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3rd January 2018

Newslink Global Insurance Trends-a year of continuing change ahead

As Insurance Newslink enters its 25th year of reporting and linking strategic trends globally in our database service, the year ahead could cement the impact that digitisation and InsurTech have made so far.
Not only are the ways of insurance distribution being streamlined, but new products are also emerging such as cyber risk(large potential but difficult to underwrite), usage-based motor insurance through the use of telematics, and the Internet of Things(IoT)-linking devices and people to enable loss prevention/mitigation. Because of the advances in mobile communications and a resulting growth in online sales, the consumer is demanding speedier service from insurers and flexibility in products such as short period cover and quick claims settlement-many InsurTech start-ups are concentrating in these areas.
The InsurTech development is worldwide, through North America, Europe, and AsiaPac, and a number of large and medium sized insurers and reinsurers have set up venture capital arms to invest in start-ups-some have bought the company, such as Zurich's recent purchase of Hong-Kong-based telematics specialist, Bright Box. Regulators are generally supportive of InsurTech start-ups.
Industry-specific definitions such as "InsurTech" and "FinTech" will continue to replace "Information Technology" in terminology, which itself evolved from "Data Processing". They are also spawning a quantum leap in predictive analytics, with cognitive analytics to emerge. More will be heard of robotics and artificial intelligence applications, whilst distributed ledgers(blockchain) initiatives are beginning to emerge in niche areas.
The growth of cloud computing and the quantum leap in digitisation makes the world a smaller place, and some of the bigger insurers are starting to invest in microinsurance in developing countries. On the other hand, some are becoming more selective in the countries they wish to operate, as risk, climate, and geo analysis becomes more sophisticated.
Opportunities for wider insurance penetration remain enormous-Swiss Re's sigma preliminary estimate of insured losses for catastrophes in 2017 was $136bn compared to estimated economic losses of $306bn! The insurance industry is however playing a larger part in researching the impact of climate change and some are changing their investment strategy away from fossil fuels. Also, after a low incidence of Atlantic hurricanes over the last few years, the industry seems to have reacted quickly and effectively to Hurricanes Harvey, Irma, and Maria, using the latest technology, such as drones, to assess the damage-however, the level of rate increases in the January reinsurance renewals initially appears to be lower than hoped for, and subsequent renewals are awaited with interest.
The insurance industry has to decide how international it needs or wants to be. The International Association of Insurance Supervisors(IAIS) is pushing hard to develop global capital standards and many countries have signed up to its Multilateral Memorandum of Understanding)MMoU), whilst the EU Solvency II scenario, still being "tweaked", is increasing seen as a standard to which other countries are seeking equivalence. This year will see whether the EU and the UK can reach a satisfactory Brexit conclusion. The Bank of England, through the Prudential Regulatory Authority(PRA)), have set the pace by welcoming international insurers to operate in UK post-Brexit.
The London Market, as a global operation, is lobbying strongly for EU passporting rights and has suggested something on the lines of the US/EU recent reinsurance accord. However, President Trump's latest tax announcements may impact non-US insurers' trading competitiveness in the US. With the rising growth of local hubs around the world, the London Market, despite its unique underwriting knowledge, is challenged on pricing and processing, although progress is being made on streamlining and there are new opportunities through the recent approval for the market to transact Insurance Linked Securities(ILS). However, the digitisation of the commercial, specialty, and reinsurance sectors will inevitably take longer than in personal lines.
An interesting, changing, and challenging year lies ahead globally.
Articles on the above topics are included in the Insurance Newslink and Financial Newslink global trends database services at www.onlystrategic.com-featuring advanced structured search, report facilities, and a free 14 day full trial.