If imitation is the sincerest form of flattery, then U.S. insurance companies are making their contribution to this well-worn axiom.North American insurers currently are pursuing global expansion at the brisk pace rivaling European insurers' foray into U.S. markets in the early 1990s, according to a recent report by Needham, Mass.-based research and advisory firm TowerGroup.

Favorable economics, key demographic trends and the gradual dissolution of international barriers are pacing U.S. insurer expansion in emerging markets such as South and East Asia, Central and Eastern Europe, and Latin America, says Cindy Saccocia, a senior analyst at TowerGroup and author of the research on global expansion.

"North American markets are highly saturated," Saccocia notes. "Insurers have long competed with other insurers, so they've asked, 'where is the next growth opportunity?' Insurers have been quietly pursuing global expansion, but surprisingly more and more are now willing to talk about it."

Emerging markets

Several factors are driving the expansion, according to TowerGroup. Relatively low penetration rates for insurance in emerging markets, as well as aging populations around the world, represent substantial opportunities for insurance companies.

Another factor is pure economics. "Swiss Re found that the inflation-adjusted growth rates for life and non-life insurance premiums for these emerging regions were 6.6% and 8.5% respectively in 2003," says Saccocia.

This compares with 2003 growth rates in industrialized countries of -1.7% for life insurance premiums and 5.7% for non-life premiums, she notes.

In addition, the stability of many employer-sponsored pension plans is uncertain. Over time, this will drive demand for insurance-oriented products as individuals in emerging markets take on more responsibility for their retirement security, says Saccocia.

One aspect of the report that surprises Saccocia is that many insurers intend to embark on global expansion with little or no external support.

As many as 50% surveyed in the TowerGroup report indicate they would "go it alone" and build new operations-as opposed to leveraging the on-the-ground expertise and infrastructure of a vendor partner.

"To go it alone is fairly consistent with insurers and their attitudes over the years-the desire to build versus buy," she explains.

But Saccocia says insurers would be wise to engage technology firms with expertise in developing infrastructures for global product distribution, such as IBM Corp., CSC Corp. and Accenture.

Building unique operations for each new market is costly. If not carefully examined, these areas can later incur the greatest costs and cause insurers to miss "break-even" targets, she says.

Moreover, attempting to leverage end-to-end operations across all international markets can be challenging due to regional differences.

Insurers must approach new markets with a fresh perspective on distribution, operations, technology and services, Saccocia advises. Of particular importance is a thorough evaluation of how the insurer will manage infrastructure, insurance operations and regulatory demands.

"Leveraging the right vendor partner affords an insurer the necessary leeway to focus on the critical success factors of cultural acceptance, distribution, regulatory or accounting differences, and setting strict governance policies," Saccocia notes.

Risks involved

"Let's fact it: These regions are complicated. There are risks involved with operations and services," she says.

As insurers proceed to build these global markets, they'll have to design products that are specific to each to the needs and demands of consumers in each country. However, Saccocia says that although tailoring products is important, how insurers handle operations and distribution will eventually determine the success or failure of the global venture.

"The real difference-maker will be the distribution models that insurers select and their relationships with vendors or other local partners," says Saccocia.

The establishment of "processing hubs" in select locations should be strongly considered to bring together common, regional functions and deliver cost-effective standards for business operations and technical support, Saccocia notes. This approach has the ability to drive down operational and infrastructure costs, because the insurer maximizes its investments and derives economies of scale.

As for product development, Saccocia does not believe that insurers would have to develop any dramatically new products to customize to specific global markets. "I see insurers offering the same 'vanilla' products that have been successful in the states," she says. "The marketing of life and annuities could be an integral part of the marketing plan."

Study each market

One insurer that has a foothold in countries where North American insurers are exploring believes that U.S. and Canadian insurers can succeed if they study each market's specific needs.

"It's important for a U.S. insurance company to look closely at the life insurance market in the countries where they want to establish themselves, since the life segment has the potential to be the most profitable," says Gabriel Fuchs, senior manager, sales and marketing, for La Suisse Insurance Co., Geneva, Switzerland.

The life insurance market is linked to and depends on the social security "safety-net" in a particular European country, Fuchs says.

"Sweden, for example, has traditionally had a well-developed social security system, which means that life insurance has been less necessary to its citizens than those in many other countries," he notes. Therefore, there's the challenge of creating a need for such products in a country such as Sweden," he says.

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