FRANKFURT (S&P Global Ratings) Nov. 28, 2022--Most European insurers should be able to survive the storm facing the industry today, said European insurance leaders speaking at S&P Global Ratings' annual insurance conference. The biggest risk and opportunity ahead may well be digitalization.
(For a replay of the on Nov. 15 conference, go here and see Related Research below for a list of S&P Global Ratings' reports related to the conference.)
One participant predicted that at least one of the top 15 insurers globally will no longer be among the largest insurers in the years ahead. The biggest misconception about the global insurance industry is that it doesn't change very quickly, said William Hawkins, Director of Research, Keefe, Bruyette & Woods. Changes in the market have pushed five companies out of the top 15 (measured by market capitalization) in the past decade. In 10 years' time, Mr. Hawkins predicts at least one new name will make the list, though whether it will be a new company or insurtech he can't say.
A preview From EIOPA about financial stability
Keynote speaker and EIOPA Chair Petra Hielkema shared her views on the main risks to financial stability for the insurance industry, emphasizing inflation, the sharp increase in interest rates, and potential liquidity constraints. The markets are on full alert and on the outlook for any move, the biggest risk being sudden unexpected movements. The turmoil in the U.K. gilt market demonstrated that if market movements are intense and fast enough, liquidity could be a risk for long-term investors like pension funds or insurance companies.
You cannot exclude that something like this would happen in the euro area, Ms. Hielkema said, but notes much less of a likelihood because the euro debt market is much bigger and more diverse. Plus, the regulator believes that European insurers' structural buffers serve as an aid in liquidity management. For that reason, liquidity is important and needs to be closely monitored, but is not one of EIOPA's top concerns right now, she said.
If they keep within their scenarios and have buffers to deal with bumps in the road like inflation, insurers should be able to manage in an era of higher yields--which are ultimately positive for life insurers. At the same time, Ms. Hielkema sees other changes like digitalization and sustainability that need to be brought on board.
The change to IFRS 17 will run deep
Ms. Hielkema as well as other speakers on a panel devoted to regulation and accounting were generally positive about the adoption of IFRS 17, set for Jan. 1, 2023, which will change the accounting for insurance contracts with a comprehensive global standard--requiring major transformations to integrate business, finance, and IT systems.
One key benefit is bringing asset and liability sides under a consistent accounting approach. John Dacey, CFO, Swiss Re, said he hopes this will convince the skeptics. The impact will be strong on product design and the nature of the inherent risks of products that insurers are willing to bring on their balance sheet.
Overall, it's an improvement from a perspective of being able to understand what's going on in an entity, Ms. Hielkema said. But it will not make insurance so transparent that investors will rush in, she said.
Joachim Kölschbach CFA, Global IFRS Insurance Leader, KPMG, admitted that IFRS 17 won't demystify insurance, but will make it easier to understand, given the current difficulty of explaining the current confusing mix of standards like German GAAP, IFRS 4, and Solvency II. It will be easier to distinguish sources of profit.
Technology: revolution or reality check?
Insurance companies sometimes appear to move more slowly in adopting technology than the banking industry, although the crypto market turmoil shows it may not be a bad thing, said Maren Josefs, Associate Director, S&P Global Ratings, setting the scene for the conference's second panel on the future of insurance. According to S&P Global Market Intelligence, about 16% of venture capital going to private U.S. fintech companies in 2021 went to insurance technology. But that might be changing, with McKinsey data pointing to a doubling in insurtech investment in the last two years to $14.6 billion.
There's been a pause for a reality check, said William Hawkins, Director of Research, KBW. At first the industry heard stories of overnight change. Now, minds are focusing more on how insurtechs can help insurance companies digitize. For example, Mr. Hawkins sees big data helping insurers to improve risk management and underwriting efficiency, automate claims settlement, and engage more frequently with the customer than just at renewal time or in case of a claim.
Artificial intelligence is having a measurable benefit on claims processing, said Mark Klein, Chief Digital Officer ERGO Group and Chair of the Board of Management, ERGO Digital Ventures AG. For example, in health, ERGO receives about 50 million documents a year. In the past, they were able to process 50% automatically. With AI, that figure is set to increase to more than 90%, with the goal of straight-through processing. Technology, he maintained, won't be optional to streamline core processes, rather necessary to engage with the customer and offer an easy-to-use interface that should ultimately lead to business growth and increased profitability.
Writer: Rose Marie Burke.
Related Research
- EMEA Insurance Outlook 2023: In The Midst Of The Perfect Storm
- Global Reinsurance Highlights 2022
- Credit FAQ: How Will The Move To IFRS 17 Affect S&P Global Ratings' Analysis Of Insurers And Reinsurers?
- Lloyd's Market 2022 Review: Let The Good Times Roll?
- Economic Research: Economic Outlook Eurozone Q4 2022: Crunch Time
Conference replay (registration may be necessary)
https://event.on24.com/wcc/r/3856237/45995B1C9F85333C8E4B5C7BF2CDFADD?partnerref=ReplayMR
This report does not constitute a rating action.
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| Primary Credit Analyst: | Jean Paul Huby Klein, Frankfurt + 49 693 399 9198; jeanpaul.hubyklein@spglobal.com |
| Secondary Contacts: | Volker Kudszus, Frankfurt + 49 693 399 9192; volker.kudszus@spglobal.com |
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| Simon Ashworth, London + 44 20 7176 7243; simon.ashworth@spglobal.com |
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