The insurance industry faces some stiff headwinds as it enters into 2012 a new report from Deloitte finds.

The “2012 Global Insurance Outlook” identifies the unusual amalgamation of negligible economic growth and rock-bottom interest rates as unique challenges for insurers—simultaneously sapping consumer demand while enervating investment income. Moreover, given the fiscal travails in Europe, Deloitte sees little respite for insurers on the economic front.

“Daunting macro-economic problems are making it hard for insurers to generate consistent growth, with adverse conditions likely to persist for at least the next 12 to 18 months and perhaps well beyond,” the report states. “While the U.S. economy has shown signs of picking up in terms of consumer spending and GDP, there are global obstacles that could impede growth, both in the short and long term. For example, the euro-zone nations continue to struggle with sovereign debt.”

Another wellspring of uncertainty is the regulatory arena, where insurers are dealing with the ramifications of the Dodd-Frank Act, Solvency II and accounting convergence, noted Howard Mills, director, Deloitte LLP in a webcast coinciding with the release of the report. Mills said that while much remain unsettled, U.S. domiciled insurers while be getting more clarity soon when the Federal Insurance Office releases it report concerning the future of insurance regulation by the end of January. “We are waiting to see what type of report we get out of FIO, but I would be surprised if we saw any huge surprises in the report.”

While such widespread incertitude may not foster growth it does not necessarily rule it out. “There are no easy answers for insurers looking to grow their business in this volatile environment,” the report states. “Even in economic conditions as challenging as these, however, insurers can make a positive impact through sound, strategic investments to secure growth, achieve operational excellence and drive innovation. The main ingredient is a willingness to remain proactive rather than hunker down until overall economic conditions improve.”

One avenue for growth is to target emerging markets. “With the U.S. and Western European economies failing to deliver consistent, large-scale growth, it’s only natural for insurers to consider greener pastures in emerging markets such as China, India and Brazil,” the report states. “While there are often obstacles to doing business in such countries—including local regulatory hurdles, infrastructure and distribution challenges, tax considerations as well as cultural differences—the need for insurance coverage to meet the financial security demands of an expanding middle class could provide significant growth opportunities for those with the resources and capabilities to capitalize on them.”

Sam Friedman, insurance leader, Deloitte Research, noted that merger and acquisition activity was up in 2011 and that some 45 percent of the deal volume involved emerging markets, up from seven percent in 2009.

In addition to growing the top line, Friedman also noted a renewed vigor by insurers to tighten the bottom line by investing in technologies that facilitate operational efficiency such as predictive analytics. While entrenched for the purposes of underwriting and marketing, Friedman sees insurers increasingly using analytics to identify inefficiencies or potential problems in the distribution channel. “We see a trend now of carriers taking a closer at who is selling for them.”

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