Many of Ireland’s international insurance leaders are positive about growth prospects, despite uncertain economic conditions

PwC study of international insurance leaders in Ireland

International insurance leaders based in Ireland are upbeat about growth prospects for their businesses with nearly two-thirds (62%) of insurers reporting that they are confident about expansion prospects for their businesses. The key drivers for this growth are further product innovation and diversification (37%), expanding into new markets (29%) and undertaking a merger or acquisition (16%). This is according to PwC's poll of international insurance leaders based in Ireland, carried out amongst Dublin International Insurance & Management Association (DIMA) members and launched today at the 2013 European Insurance Forum.

The research further reveals that uncertain economic conditions (73%) is the top challenge facing the international insurance industry. Other key challenges are over regulation (62%); cost containment (47%); investment performance (44%) and corporate governance (44%). Timely Solvency II implementation (26%) and available talent (21%) are also concerns.

Interestingly, there are some marked differences when we look at some of the challenges facing international insurance leaders in Ireland compared to their global counterparts, for example:

  • Availability of key skills (64%) was the top barrier to growth for global insurance leaders compared to 21% in Ireland
  • The increasing tax burden (57%) was the second greatest challenge for global insurers compared to just 9% in Ireland
  • 58% of global insurers cited the shift in consumer spending as a key barrier to growth. In Ireland, one fifth (21%) of insurance leaders said that fragile consumer demand was a key challenge facing their business right now
  • Over half (55%) of global insurance leaders said that the lack of trust in their industry is a key barrier to growth. This compares to just 3% in Ireland who said that customer trust is a concern
  • 43% of global insurance leaders said that the speed of technological change was a major threat compared to just 12% of Irish leaders
  • 42% of global insurance leaders said that new market entrants are a threat compared to just 12% in Ireland

Speaking about the survey results, Garvan O'Neill, Insurance Partner, PwC Ireland, commented: "The research findings reflect the fact that, against a background of continued economic uncertainty, international insurers based in Ireland are looking to product innovation and new markets for growth opportunities. Customers across Europe, at the same time, are looking for insurers to help them manage a more complex and uncertain environment, protect what wealth they have and fund longer retirements. Opportunities exist for innovative insurers to further develop products customers want and to be at the forefront of helping society meet the changing demands.”

Barry O’Leary, Chief Executive Officer, IDA Ireland said: "The results are very positive for Ireland. The research confirms that areas like available talent and increasing corporate tax burdens are not as great a concern for insurance leaders based in Ireland compared to their global counterparts. This is not surprising given Ireland’s highly talented workforce and our pro-business tax environment. These are critical areas in continuing to attract foreign direct investment into Ireland and further enhance our reputation as a centre of excellence for insurance and reinsurance.”

Sarah Goddard, CEO, DIMA added: "These survey results are very encouraging for the future of Ireland as a centre for international insurance and reinsurance. Nevertheless, it is vital that we continue to push forward to secure a business environment which stimulates innovation against a backdrop of properly and responsibly managed companies. Risk is an ever-changing concept; we need to ensure that Ireland, as a location for this type of business, continually responds to this.”

Large majority feel more to do on risk

Over three-quarters (76%) of Ireland's insurance leaders reported that their risk framework only partially addresses their top risks or not at all. The research also finds there is room for improvement as regards resources in the risk function. For example, over half (54%) said that their risk function was only partially resourced - having either part-time professionals or professionals not from a risk background. According to the poll over 90% of the senior industry professionals surveyed have themselves a defined involvement in the risk process.

Other key findings include:

  • Over half (53%) of participants reported to be only partially prepared for the introduction of a full Own Risk and Solvency Assessment (ORSA) process - nearly a third (31%) said they were either fully or well prepared
  • The research reveals fairly regular risk management reporting but with room for improvement on what is being reported. Nearly a third (31%) said that risk management reports are produced monthly while nearly half (47%) report quarterly. However, almost half (47%) said that what is reported is not fully understandable ie reports are either too numeric, too summarised or only partially understandable

Tony O'Riordan, Director Insurance Consulting, PwC Ireland, said: "Our research shows that there is much more work to be done in Ireland in ensuring that the risk framework is fit for purpose and properly resourced. Ensuring that the risk function is fit for purpose is important as the nature of insurance moves from a reactive claims payer to preventative risk manager. Previous analytical advances have already allowed insurers to move from hindsight to insight and hence improve their understanding of profitability drivers and segmentation. The next wave of big data and predictive modelling will allow insurers to move from insight to foresight, where they can tailor interactions and pricing at a customer level and use real-time data for decision making."

Business models at risk

This research together with the findings from PwC's Global CEO survey concludes that the Irish and international insurance industry are facing significant challenges while also having considerable opportunities. Insurance leaders in Ireland cannot ignore the following transformational changes on the horizon:

  • Diverging growth patterns around the world impacting spending power
  • Customer demand for more transparent, accessible and cheaper products
  • A technological revolution in risk analysis and customer profiling
  • A heightened threat of new entrants picking off profitable business

Businesses that fail to respond could find themselves priced out of the market, falling short of customer expectations, and under threat from aggressive new entrants. In a mature and highly price sensitive market such as Ireland, advances offered via the internet, data analytics and social media could give 'smart' companies real edge.

Garvan O'Neill concluded: “The insurers who come out on top will focus keenly on the customer and have a superior capacity for innovation and reinvention. They'll be able to anticipate change and how it affects them, as well as be nimble enough to quickly capitalise on emerging opportunities.

"Ireland is well placed to embrace all of these challenges and further enhance its reputation as a centre of excellence for the insurance industry through the continued expansion of operations providing specialist front and back office support to European and Global insurance groups.”

ENDS

Notes for editors:

The poll was carried out in April 2013 having approximately 50 international insurance leaders based in Ireland. These insurance companies trade primarily in the EU and the US but also globally.

Ranking of top challenges for Irish international insurance industry - according to the poll:

Uncertain economic conditions 73%
Over-regulation 62%
Cost containment 47%
Corporate governance 44%
Investment performance 44%
Implementing Solvency II on time 26%
Available talent 21%
Fragile consumer demand 21%
Outsourced activities 21%
Distribution strategy 21%
Available capital 18%
Effectiveness of risk management 15%
Increasing tax burdens 9%
Back office operations 9%
Customer trust 3%
Product guarantees 3%

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