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Insurers and Society: Opportunities and Challenges in the Period to 2030

February 2013

Sponsored by BNY Mellon; Written by The Economist Intelligence Unit

Executive Summary

Despite surviving the global financial crisis with their reputations intact, insurance companies still have not enjoyed an easy ride during the testing economic conditions since 2008. Ongoing macroeconomic uncertainty alongside proposed tough new regulatory regimes, natural disasters and extreme weather conditions, in addition to a combination of rising longevity and low investment returns, have all served to create very real challenges for the insurance industry. In response, insurers are rethinking business processes and product ranges in order to remain competitive under new risk-based capital regimes, to meet the evolving needs of their customer base and to continue to play a beneficial role in the economy and broader society. However, insurers are finding it difficult to re-think too much of their strategy when much regulation, such as Solvency II, is still very much a moving target.

The Economist Intelligence Unit, on behalf of BNY Mellon, surveyed 332 companies around the world including insurers, reinsurers, wealth managers and independent financial advisers to find out what immediate and long-term challenges the insurance industry faces and how insurers are responding, as well as to explore ways in which the industry will develop in the future. The survey results were supplemented with in-depth interviews with a range of experts. The key findings of the research are:

  • Macroeconomic uncertainty, regulation and risk of contagion are the biggest challenges facing insurers in the long term
    Macroeconomic uncertainty is seen by survey respondents as the main challenge facing both life and non-life insurers (36% and 39% respectively) in the period to 2030. Regulation is the second-biggest challenge facing life insurers (34%), while risk of contagion from other parts of the financial system is a major concern for nonlife insurers and reinsurers (33%).
  • Regulators and policymakers should consider socioeconomic goals
    Almost fourth-fifths (79%) of respondents agree that regulators should balance concerns for policyholder protection with other socioeconomic objectives, such as promoting savings, while almost one-half (48%) believe that policymakers should incorporate socioeconomic goals into regulators' remits. Over one-half (54%) of those surveyed believe that regulators and legislators are focusing on near-term stability at the expense of longer-term economic growth.
  • Insurers are not doing enough to meet societal responsibilities
    A strong majority (80%) of respondents agree that insurers have a duty to contribute positively to society, with all regions in equal agreement, yet only 55% agree that insurers are fulfilling that role. Overall, intermediaries are slightly less convinced that insurers are contributing (53%, compared with 56% of insurers), with the biggest discrepancy between the two groups seen in North America, where 64% of insurers believe that they are meeting their societal responsibilities, while just 36% of intermediaries agree.
  • Regulation is hampering insurers' ability to meet consumers' needs
    Almost three-quarters (70%) of respondents agree that individuals will have inadequate private savings and pensions as a long-term consequence of new regulation, while just over one-half (51%) believe that current regulatory and accounting rules encourage insurers to move away from guaranteed products, leaving individuals with the burden of investment risk. In response to changes affecting the industry, life insurers are offering fewer products (49%), limiting guarantees (40%) and raising prices (35%).
  • Insurers are needed more than ever but are at risk of irrelevance
    Over one-half of respondents (54%) believe that regulation reduces insurers' ability to shift risk away from households and transform financial market risk into reliable streams of retirement income and other benefits — one of the industry's core functions. The same proportion believe that the burden will fall on governments to make up for individuals' private pension shortfalls, but many (45%) worry that they will not be able to afford to do so. Limiting the insurance industry's ability to transform risk will have serious ramifications for future generations and for the industry itself.
  • Insurers need help to support developing countries and emerging economies
    Nearly one-half (45%) of respondents said that supranational organisations should work with developing countries to inform policymakers better of the value of catastrophe and other forms of insurance as a top priority. Over one-half worry that without adequate data, reinsurers may withdraw from providing catastrophe reinsurance in emerging markets (55%), and that if reinsurers pull back from these markets, individuals and corporates will be forced to go underinsured (52%). Respondents (57%) also fear that the absence of reinsurance will slow investment into emerging economies, which in turn will slow these countries' economic growth — a major concern, given the importance of emerging economies to pulling the global economy out of stagnation.

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About the Research

In December 2012 the Economist Intelligence Unit surveyed 332 companies around the world. Respondents comprise 164 insurers from life, non-life and reinsurance companies and 168 intermediaries, including financial advisers, wealth managers and private banks. Respondents were grouped into three regions: North America with 100 individuals; Europe with 115; and Asia with 117.

Insurers and Society is an Economist Intelligence Unit report, sponsored by BNY Mellon. The findings and views expressed in the report do not necessarily reflect the views of the sponsor. The author was Gill Wadsworth and the editor was Monica Woodley.

While every effort has been taken to verify the accuracy of this information, neither The Economist Intelligence Unit Ltd. nor the sponsor of this report can accept any responsibility or liability for reliance by any person on this white paper or any of the information, opinions or conclusions set out in this white paper.

The following regulatory disclosure language only applies to BNY Mellon and the distribution of this report by BNY Mellon. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation. The statements and opinions expressed in this report do not necessarily represent the views of BNY Mellon or any of its respective affiliates. The information in this report is not intended and should not be construed to be investment advice in any manner or form; its redistribution by BNY Mellon may be deemed a financial promotion in non-U.S. jurisdictions. Accordingly, where this report is used or distributed in any non-U.S. jurisdiction, the information provided is for use by professional investors only and not for onward distribution to, or to be relied upon by, retail investors. · This report is not intended, and should not be construed, as an offer or solicitation of services or products or an endorsement thereof by BNY Mellon in any jurisdiction or in any circumstance that is otherwise unlawful or unauthorized. BNY Mellon and its affiliates are not responsible for any subsequent investment advice given based on the information supplied. · Past performance is not a guide to future performance. The value of investments and the income from them is not guaranteed and can fall as well as rise due to stock market and currency movements. When you sell your investment you may get back less than you originally invested.

© 2013 The Bank of New York Mellon Corporation. All rights reserved.

02/2013