According to new data released by Insurance Europe, gross
premiums for the European insurance sector increased by 1.6% in
2012. This is a significant improvement, considering that
premiums fell by more than 2% in 2011.
Non-life insurance figures grew the most, increasing by 3% to 459
billion euros. However, life insurance, which accounts for nearly
60% of premium increased by a shade below 1% to 656 billion
The resurgence in European markets in 2012 has also led to a
substantial increase in the investment portfolio of European
insurers. The total investment portfolio of European insurers has
increased from 7,700 billion euros in 2011 to 8,500 billion euros
in 2012. Compared to an increase of 1.4% in 2011, 2012 witnessed
an increase of 9% of the total investment portfolio.
But there are some specific concerns which the sector will have
to deal with. Europe's leading insurers include
). Last month, the European Insurance and Occupational Pensions
Authority (EIOPA) released the results of a study carried out on
insurers this year. The European Commission will utilise the
results of this report to frame new regulations for the insurance
Known as Solvency II, these regulations are expected to come into
effect by 2016. Many insurance companies are uncomfortable with
these proposals which primarily deal with long term savings
guarantees. Schemes with such a flavour find particular favour in
Germany and the Netherlands.
The major concern for insurers is how future obligations will be
calculated under such a regime. Additionally, these rules will
also determine how much capital insurance companies must allocate
to fulfil obligations when long term guarantees are involved.
Insurers feel this could lead to their balance sheets suffering
from artificial volatility due to short term changes in the
values of assets held. This would mean they would have to reduce
investments in assets which would provide higher growth.
EIOPA has come up with various proposals to deal with such
concerns. These include a "classical matching adjustment"
mechanism in the method utilised to determine the value of future
liabilities. This move in particular has been welcomed by the
Additionally, after their thorough examination of banks,
regulators are beginning to carefully examine the ability of
insurers to respond to crisis situations. The International
Association of Insurance Supervisors (IAIS) which is monitored by
the Financial Stability Board (FSB) and ultimately the G20 is
examining 48 insurers for systemic risk.
Risk will be assessed after taking into account five key factors.
These include size, global activity, connectedness with financial
markets, substitutability of cover and activity in domains which
are not traditional or related to the insurance business.
At the same time, new avenues of growth are opening up for
insurers. Demand for "Cyber-crime" policies, which are still to
find favour with most companies, may soon pick up.
The European Commission is slated to change data protection rules
in a major way from 2014. This would result in higher fines for
companies without cover in such an event. These penalties could
be as high as 2% of a company's annual global turnover.
The U.S. market for cyber cover is exceeds $1 billion in terms of
annual premiums. However, growth in this area occurred only after
strong legislation. And now European authorities are preparing to
levy large fines on companies which suffer data losses due to
Another major avenue for growth is usage based policies for the
auto insurance segment. New technology installed in cars will be
utilized to collect data on driving behavior or mileage
efficiency. Telematics could soon become the new watchword for
auto insurance, leading to a decrease in traditional policies.
The idea is to offer discounts on insurance cover based on such
data. This would lead to increased synergies between auto
companies and insurers. Many reports estimate that by 2020, the
number of usage based policy holders could hit the 24 million
The Way Ahead
The future of insurance companies will depend on their ability to
adapt to a rapidly changing environment. On the one hand, they
will have to cope with increasingly stringent regulatory changes.
In addition, they will have to constantly keep pace with rapid
technological changes. Ultimately, whether they view such
events as threats or embrace them as opportunities may determine
their success of failure.
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