes cyber insurance premiums could increase to $20bn by 2020.
Cyber insurance is still a relatively new product on the Irish market however it has become more popular in recent times and a number of insurers are now offering new cyber products in Ireland as a result. It has become a board issue in anticipation of the introduction of GDPR on 25 May 2018 and following a number of high profile cyber-attacks in recent years. It is expected that cyber will be a growth area in Ireland in the coming years.
In our view, the market leaders over the next five years will be those insurance companies that branch away from the traditional insurance business model towards a more technology-friendly operating model. In today’s digital economy, consumers want instant access to relevant and simplified information and this extends to complex insurance products. Embracing the benefits that technological advances can offer to the design and distribution of innovative insurance products will enable progressive companies to meet the needs and expectations of consumers in a more effective and efficient manner.
Drones are an emerging and rapidly developing technology, and new legislation is proposed in Ireland to increase existing drone regulation and impose criminal liability for certain drone offences. The draft bill (the Small Unmanned Aircraft (Drones) Bill 2017) imposes an obligation on commercial drone operators to have insurance for any liability arising from drone operation, including potential collision with persons or property, and it will be a criminal offence to operate a drone for commercial use without insurance. There is no clear timeline for the implementation of this Bill. As this market continues to grow, it seems inevitable that drone insurance will be a growth area.
Driverless cars and autonomous vehicles present particular challenges for the motor insurance industry. The existing driver-centred Irish legislative framework will need to be updated to facilitate driverless cars on Irish roads. The UK has proposed a single insurer model for driverless cars, where both the driver and the driverless technology are insured under one policy. While this has not yet been considered by the Irish legislature in any meaningful way, it can be anticipated that the Irish legislature is likely to follow the UK approach, given similarities between the existing road traffic frameworks in both countries.
Developments in M&A
Compared to 2017 levels, we anticipate further increases in the levels of insurance industry M&A activity in 2018. While the lack of clarity about specific proposals under Brexit and the proposed changes to the US financial services industry regulations and tax code may be a short-term inhibitor of insurance M&A, once clear, some of the changes may drive increased deal-making as the year progresses.
Developments related to third-party funding
In May 2017, the Irish Supreme Court confirmed in its decision in Persona Digital Telephony Ltd & Another v. Minister for Public Enterprise that third-party funding of litigation is unlawful, and indicated that any changes to the law in this regard in Ireland would be a matter for the legislature, not the courts. However, the Irish High Court has previously made clear that after-the-event insurance is valid; therefore, post-Persona Digital, ATE insurance is the only valid third-party funding in this jurisdiction.
UK Insurance Act 2015
Following implementation of the Insurance Act 2015 in the UK in August 2016, insurance law in Ireland is now significantly different from the UK law for the first time since 1906. We anticipate that the implementation of the Act will have an impact on the Irish insurance industry as the Irish market is closely connected to the UK (in particular the London market) and many Irish risks are written subject to English law. However the significance of this impact remains to be seen.
Payment protection insurance (PPI)
Following the UK Supreme Court decision in Plevin, a further redress scheme in respect of PPI is underway in the UK. It is possible, particularly in light of the changes to the limitation period for claims to the Financial Services and Pensions Ombudsman in relation to long-term financial products, that there could be further litigation in relation to the sale of PPI in Ireland.
Because of the pressures on growth in established markets UK insurers are likely to continue to seek growth in new markets such as Africa and Asia. Because of the regulatory and market pressures in Europe consolidation is likely to continue for the next few years. 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.
Cyber threats are challenging not just global business but also individuals and governments. Insurers that can genuinely offer credible solutions to both mitigate and manage cyber threats and adapt to the changing risk environment are likely to fare much better than those insurers relying on traditional product lines.
The increased digitalisation as well as the changing environment’s impact on the number of nature-related claims and size of the said claims, two of the strongest businesses for the coming 5 years will most probably be cyber risks and environmental risks. Not only will cyber risks and environmental risks be important areas of business over the next five years, but they are also two areas with the potential to change the very nature of how insurance is sold and consumed in the future.
For the market leaders of tomorrow, it will also be essential 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.
Since 2012 M&A Insurance products have become increasingly popular in the Norwegian market, both relating to real estate and industry related transactions. This insurance product is expected to continue to increase its footprint in the market over the coming years. Additionally, we foresee that different types of liability insurance products, especially directors and officers’ liability insurance, will become even more in demand, as a result of an increasing number of liability cases for directors and officers in Norwegian courts.
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. It is unlikely we will see the changes required in the regulation in the coming years.
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.
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.
Because of its compulsory mandate, medical insurance will always be a hot topic. The carriers that can properly develop underwriting guidelines to properly price this cover, given the uncertainties of securing the necessary health care data to rate a constantly shifting expatriate workforce, while at the same time developing - in conjunction with the health care providers - a stable cost control protocol, have the opportunity for long term success.
Similarly, given the constant development of infrastructure throughout the UAE, the need for general liability, contractors, PI, and specialty lines cover will continue to increase.
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.
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, a similar trend can be predicted for cyber-crime policies and related products.
In addition, we expect further growth in the property insurance sector due to the rise in property prices in Austria.
The local market will broadly follow international trends. Therefore, cyber insurance protection, and technology as a channel for insurance will lead the local market in the next years. However, particular importance will always have in this country coverage for catastrophe, particularly earthquakes, tsunamis and floods. This necessarily requires participation of the international insurance market or financial market through products such as cut bonds.
State-owned assets have traditionally been uninsured for catastrophes. Would this change in the future, this area ill certainly produce a major growth for the insurance and reinsurance markets.
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 may gain importance within the coming years. Moreover, digitalisation may become a decisive factor for business success in insurance.
Given the catastrophic events suffered in Peru on 2017, the main objective of the government is to invest in infrastructure; therefore, the construction sector and, therefore, the insurance associated with this sector, will lead the market for the next five years.
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). These forms of insurance are anticipated to grow further and take market lead over the next ﬁve years.
Over the next five years, we see bancassurance and online platforms as being strong demand drivers in the Singapore market.
With a present penetration rate of approximately only 4%, uptake in life insurance policies is expected to increase with more innovative coverage, such as protection against loss of income and mortgage protection.
Demand for cyber insurance is also expected to continue to gain traction.
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.
In terms of the collection of premiums, the property and casualty branches reached BRL16.1 billion in the second quarter of 2017, 6.5% higher than in the previous quarter and 5.5% above the same period in 2016. Moreover, the collection of risk insurance coverage for people was BRL8.7 billion in that quarter, with positive variations of 8.6% and 10.4%, on the same basis of comparison.
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). Currently, two other major issues related to Life Insurance are before the Superior Court of Justice: the statutory limitation period for alleging nullity of the non-renewal clause of collective life insurance policies and the possible application to life insurance of rules that are typical of health insurance.
It is also important to note that several relevant judicial and arbitration cases will be decided in 2018, 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.
As Israel is a leading force in innovations in many areas, we are beginning to see some new ideas in Insurance technology.
In 5 years technology will most likely take over mainly in the commoditized private line areas, and will be the leading insurance business.
As the market is very mature, insurance products tailor-made for the specific customer will become more important and popular.
Insurance products linked to the development of new technologies (such as cyber insurance) will also most probably take a market lead and prove to have a competitive edge.
Finally, with an ageing population and the government social security budget under pressure, it is obvious that life and health insurance will continue to be around and even become more important in the daily lives of policyholders.
Note: the authors wish to thank their colleague, Anne Catteau, senior associate at Lydian, for her help in the preparation of this article.
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.
As set out in the answer to question 20, domestic insurers are increasingly embracing digital innovation to deliver InsurTech solutions. However, Canada is a fairly conservative market and the adoption of InsurTech is by no means present across all companies. Those established insurance companies that are able to partner with FinTech companies to fully participate in the growth of InsurTech will be well positioned to take a market lead.
As in many other jurisdictions, cyber is expected to be the new source of business.
The current social, technological and economical context inevitably leads to the emergence of a new set of risks to which the insurance market shall be responsive, notably with respect to terrorism, cyberspace/cybercrime, data collection, environmental changes, population ageing or alternative transportation mechanisms.
As an example, we tend to believe that in the next few years, the majority of the customers will be accessing and purchasing goods and services through online platforms or devices and the transportation sector will become increasingly automated. Insurance undertakings have started and will continue to promote and adapt their products to the specific requirements of the industry. Insurtech startups have popped up and multiplied in larger markets, most notably the U.S. We believe that in the next five years we might seem them turn up and grow in Portugal, although perhaps a few more years will be needed for them to take a marked lead in Portugal.
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.