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2. personal finance
3. insurance

www.pwc.ie/insurance
Turning disruption
to advantage
85%
are confident about growth
< Page 1 >
72%
see more opportunities than
threats
< Page 4 >
87%
believe regulation is the
greatest industry disruptor
< Page 4 >
This report highlights some of
the key findings from the PwC
survey of international
insurance leaders based in
Ireland, carried out among the
Dublin International Insurance
& Management Association
(DIMA) members and launched
at the 2015 European Insurance
Forum in Dublin.
Rapid, technology-led change
presents many risks – but also
many opportunities. It’s
reshaping the relationship
between customers and
companies and breaking down
the walls between industry
sectors.It’s making forwardthinking CEOs question the very
businesses they’re in as they
reassess how their
organisations’ differentiating
capabilities can better solve
customer problems.
Confidence on the up
An overwhelming majority (85%) of
international insurance leaders based in
Ireland are confident about business
growth in the year ahead, up from 72% last
year. The single greatest growth
opportunity is considered to be expansion
in existing markets, followed by further
product innovation, new joint ventures/
strategic alliances/M&As and developing
new markets.
One in five see an opportunity in tie-ups via
a joint venture, strategic alliance or M&A as
an opportunity and, based on our global
experience, one of the key reasons for such
initiatives is to access new customers.
Business networks, customers and
suppliers are seen as the most important
focus for strategic collaborations. An
example of this could be a telecom or
internet giant wanting a tie-up with an
insurer to help it move into the insurance
market. The benefits of strategic alliances
are also recognised as an opportunity to
strengthen innovation and gain access to
new and emerging technologies.
Figure 1: Confidence about business growth in the year ahead
Very
confident
Not
confident
15%
Very
confident
Not
confident
25%
28%
2015
32%
2014
60%
Ireland 2015
Confident
40%
Confident
Ireland 2014
Ireland 2013
Very
confident
Not
confident
38%
10%
2013
The single greatest
growth opportunity is
expansion in existing
markets
52%
Confident
Page 1
Figure 2: Most important growth opportunities
25%
Increased share of existing markets
28%
22%
Further product innovation and diversification
30%
20%
New JVs/Strategic Alliances/M&As
13%
19%
Expanding into new markets
15%
0
5
10
15
20
% of respondents
Ireland 2015
People are living longer
and have more wealth to
protect
Page 2
Ireland 2014
25
30
Implementing Solvency II is the greatest challenge
The survey reveals that the greatest
challenge for the Irish insurance industry
right now is implementing Solvency II
(60%), up by nearly 10% on last year
reflecting the imminence of the new
regime. This is followed by regulation in
general (40%) and economic conditions/
investment performance (33%).
Key talent
and data
analytics
getting more
focus
Available talent, data analytics and product
innovation are areas that have come into
closer focus since last year. At the same
time, the fact that people are living longer
and have more wealth to protect presents
insurers with a clear opportunity.
Figure 3: Top challenges/risks facing your insurance business right now?
60%
Implementing Solvency II
51%
40%
Regulation
58%
33%
Economic conditions
42%
33%
Investment performance/low interest rates
36%
27%
Availability of key talent
18%
23%
Leveraging ‘Big Data’/data analytics
16%
17%
Product innovation
7%
13%
Change management
N/A
13%
Capital availability
N/A
10%
Distribution strategy
29%
10%
New market entrants
N/A
0
10
20
30
40
50
60
% of respondents
Ireland 2015
Ireland 2014
Page 3
72% of Irish
insurance leaders
believe there are
more threats than
opportunities
Disruptions on the horizon
Over half of global insurance leaders say it
is likely that insurers will increasingly
compete in sectors other than their own
over the next three years. However,
compared to other sectors, the range and
extent of their inroads into other sectors is
limited. For example, around a quarter of
global banks say they are making moves
into technology, compared to only 3% of
insurers. There are real opportunities for
insurers to use their customer data and
relationships to develop new revenue
streams.
Nearly three-quarters (72%) of
international insurance leaders in Ireland
believe that there are more growth
opportunities today than there were three
years ago, while at the same time a similar
proportion also believe there are more
threats. Almost nine out of ten are
concerned about disruption from industry
regulation. With Solvency II just around the
corner, the key implementation challenges
are to minimise the upheaval and to
reliably and efficiently build the new
requirements into business as usual. Many
companies are using regulatory change as
an opportunity to improve operational
flexibility, promote greater collaboration
and even reassess business models.
Evolving regulatory demands can help
clarify where and how urgently change is
needed.
Nearly two-thirds are concerned about
disruption from changing customer
behaviour and distribution channels. With
millennials at one end and a longer living
population at the other, individual tailoring
of insurance products will become the
norm. This will require insurers to really
understand customers and how flexibly
they can respond to their needs.
Figure 4: How disruptive do you think the following trends will be for your
industry over the next five years? Respondents stating very or somewhat disruptive
Changes in
industry regulation
87%
Changes in
customer behaviours
64%
Changes in
distribution channels
61%
Increase in number of
significant direct and
indirect competitors
58%
88%
71%
69%
64%
Changes in core
technologies
of production or
service provision
52%
61%
0
20
40
60
80
% of respondents
Ireland 2015
Global 2015
“I think you’ve got to look at the disruptors and
see what you can learn from them, because they
often come in with some very smart innovation
and different service propositions.”
John Neal, CEO, QBE Group
Page 4
100
Digital dividend
The speed of technological change is
recognised by insurance leaders around the
world as a major game-changer. However,
Irish insurers lag significantly behind their
global counterparts in terms of the
perceived value that digital technologies
can create. For example, relative to Irish
leaders, over a third more global insurance
leaders consider that digital technologies
create high value for their organisations
when it comes to brand and reputation,
distribution capabilities, digital trust and
cybersecurity and collaboration. Around a
quarter more global CEOs see the benefits
in terms of operational efficiency and
innovation capacity. In a world where
many consumers are always ‘on’, the power
of digital and its business opportunities
cannot be ignored. The insurance
landscape is changing rapidly and the
survey suggests that Irish insurance leaders
have an opportunity to really embrace
digital technologies to engage with and
better understand customers, improve
operating efficiency and improve use and
security of data.
Figure 5: To what extent are digital technologies creating value for your
organisation in the following areas? Respondents who stated quite high value or very
A separate PwC survey of over 9,000
consumers worldwide (Insurance 2020)
found that greater accessibility and
tailoring the buying experience to their
needs are the two most important steps
insurers can take to appeal to customers.
Digital capabilities would provide
opportunities for life and pensions
companies to rely less on agents to cultivate
relationships. By enabling businesses to
reach out to younger and other largely
untapped sections of the population in new
and engaging ways, digital could also
greatly expand the addressable market. In
turn, more efficient distribution and no
commission costs would open up more
cost-efficient options for less wealthy
customers.
high value
62%
Operational efficiency
88%
50%
Innovation capacity
71%
46%
Digital trust and
cybersecurity
81%
46%
Regulatory compliance
N/A
Irish insurers
lag behind
global
players on
value from
digital
43%
Internal/external
collaboration
79%
36%
Risk-taking decisions
N/A
35%
Distribution capabilities
74%
33%
Brand and reputation
69%
0
20
40
60
80
100
% of respondents
Ireland 2015
Global 2015
Page 5
Regulation and Solvency II
Two-thirds of survey respondents believe
that, as an international insurance centre,
Ireland’s regulatory regime is more
demanding than other EU territories. The
most competitive European Regulatory
regime relative to Ireland, according to the
survey, is Switzerland (32%), followed by
Luxembourg (18%).
benefit by far of Solvency II, according to
the survey, is greater governance and risk
transparency (85%), followed by a greater
risk focus and better use of capital. The
most significant Solvency II related
business/commercial changes are in the
areas of capital structure, asset mix and
corporate structure.
The survey reveals that by 1 January 2016
over a quarter (29%) of the international
insurance companies based in Ireland will
have spent more than €5 million on
implementing Solvency II. The greatest
Ireland’s regulatory
regime is more
demanding than other
EU territories
Figure 6: Benefits of Solvency II
Greater governance
and risk transparency
85%
Greater risk focus
71%
Better use of capital
46%
Improved data quality
29%
0
20
40
60
80
100
% of respondents
Figure 7: Likely changes
as a result of Solvency II
Capital structure
57%
Asset mix
46%
Corporate structure
43%
Reinsurance
arrangements
25%
Management team
ownership
14%
Product portfolio
11%
0
10
20
30
% of respondents
Page 6
40
50
60
Preparedness for BEPS
While the majority (70%) of respondents
said they are prepared for the challenges
presented by the OECD Base Erosion Profit
Shifting (BEPS) Action Plan, which will be
finalised by the end of 2015, nearly a third
(30%) are not. The OECD BEPS project will
be a driver for international insurance and
reinsurance groups to review their
operating models and the location of key
activities. A competitive, transparent
corporate tax regime and the availability of
a pool of highly-skilled insurance
professionals mean that Ireland is ideally
positioned to benefit from this trend and
many groups will be encouraged to expand
even further the high value activities they
have located in Ireland.
Government priorities
The single key government priority, according
to the survey, is to ensure that Ireland remains
competitive and this measure increased by
nearly 10% on last year. As an FDI centre of
excellence and aspiring insurance hub,
maintaining and increasing our national
competitiveness in all key areas including
labour, facilities, cost of living etc is critical.
Other important priorities include available
skills, promotion of Ireland as a centre of
excellence and supporting skills in the
Regulator. Just over one in five consider
changes to the corporation tax regime as a
key priority, up from 7% last year.
Figure 8: Government priorities
Ensuring Ireland remains
competitive, including
wage rates and rents
61%
52%
43%
Availability of key skills
N/A
Concerted promotion as a
location from which to
operate insurance
business
43%
N/A
Resourcing and
supporting skills in the
Regulator
29%
Changes to corporation
tax regime or other
corporate taxes
21%
N/A
7%
Changes to income tax
rates (eg Special
Assignment Relief
Programme)
11%
N/A
0
10
20
30
40
50
60
70
80
% of respondents
Ireland 2015
Global 2015
Page 7
Moving the business forward
- some thoughts!
How can insurers deal with
short-term hurdles while
creating a competitive platform
for the future?
Looking at regulation
Develop a truly customercentric business model
The key to navigating regulatory
complexity is understanding how real and
proposed changes may affect the entire
organisation and then how to make what is
often perceived as a burden a catalyst for
positive change. One of the best ways for a
multinational organisation to achieve this
is via the creation of a global compliance
team with strong executive leadership. This
is an approach that has already proved
beneficial to many global banks. The
compliance team would be responsible for
looking beyond basic operational
compliance to how the developments may
affect the entire organisation’s strategy and
structure and then working closely with the
board, business, compliance and other
teams to co-ordinate a clear and coherent
group-wide response. This would include
assessing competitive implications and
looking at how to capitalise on potential
opportunities.
Digital technology offers opportunities to
engage more closely with customers and
understand their needs better. But insurers’
focus on risk, ratings and products means
their understanding of customers lags
behind that of internet and
telecommunications businesses, which
have developed advanced customer data
analytics programmes.
The front runners are already developing
the focused analysis and organisational
collaboration they need to turn reams of
unconnected data into telling customer
insights and customised solutions. They’re
looking beyond the confines of reactive
insurance cover to higher margin proactive
risk advice and prevention. They’re also
looking beyond sensors and big data
analysis as simply pricing tools as they seek
to develop a new generation of
information-based services.
Simplify the business and
operating model
Many insurance companies take longer to
make business decisions than their
counterparts in other industries. Their
products are difficult for consumers (and
sometimes even insurers themselves) to
understand, and operating costs are high
compared to many leaner new entrants.
Simplifying management structure, scaling
back unprofitable business and using
partnerships to reduce investment and
delivery costs will significantly increase
their competitiveness.
Page 8
Effective compliance with new regulations
and standards is hampered by lingering
uncertainty over details and organisational
impact on the one hand and often reactive,
piecemeal implementation on the other.
Proactively managing risk
The risk landscape is evolving and cyber is
one of the most prominent manifestations.
Given the potential for sharply rising losses
and ever more complex loss drivers,
insurers can no longer manage the evolving
risk environment solely through traditional
approaches. Solving these complex and
dangerous challenges requires a
comprehensive risk facilitation leader to
educate, promote and co-ordinate solutions
across a range of stakeholders, including
corporations, insurance/reinsurance
companies, capital markets and
policymakers across the globe. As the
traditional intermediary in the risk transfer
chain, brokers are especially well placed to
identify and develop viable and innovative
solutions to the changing risk environment.
Key contacts
Padraic Joyce
Tony O’Riordan
+353 1 792 6394
[email protected]
+353 1 792 7551
[email protected]
Ciarán Kelly
Ronan Mulligan
+353 1 792 6408
[email protected]
+353 1 792 7505
[email protected]
John O’Leary
+353 1 792 8659
[email protected]
Page 9
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