The global insurance industry outlook is not good and not going to get better in the short term, according to a study from Conning. The study, “U.S. and Global Insurance Industry Outlook: Economic, Capital Markets, and Regulatory Challenges Continue—Nothing to Be Gained by Waiting for Things to Get Better,” states that weak economic growth, an extended period of low interest rates, weak investment income and rising regulatory demands contribute long-term challenges for insurers.

The study presents the challenges and potential insurer responses for the industry generally, with separate discussions for U.S. sectors:

  • In property/casualty, the consequences in 2013 of a slow economy, prolonged low interest rates and regulatory changes are most pronounced in the economic environment.
  • In the life and annuity sector, a slow economy, low interest rates, and regulatory advancement will also challenge companies.
  • For the health industry, the effect of regulatory change—notably the implementation at company and state levels of federal health insurance requirements—will have the greatest impact in 2013 as state exchanges and myriad other rules and regulations are implemented.

“Sluggish economic conditions affect organic growth potential and overall market development,” said Stephan Christiansen, director of research at Conning. “The continued low interest rate environment in the U.S. and elsewhere is depressing investment income substantially in all sectors. Regulatory change and reporting requirements, meanwhile, are forcing increases in infrastructure investment and costs generally.”
The initial period of post-recession malaise has now become a base-case for strategic and operational planning, according to Conning. Insurers that resolve to navigate this environment will invest more aggressively in infrastructure improvements and explore alternative distribution strategies, more focused market approaches and broader ranges of investment alternatives in seeking better risk-adjusted returns in 2013 and beyond. If the environment does revert to more normal conditions within the next 12 to 14 months, adopting a more conservative approach and protecting core business positions may be a viable strategy. However, if the sluggish conditions (and intensifying regulatory challenges) extend further, these companies will find the hole that they need to climb out of getting deeper and potentially beyond recovery, the study states.

“Insurers that took a ‘wait-and-see’ approach are now challenged to perform in these adverse conditions, as no clear end is in sight,” said Christiansen. “Competition is increasing, and companies that succeed in this environment will seek performance in targeted strategies in particular geographic or market segments and will invest internally in technology for effective cost management and new market distribution approaches.”

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