Although insurers have rebounded from the worst days of the financial crisis, their business as a whole continues to be challenged by a sluggish economic climate and poor industry fundamentals. Many factors are in play.
Downward revisions in global growth prospects and low levels of consumer confidence will negatively affect all business lines going forward, for instance. Many retail and small- and medium-enterprise buyers of insurance, in response to the tough economic times, will look for cheaper solutions, sometimes reducing coverage or even canceling policies. At the same time, both the frequency and the cost of claims for insurers will tend to rise as more consumers try to recoup the price of their coverage.
Core client behaviors have, in fact, already started to shift to some extent. Proprietary research by The Boston Consulting Group indicates that individual insurance customers have become increasingly price sensitive, often comparing premium quotes from different carriers and searching the market for better deals. Some retail customers are moving to scale down their coverage by cutting policy guarantees to the minimum and increasing deductibles. On the corporate side, clients have become more aware of the financial ratings and reputations of their providers and are developing internal know-how to help themselves balance the costs and benefits of transferring risks. We expect large corporate clients to make more use of their captive and excess reinsurance coverage.