The eighth edition of S&P Global Ratings' European Insurance Conference on Nov. 27, 2024, painted a fairly optimistic picture of the industry. Premium levels are growing twice the rate of global GDP, a speaker pointed out, with global insurance and reinsurance companies exhibiting strong capital levels. For instance, 18 of the top 19 rated global reinsurers now have capital levels in excess of our two highest confidence levels.

Outlook Is Sanguine

The top risks European insurers are facing include geopolitical conflicts that affect capital markets and insurers' investments, elevated claims inflation, and muted top-line growth in life insurance. Structural risks comprise a potential increase in disruptions linked to climate change and the energy transition, as well as cyber risks.

We forecast that life insurers will continue to favor offering unit-linked and protection products ahead of traditional guaranteed products. More favorable interest rates supported the shift to plain vanilla investments and gradually reduced the share of illiquid assets further.

Property/casualty (P/C) insurers continue to struggle with claims inflation, which considerably exceeds the consumer price index in many European markets. We expect premium rate increases will continue, especially in the motor segment.

We don't expect that insurers will materially reduce their natural catastrophe risk coverage on a systematic basis. The main problem of the protection gap in this regard is the lack of incentives for individuals to buy insurance. As Volker Kudszus, Managing Director and Sector Lead for Insurance Ratings at S&P Global Ratings, put it: "If government money is coming, why do people need to buy insurance?" Limits to insurability and a need for public-private-partnerships only exist in some high-risk areas.

Regulatory Dos And Don'ts

Panelists agreed that adjusting Solvency II capital charges of individual asset classes "to fit a political whim" is counterproductive and detrimental to insurers' credibility. Most conference participants considered that the overall regulatory framework for insurers in Europe is functioning well but needs improvements, particularly on emerging risks (see chart 1).

Chart 1

Panelists called on governments to tackle climate risk and emphasized that the onus should not lie on insurers alone. Instead, it should be a joint exercise with governments, which must provide incentives to mitigate the effects of climate change.

IFRS 17 is a work in progress. Even though the transparency on capital elements benefits from a more economic view, comparability and consistency among insurers' reports remain a challenge (for example, discount rates vary significantly and IFRS 17 triggered an inflation of non-GAAP metrics). Investors' understanding of the insurance industry hasn't benefited materially from the new framework. This sentiment was reflected among audience members (see chart 2).

Chart 2

Customers Are Front And Center

Stay realistic

"In times like these, when the world feels at its most unpredictable, insurers have an opportunity to stand up in front of customers and demonstrate why they exist," Lloyd's Chief Executive Officer John Neal pointed out in his keynote speech. He appealed to insurers to remember their raison d'être: giving people and businesses the confidence to make financial decisions.

Customer centricity is key in this regard. To remain relevant, insurers must focus on the challenges customers are facing--be it the increasing complexity of supply chains, climate change, or cyber risks--manage expectations, and be candid, for example when modelling certain types of insurance risk. "Anyone that says they fully understand climate risk is kidding us all," Mr. Neil said.

Keep your promises

100% customer satisfaction is the ideal, but room for improvement will always remain, panelists agreed. In contrast, the views on the importance of brands differed. While some believed customers value affordability above anything else, others regarded the brand as the decisive factor for customers' purchasing decisions.

Concern remains about some insurers' slow reaction to catastrophic events. "People lose confidence if their claims don't get paid. One bad experience can tarnish the entire industry," a panelist stated. Additionally, late, incomplete, or refused claim payments may force people out of the insurance market and into self-insurance. This is in part reflected in the rapid rise of captives--insurance companies that are wholly owned by the insured parties.

Innovate within limits

The insurance industry's complexity and the regulatory constraints it's exposed to make it harder for new technologies to gain ground and contribute to insurers' cautious approach toward change. "Insurers aren't particularly innovative, but that isn't their function. They should be conservative--that's just the nature of the space," a panelist pointed out.

Another panelist claimed that the services insurers provide haven't been transformed by any digital revolution thus far. On the contrary, technologization has increased the dissatisfaction of some customers who struggle to discuss their issues with a human being.

Back To The Roots

The importance of customer empathy was also addressed in the final keynote speech. Alison Martin, CEO for EMEA and Bank Distribution at Zurich Insurance Group, made a case for compassionate customer service, which includes speaking in a language that customers can understand. Translating technical jargon into layman's terms not only improves communication but has positive effects on the entire business.

Responsiveness and accessibility are equally important. "People must be able to contact you and they must know how to contact you. Don't hide your phone number on page 21 of the insurance policy," Ms. Martin said. After all, nothing replaces the human touch.

Related Research

• Cyber Insurance Market Outlook 2025: Cycle Management Will Be Key To Sustaining Profits, Nov. 27, 2024

Writer: Kathrin Schindler.