Dubai roads were obscured with fog and heavy rain on the 17th of December 2012. The hazardous conditions affected drivers and caused as many as 330 motor accidents within a seven hour period.
The havoc caused by the traffic sparked predictions that the insurance industry could see premium rises in car coverage across the UAE at the start of the 2013 renewal season. Current average annual insurance rates for the UAE have been relatively low at 3 percent (0.5-1.5 percent less than other countries within the Gulf Cooperation Council) resulting in many motor portfolios from major insurance providers suffering massive losses, some reaching into millions of dirhams.Read the rest of the Premium Increases for UAE Drivers insurance article.
From the 21st of December 2012 European insurers will no longer be able to use gender as criteria when assessing risk factors to price premium plans. The European Court of Justice ruled a decision in March 2011 determining that insurance policies reliant on gender factors were incompatible with the prohibition of discrimination under the European Union. The final Article prohibits:
“…any results whereby differences arise in individuals’ premiums and benefits due to the use of gender as a factor in the calculation of premiums and benefits.”
Initial plans for the Gender Directive began in 2004, with the goal to enforce equality for men and women when accessing goods and services. The Directive would dismiss the use of actuarial factors related to sex when insurance companies determined the provision of insurance to clients. Individual plans could no longer be calculated using gender as a factor. Despite the campaign, the court ruled that insurance companies could continue to identify sex as a determining factor when defining differences between premiums and benefits.
Price Reduction With Insurance Competition
As a direct result of competition and strategic partnerships, prices for insurance in multiple areas are decreasing throughout the world. Originating out of public outcry for lower prices, or companies aiming to provide better services to their clients, insurance seekers are experiencing lower prices and are contributing to increased profits for companies.
In New Zealand, two insurance companies have engaged into a partnership which will lower insurance costs in the building trade industries. The companies under discussion are HazardCo, a provider of health and safety insurance in the construction industry, and Plus4 Insurance Solutions (Plus4), an insurance brokerage and financial advisory group, who are working together to lower the costs of accidental insurance and to provide protection of income for self-employed workers in the building trade.
HazardCo has been in operation since 2006 and operates out of New Zealand and it boasts over 7,500 construction business clients. Plus4 has been established since 2008 and now operates out from 10 different locations and has over 25 advisors. Both have expanded significantly over the recent years, bringing innovation to the industry, such as HazardCo’s online training system, Learner Management System.
Utilizing the expertise of both of these companies, building trade workers are able to reduce the average cost of their premiums. Premiums in this industry are required under regulation and can be a significant cost to workers.
Due to Plus4′s knowledge in financial advisory, this agreement allows the insured to have direct access to Plus4′s financial advisors to review compensations and insurance coverage levels. As a result, insurees have experienced substantial savings and increased coverage. Workers in the building trade are required to have insurance, protecting workers from illness or when accidents strike.
Some workers are eligible for a 10% discount on their ACC Work Place Cover Levy with HazardCo, which represents significant costs savings. Under the partnership with Plus4, HazardCo’s clients are able to restructure their insurance coverage, tailoring it to their specific needs which suit their current situation and requirements.
HazardCo’s Mark Potter states that “The partnership with Plus4 has meant that many of our clients have made substantial savings on the cost of their ACC and, as a result, now have in place more comprehensive and appropriate insurance cover.”
In a separate case of lower insurance costs, competition is the main driver of lowering car insurance for residents of the United Kingdom, with price reductions in almost £100 (US$100) on average.
Utilizing the Confused.com and Towers Watson car insurance index, it is shown that prices are decreasing as a result of competition within the industry. A reduction of 7.1% is reflected within the index between Q2 of 2011 and Q2 of 2012.
The car insurance index receives a substantial amount of quotes, allowing for an accurate depiction of the market’s current condition. The index is comprised of over four million quotes, making it one of the most comprehensive indicies in the world for car insurance.
Due to historical statistics, car insurance companies have been offering asymmetries in insurance premiums. However, the European Union have decided that this type of price discrimination is not desirable and have decided to ban this practice. This order is to be enacted later this year and will see that women pay more for their premiums and men will see their premiums reduced.
Despite the EU gender directive soon to be enacted, United Kingdom is still seeing a disparity between price quotes, with men paying on average £110 (US$171) more than women.
Part of the outcry from the gender discriminatory prices had contributed to lower prices. However, sites like Confused.com have also contributed significantly to the lowering of insurance premiums. These sites amalgamate prices from various insurers, allowing competition to force prices lower. Customers have access to various providers, causing no one provider to have a domineering selling power.
In addition to lower prices, online insurance comparison sites have witnessed increase in profits due to higher competition. With higher prices, consumers look elsewhere to find alternatives that suit their budgetary needs, and they find their solutions online. As a result, online comparison sites such as GoCompare have seen double digit profit increases because of their wide array of offerings from various companies. This level of competition has allowed both companies and consumers to benefit, as well as allowed the insurers to service consumers they would have lost without pricing changes.
Both GoCompare and Confused.com offer quotes and showcase insurance policies to consumers from various insurance providers. Like many comparison sites, GoCompare and Confused.com are able to offer lower, on average, insurance premiums because of direct competition that is clearly visible to the seeker.
Consumers will experience progressively lower prices as competition continues to emphasize the need for companies lower their prices as a response.
Insurance Companies Mentioned
HazardCo provides health and safety resources, in addition to systems and support to the New Zealand residential construction trade. HazardCo has expanded significantly since it’s creation in 2006, with over 7,500 construction business clients. Many of HazardCo’s clients are top performing housing companies. HazardCo also provides online training for heath, safety and compliance related subjects.
Plus4 Insurance Solutions operates on a national level in New Zealand as an insurance brokerage and a financial advisory group. Since 2008, Plus4 have grown to 10 locations throughout New Zealand and has over 25 professionals servicing top clients. Plus4 offers an unbiased consultation to small and medium sized enterprises, as well as individual and small business clients.
Hong Kong’s Office for the Commissioner of Insurance (OCI) has released provisional statistics of the city’s insurance sector for the first quarter of 2012.
Hong Kong, recently named the world’s most competitive economy in the IMD World Competitiveness Ranking report, has a vibrant financial services industry in which the insurance sector plays a major role. According to the report from the city’s OCI this role is still vitally important in contributing to the overall strength of the territory’s financial clout.
An indication of the relative health of the city’s insurance market can be seen in the top line numbers; total HKSAR insurance premiums for the first quarter of the year came in at a staggering HK$ 62.8 billion (US$ 8.9 billion). This figure is an increase of 11.7 percent over the same period in 2011.
General Insurance lines were the biggest contributors with net premiums increasing by 6.4 percent to HK$ 10.9 billion (US$ 1.4 billion) and gross premiums rising by 8.6 percent to HK$ 7.6 billion (US$ 929 million) over their Q1 2011 numbers. Total underwriting profit for general insurance lines rose by an almost unbelievable margin, climbing from HK$ 482 million (US$ 62 million) in Q1 2011 to HK$ 853 million (US$ 109 million) in Q1 2012.
Hong Kong has long been considered an oversaturated insurance market due to the city’s relatively small population of only 7 million people and the number of large, international brand name insurers present in the local industry. However, the numbers contained in the OCI’s report reveal that there are still, very real growth prospects present for insurance providers, agents and brokers within the domestic market.
In tandem with general insurance lines, direct insurance business also posted strong growth figures for the first part of 2012 with gross premiums in direct business increasing by 10.5 percent to HK$ 8.4 billion (US$ 1.1 billion) and net premiums gaining 11.1 percent to HK$ 6.3 billion (US$ 811 million) over the same reporting period in 2011.
According to the OCI, direct business is primarily being driven by General Liability lines, which includes Employee Compensation (EC) coverage, in addition to Accident and Health Business including Hong Kong Medical Insurance. Hong Kong based analysts have speculated that a rise in the uptake of locally available health insurance coverage is, in part, being spurred by constricting availability of healthcare services within Hong Kong’s public medical system and the system’s lowered levels of financing over the last 5 years – despite Hong Kong’s high ranking in the IMD ranking report the city still lags many other nations in terms of public healthcare expenditure.
Accident and Health product lines saw gross premiums increase to HK$ 3.2 billion (US$ 412 million) while net premiums rose to HK$ 2.7 billion (US$ 347 million).
The only insurance line which did not experience the same type of growth in 2012’s first quarter were Pecuniary Loss products, which actually fell 14.7 percent to HK$ 303 million (US$ 39 million) in gross premiums and dropped 39.5 percent to HK$ 126 million (US$ 16 million) for net premiums. Pecuniary Loss lines include Mortgage Guarantee products, which have been adversely affected by a major slowdown in the Hong Kong real estate market.
However, Pecuniary Loss lines represents one of the few dark spots in an otherwise gleaming report. Underneath overall premium increases across the majority of insurance businesses are indications that the city’s underwriters are in for a stellar year.
Direct Business underwriting saw a major profit for the first quarter, increasing from HK$ 370 million (US$ 47 million) in 2011 to HK$ 634 million (US$ 81 million) in 2012, and Marine and Ship insurance has bounced back from a disappointing 2011, where the product lines saw a loss of HK$ 121 million (US$ 15 million), to a strong HK$ 27 million (US$ 3.4 million) profit so far in 2012. The OCI indicates that improved claims procedures and customer claims experience was a key factor in the rejuvenation of Ships business.
It’s not just Ships business which is seeing the benefit of refined claims procedures; both Motor Vehicle and Accident and Health business lines have experienced the benefit of improving claims experiences, which has helped the underwriting profit for both these lines of coverage.
The underwriting profit for Accident and Health business lines increased from HK$ 85 million during Q1 2011 to HK$ 137 million (US$ 17 million) in Q1 2012, while Motor business saw underwriting profits increase from HK$ 2 million (US$ 257,706) to HK$ 45 million (US$ 5 million) over the same reporting period. Again, this is mainly due to a refinement in these lines’ claims handling, pointing to significant upside for all locally situated insurers, across all product types, should they choose to refine their claims methodology.
There is good news on the Long Term product front as well, premiums for Long-Term In-Force products rose by 12.9 percent over the first quarter in 2011, coming in at HK$ 51.9 billion (US$ 6.6 billion) in quarter 1 2012. Premium revenues for Life and Annuity Non-linked plans came in at HK$ 36.2 billion (US$ 4.6 billion), a 20.9 percent increase over Q1 2011, while Linked Life products (along with Pecuniary Loss devices) actually saw a contraction of 6.3 percent with premium revenues standing at only HK$ 11.5 billion (US$ 1.4 billion).
With the vibrancy of the Hong Kong economy, and the healthiness of the first Quarter figures, it is increasingly looking like the Hong Kong insurance industry is set to record a bumper year for growth. With business up, ever increasing foreign investment, and the fact that the city is now standing at the pinnacle of the economic system, the growth in the HK insurance sector represents the growth of Hong Kong as a whole; this Asian financial juggernaut is going to keep rolling on.
There could be changes afoot in China’s powerhouse insurance industry as the country’s national regulator looks to address the capital position, debt, and other competitive issues amongst players active across multiple business lines in the market.
Last week Mainland China’s insurance regulator, The China Insurance Regulatory Commission (CIRC), released a statement outlining tighter credit rules for domestic insurance companies who have been looking to raise further capital through subordinated debt issues. The CIRC has been looking to strengthen its oversight over insurer financial matters to mitigate the threat of systemic risk spreading from the insurance industry to the banking sector and vice versa during these volatile macroeconomic times. Subordinated debt is a lower priority bond tool, which is only made repayable after all other debts (from government tax authorities, senior creditors etc.) have been collected. While the technique offers investors less insurance in the event an issuer can’t repay, they remain attractive because they provide markedly higher yields than regular bonds due to the increased inherent risk. Subordinated debt has proven to be a popular fundraising mechanism for many Chinese financial institutions. Banks and insurance groups have typically held onto each other’s subordinated debt despite the extra risk. Indeed, China Life Insurance Co, the nation’s largest insurer by premium, was approved to raise CNY30 billion through a debt issue this week.
Under the new CIRC regulations, only insurance companies that have been active in the market for at least 3 years and have not incurred any significant administrative penalties will be eligible to issue subordinated bonds. Previously there had been no such requirements and many insurers used proceeds raised through subordinated debt issues to mask operating losses. The amount of outstanding subordinated debt these Chinese insurers can now hold will be limited to 50 percent of their net asset value going forward, versus 100 percent allowed earlier. Parent companies will also be barred from issuing debt on behalf of any insurance subsidiaries they own. The CIRC are certain these moves will all work to lower the default risk present in the Chinese insurance industry, and prevent contagion with the banking and financial services sector. “The changes were made to prevent systemic risks and maintain financial market stability,” the CIRC statement read.
The Chinese insurance regulator reiterated concerns about insurer capital positions again this week. According to the Wall Street Journal, the CIRC are worried that domestic insurance companies are continuing to struggle to make payments to policyholders. The CIRC is now looking at ways to help insurance companies replenish their capital base and intimated that they may help them tap into the offshore Yuan market in Hong Kong for supplementary funds. Despite the growth potential of the Chinese insurance industry, there remain many challenges to the market due to inflationary pressure, macroeconomic policy changes and weak global capital markets. Insurance companies will need to adapt to changes in the Chinese economy, adjust their business models and increase both equity investments and bank deposits, all while making sure to maintain a healthy solvency ratio.
Insurance companies rely on both bank deposits and securities investments to settle policy claims and payouts. Because of this dependency, a sagging stock market (China’s share market down 16 percent on the year) has affected the ability of domestic insurers to make payments on outstanding policies. When you combine these macroeconomic worries with the rapid rise in demand for insurance business in China, it becomes apparent that more capital is necessary for insurers to maintain their trajectory. This was supported in a July report by credit analysts from Standard & Poor’s Ratings Services, who project that Chinese insurance companies will need to raise more than CNY110 billion (US$17 billion) of fresh external funding to sustain their industry’s further growth and development over the next three years. Although the credit outlook for China’s life and property insurers will remain stable to positive, the ratings agency expects the industry to gradually slow down.
Speaking at a forum in Beijing, Chen Wenhui, CIRC vice chairman, said that the regulator would help domestic insurers raise cash through bond issues in Hong Kong, which would fall in line with existing Chinese government plans to accelerate the development of the Special Autonomous Region into the premier offshore yuan center. Despite their sizeable client base, Chen noted that insurers will face moderate industry risk in the long term without extra capital due to their relatively low capitalization, unrefined risk management practices, limited asset and liabilities management options and any adverse macroeconomic developments. If insurers are able to make their debt appear more attractive they could quickly capitalize on the country’s fast-growing bond market and supplement their operations.
Mr. Wenhui also noted that the CIRC would study the relaxation of certain insurance regulations to promote new channels of business growth in China. Among these regulatory changes could be the potential introduction of foreign entrants into the country’s humongous motor insurance market for the first time.
According to Bloomberg, the CIRC has put forth a measure to China’s State Council which would allow international insurance companies that meet select criteria to sell compulsory third party liability auto insurance. The proposal originated as a response to an American Chamber of Commerce complaint, which alleged that restricting mandatory motor lines effectively blocked AIG and other insurers from competing fairly in the market, as consumers tend to purchase their optional and compulsory motor insurance from the same company. While tightened regulatory price controls have lifted China’s motor insurance sector into overall profitability since 2009, the industry still faces a barrage of infrastructure and service problems, particularly in mandatory lines. In opening the country’s motor insurance market, the CIRC looks to both tap foreign expertise and stimulate domestic competition to address these issues and improve service standards.
The Chinese insurance industry has experienced pronounced growth in the past decade and still has plenty of room to grow due to generally stable economic indicators and an under-penetrated protection market. Despite volatile global financial market conditions, Chinese insurers remain attractive investment targets, for large multinational insurance companies and investors from the financial-services sector, amongst others. Indeed, almost US$25 billion in dual share offerings in Hong Kong and Shanghai could be coming to the market over the next year from Chinese insurance companies. PICC have plans to raise between US$5 billion and US$6 billion in a dual listing this year. New China Life Insurance, China’s third-largest life insurance firm has also recently applied to the Hong Kong stock exchange for a dual listing. The insurer is aiming for US$4 billion in fresh funds by the end of the year. Taikang Life Insurance, China’s fifth-largest insurer by premiums, has also targeted between US$3 billion and US$4 billion from a Hong Kong listing in the next couple of years as well. Market observes will be watching closely to see if these insurers can all dual list successfully and build on their enormous domestic customer base to establish a more international presence.
Allstate Corporation, the largest publicly traded U.S. home and auto insurer, announced Wednesday that it had agreed to purchase auto insurer Esurance and Answer Financial, an affiliated online insurance agency, from White Mountains Insurance Group for about US$1 billion. The boards from both companies approved the deal, which is expected to close later in the fall this year.
The purchase price at closing will be a combined total of US$700 million for the two companies, plus the tangible book value of Esurance and Answer Financial when the deal is completed. Allstate will fund the deal entirely with available cash and has expected the transaction’s total price tag to be about US$1 billion.
Through the acquisition of White Mountains’ two holdings, Allstate is looking to broaden its business model and expand sales of coverage through direct channels such as the Internet. Allstate has largely relied on captive agents for sales and has been consistently losing auto-insurance policyholders over the past three years as online customers opt for coverage sold through their more web-savvy rivals Progressive and Geico, the two market leaders in online auto-insurance sales in the United States.
Allstate’s 2011 first-quarter results revealed that their number of overall standard auto policies in force dropped 0.7 percent in the 12 months ending March 31. Exceptional catastrophe costs have further weighed on Allstate’s recent financials. Earlier this month, the company warned investors that it had almost US$1.4 billion in catastrophe losses recorded for April, making the second quarter of 2011 Allstate’s costliest period for disaster claims since hurricane-hit 2008.
By picking up San Francisco-based Esurance, Allstate acquires the third-largest provider of online auto insurance quotes in America with 545,000 policyholders, and a company whose premium volume has grown 20 percent on average over the past five years, totaling US$836 million in premiums for 2010. Allstate also obtains Esurance’s exclusive web-based technology resources that have been specifically developed to meet the needs of self-directed online consumers.
Currently Allstate and Esurance each control around 2 percent of the market share in direct channel auto insurance sales. In comparison, market leader GEICO maintains a 38 percent market share with over 10 million policyholders throughout the United States.
Esurance was one of the first companies to begin selling car insurance online but has now found itself spending more money on claims and expenses than it has been able to bring in through premiums. According to Allstate, the acquisition will enable them to share market expertise that could limit Esurance’s claims costs and make their underwriting profitable once again.
Answer Financial, meanwhile, is an online broker that links insurers to self-directed customers who are seeking a choice among auto or property insurance. Customers are provided with quote comparisons and support with Answer Financial collecting a commission on every successful match it makes. The company has around 350,000 customers.
Speaking at the announcement of the deal with Esurance and Answer Financial, Allstate’s President, Chairman and CEO Thomas J. Wilson recognized that the shifting consumer preferences for premium online insurance shopping options have necessitated this transaction. “Consumers today expect to have their specific needs met by their insurance companies. Our strategy is to focus on individual preferences and utilize different value propositions for distinct consumer segments,” Wilson said.
Wilson went further on to explain each company’s unique attributes and how they would continue to function under Allstate’s management. “Our Allstate agencies do an outstanding job of serving customers who want a local personal touch and prefer to purchase a branded product. Esurance will expand our ability to serve customers that are more self-directed but still prefer a branded product. Answer Financial will strengthen our offering to individuals who want to be offered a choice between insurance carriers and are brand-neutral.”
Allstate will maintain both acquisitions as separate functioning businesses and utilize their brands to promote synergy and growth across different consumer segments. Esurance has traditionally been more successful in attracting the young driver demographic. Allstate, meanwhile, has generally appealed to customers who require more than just auto coverage and who want to speak with an agent to plan their insurance options. Allstate management is confident the two companies can now share expertise moving forward and will be able to develop a solid growth platform across multiple market disciplines.
“Our strategy is to focus on individual preferences and utilize different value propositions for distinct consumer segments…Esurance will expand our ability to serve customers that are more self-directed but still prefer a branded product,” Wilson said in a statement, adding that “This is a great opportunity to take what they’ve built, put the imprimatur of Allstate on it, and attack the market competitively from two sides.”
Allstate have planned to increase spending on Esurance’s marketing and promotion efforts to drive more customers to the website. Allstate will also institute its own macro claims-handling process for Esurance policyholders. Implementing more cost-effective intra-company operational advantages would be “substantial and worth a lot of money,” according to Wilson, and would go far in justifying the billion dollar purchase price.
“It’s economically attractive because we will improve the marketing effectiveness of the Esurance operation and then there are great benefits for Esurance from utilizing Allstate’s pricing and claims expertise,” Wilson concluded.
While establishing a greater presence online can significantly improve your business, it is not without risk. According to a new report issued by global insurance broker Lockton, online hackers are fast becoming the greatest threat to business today. As commerce continues to move online, the gap between technological innovation and the ability to protect data offers criminals an opening to launch attacks and steal sensitive industry information.
The warning comes in the aftermath of several recent high-profile security breaches. Last month, Marks & Spencer, Best Buy, and other clients of email marketing company Epsilon, had data on thousands of their customers stolen. Japanese electronics giant SONY has suffered a similar fate and is looking to its insurers to help cover the cost of cleaning up a continued data breach that has exposed the names and potentially even credit details of more than 100 million of its customers, an amount that analysts claim could exceed US$2 billion.
According to Lockon, fewer than 2 percent of all businesses in the UK are currently insured against losses resulting from hackers obtaining customer data and shutting down information networks. The insurer is expecting the proportion to rise to almost 50 percent within the next five years.
Indeed, despite its substantial investment in an internet direct-sales platform, Allstate also remains committed to its agency network.
In February, Allstate announced that it would open 140 agencies in Texas and 120 throughout California.
Allstate is the second largest personal lines insurer in the United States. Its Allstate Protection segment sells motor, property/casualty, home-owners, and life insurance products. Allstate Financial offers life insurance through its subsidiaries: Allstate Life, American Heritage Life, and Lincoln Benefit Life. Allstate customers can access Allstate products and services through more than 13,000 Allstate agencies and financial reps throughout the US and Canada.
Esurance offers quote comparisons and sells auto insurance policies through its website and pre-approved online agencies to customers in 30 US states, with California and Florida its leading markets.
Major players in the Australian insurance industry are fighting tooth and nail to halt the rise of price comparison services for customers seeking to better evaluate their coverage options in the country.
Two of Australia’s predominant insurance companies, Insurance Australia Group (IAG) and Suncorp Insurance, have sent letters to several domestic insurance comparison websites, demanding they remove information and references about their companies’ car insurance products and to terminate all links referring back to their brand’s websites. The insurers allege such action was necessary because premium comparison web services cannot provide the most accurate pricing data for their brand’s products as they don’t have the most pertinent coverage information available.
IAG and Suncorp have a combined market share of almost 70 percent of Australia’s insurance business. The two companies have been undergoing substantial legal efforts to fend off the increased competition that has resulted from the modern surge in choice in retail insurance products and assessment services. The most efficient mechanism by which to do this has been to obstruct the business models of comparison websites. The two insurers have also developed alternative brands to promote alongside those supported by challengers such as Hollard and Auto & General.
An internal report issued from global investment bank JP Morgan is being cited as evidence supporting the Australian insurers’ concerns about new price comparison modules. The report claims that millions of dollars could be lost in revenues for the country’s largest insurance groups if the mechanisms involving price control and evaluation were altered and made arguably more accessible to brokers and consumers.
The report condemns the growth of online comparison and prices aggregating services as a significant threat to established insurer’s commercial premiums. Enabling customers to focus only on rates could have a debilitating effect on the overall product catalogue, some insurers argue.
JP Morgan’s research calculated that QBE Insurance, Australia’s largest international insurer, could lose up to $414 million in commercial premiums, and that Suncorp and IAG might forgo $378 million and $244 million in revenues respectively. A further $800 million could be lost in home and vehicle premiums, according to the report.
JP Morgan concluded that $1.8 billion of commercial and personal insurance premiums would be “at risk” from the alleged “contestable platforms” that allow both brokers and customers to compare and analyze prices of products.
According to JP Morgan, Australian insurers should use their current position as leverage to better control the concentrated structure of the market, refusing to license out their services arbitrarily to prevent private comparison websites from gaining a presence amongst consumers. Insurance companies would therefore stop undercutting each other and become involved with price comparison systems run through established brokers rather than anomalous internet services.
Operators of online independent insurance evaluation services claim these Australian insurance giants have long tried to prevent their customer-friendly premium rate comparison websites from gaining a foothold in the market.
The recent demand for a removal of certain product-lines is an indication that certain insurers remain uncomfortable with online firms estimating their premiums. If these companies do not make their quotes more available on the internet however, ultimately many potential customers will not factor their products into a purchasing decision, online comparison services claim. There is already a problem of underinsurance in Australia, and this development, blocking adequate premium price discovery, would not alleviate that issue.
Within the United Kingdom, the comparison industry asserts that it has made a significant impact in reducing premium prices for insurance services across the board for customers, particularly in auto coverage. By providing more readily available information about insurance costs, the UK industry has been forced to innovate and develop more comprehensive services for a customer base’s previously unmet needs.
Insurers feel that the growth of the price aggregator industry in the United Kingdom is responsible for limiting their margins in the country and would not want a similar development to take place in Australia. Independent internet insurance evaluation services maintain that the industry’s paranoia ignores the success and increased customer base that these online assessment services can and have already provided. The diverse access to necessary insurance information will enable both customers and brokers to provide valuable feedback on the further progress of the insurance industry in Australia.
Insurance Companies Mentioned
Insurance Australia Group (IAG) is the largest general insurer for Australia and New Zealand. The company provides personal and corporate insurance policies under several different brands, including NRMA Insurance, CGU, SGIC, SGIO and Swann Insurance.
QBE Insurance Group Limited is one of the top 25 insurers and reinsurers worldwide. Headquartered in Sydney, Australia, QBE operates out of 49 countries around the globe, with a presence in every key insurance market. The Americas Division, headquartered in New York, conducts business through various property and casualty insurance subsidiaries in eight countries.
Suncorp-Metway Ltd (SUN) is an Australian financial services corporation offering general insurance, banking, and wealth management services. The Suncorp-Metway Group was formed on 1 December 1996. Suncorp’s acquisition of Promina has made it the second largest domestic general insurer in Australia and now serves over 3.5 million general insurance customers throughout the country.
UK-based insurer Admiral has announced that it has entered into new agreements with Bermuda-based XL Re and Spain-based Mapfre Re, which will augment existing arrangements between Admiral and other reinsurers such as Munich Re, Swiss Re, New Re and Hannover Re. The new agreements will gradually replace its existing deal with Hannover Re, which will have a reducing share of Admiral’s business over the next two years before the deal expires in 2013.
Admiral is highly regarded for its ability to underwrite its risks and for the provision of competitive insurance products, which are primarily for motor vehicles including motor cycles, but also for the home, travel, life and health sectors. The addition of two new reinsurance firms to its portfolio of risk bearers will see a shift in the underwriting percentage between the four companies currently involved.
The news of Admiral’s new reinsurance deals comes on the back of healthy third-quarter earnings, which saw the car insurance specialist accumulate £ 446 million (US$ 716.5 million) in profits – an increase of 50 percent year on year. Admiral’s profits were driven by strong growth in motor vehicle insurance premiums, which rose by 28 percent over results from 12 months ago; this means that six percent of cars on Britain’s roads are insured by Admiral. Admiral’s non-UK motor insurance business achieved an 87 percent increase in premium generation, reaching £19.3 million (US$ 30.8m) for the third-quarter of 2010.
XL Re and Mapfre Re will be part of Admiral’s underwriting network, which is praised for its quality. The newly agreed deal with XL Re and Mapfre Re will mean the share of motor risk Admiral retains falls from 27.5 percent to 25 percent as the new reinsurance companies integrate into Admiral’s underwriting arrangements over the next three years.
The agreement between Admiral and New Re has been extended, while the contract with reinsurance firms Swiss Re will be unchanged. Admiral newly released results showing profits of £ 446 million (US$716.5 million), including premiums passed on to its current reinsurers.
The deal will see Mapfre Re take a 2.5 percent share of risks next year, increasing to 3 percent in 2012; XL Re will take a 2.5 percent share in 2011, continuing for 3 years until 2013. German based Hannover Re will maintain a 10 percent share of risks this year which will reduce to 8.75 percent in 2011 and 2012 and will subsequently expire in 2013. Admiral will increase New Re’s share of reinsuring Admiral’s business from 10 percent to 11.25 percent in 2011, which will climb to 13.25 percent in 2012-2013. Munich Re’s share is being cut from 45 percent to 40 percent from the end of next year, with Swiss Re’s share remaining unchanged at 7.5 percent. There will be an 8.75 percent share of risk which is flexible and could be allocated to one of the existing or new reinsurers.
International reinsurer XL Group saw net income for the third quarter of 2010 increase by 61 percent to US $397.4 million mainly due to a 75 percent decline in net realized investment losses to $166.3 million. That improvement benefited XL’s offsetting of a 46 percent decline in underwriting income which amounted to US$152.7 million and was achieved on earned premiums of US$3.75 billion – down 3.8 percent. The combined ratio rose to 95.9 percent from 92.8 percent. Also, XL’s Group’s life premiums fell 33 percent to US$287.9 million.
Admiral’s introduction of two new reinsurance firms – XL Re and Mapfre Re – to add to their existing reinsurer’s Munch Re, Swiss Re, New Re and Hannover Re – is leading to a reshuffling of its risk exposure over the next three years. This will result in Admiral being able to lower its own motor insurance risk from 27.5 percent to 25 percent. Admiral’s new reinsurance partners will be underwriting business for the British insurer’s operations in the UK, Italy, Spain, USA and the planned expansion into France in the near future.
XL Group plc, through its subsidiaries, provides insurance and reinsurance coverage to industrial and commercial firms, insurance providers, and other institutions worldwide. The XL Group operates in three market segments – Insurance, Reinsurance and Life Operations.
Swiss Reinsurance Company Ltd was established in 1863 and is present in more than 20 countries. Swiss Re provides reinsurance products and financial service solutions. It offers various reinsurance products covering property, casualty, life, health and special lines – such as agricultural, aviation, space, engineering, HMO reinsurance, marine, nuclear energy, and special risks.
Munich Re stands for exceptional solution-based expertise, consistent risk management, financial stability and client proximity. This is how Munich Re creates value for clients, shareholders and staff. It operates in all lines of insurance, with around 47,000 employees throughout the world. Especially when clients require solutions for complex risks, Munich Re is a much sought-after risk carrier. The primary insurance operations are mainly concentrated in the ERGO Insurance Group. ERGO is one of the largest insurance groups in Europe and Germany and 40 million clients in over 30 countries place their trust in the services and security it provides. In international healthcare business, Munich Re pools its insurance and reinsurance operations, as well as related services, under the Munich Health brand.
UK-based Royal Bank of Scotland (RBS) may be in the process of selecting advisers for the sale of their insurance unit. Previously, the company had been considering a public listing rather than a trade sale. This unit of the RBS Group has to be disposed of as part of the rescue package extended by the European Union when the bank ran into trouble during the global financial meltdown.
The insurance division of RBS reported a loss amounting to US$428 million (EUR 334.4 million) for the first-half of 2010, which contrasts sharply to the US$367 (EUR 286.7 million) operating profit achieved during the same period a year earlier.
Besides the negative financial results reported during the first half of this year, there appears to be a number of potential buyers interested in this insurance unit of RBS, including Berkshire Hathaway, the company run by US billionaire Warren Buffett.
RBS management had reportedly favoured a public listing for the insurance business unit by 2012. Popular products offered by RBS Insurance include the products Direct Line and Churchill, the former even achieving the recognition as the most trusted insurance brand by Consumer Intelligence. RBS Insurance also has the biggest market share as a provider of home insurance in the UK.
Started in the mid- and late-1980s respectively, the Direct Line brand was the first to use the telephone as its main channel of communication to provide motor, home, travel and pet insurance cover direct to customers by phone or on-line; whilst Churchill has become one of the UK’s leading providers of general insurance, offering award-winning car, home, travel and pet insurance, and breakdown cover, also making use of the phone or through Internet on-line sales.
The deadline given to RBS, which is 83 percent state-owned, for the sale of this insurance division is December 2013, as per the bailout-mandated sales schedule defined by European Union regulators.
Insurance Company mentioned:
RBS Insurance is the UK’s number 2 general insurer and the number 1 personal lines insurer by gross written premiums. It sells and underwrites personal lines and SME insurance over the telephone and online, as well as through brokers, RBS group bank branches and partnerships.
Allianz Global Automotive and Volkswagen Financial Services have recently signed a letter of intent which will see the two companies agree to continue collaborating and strategically expand their 60 year old successful partnership.
The newly signed letter of intend pays particular attention to the expansion of the business model from a qualitative perspective, focusing on growth, as well as increasing their combined efforts towards achieving increased profitability. The target markets for this renewed partnership agreement go beyond Germany, aiming particularly to the emerging economies of the BRIC countries, comprising Brazil, Russia, India and China.
Worldwide, the car insurance market is fiercely competitive and all the major insurers want a piece of it.
Allianz sees the business done with automotive manufacturers as key to achieve growth in the highly contested global auto insurance market. Through the global strategic positioning brought by the renewed agreement, Allianz intends to offer their automotive partners and their customers improved services in the future.
The biggest market for Volkswagen used to be Germany, and it has now been overtaken by China, whilst Brazil remains their third largest market, with continuing aggressive expansion in both India and Russia.
Both Allianz and Volkswagen see their partnership as a win-win situation. Allianz is able to offer tailored products and multi-channel sales, significantly adding value to the proposition offered to their insurance customers, whilst Volkswagen can continue living up to the promise behind their brand name delivering the quality and service expected by their customers.
For both companies, the objective remains to “forge closer links between sales channels to secure profitable growth in the long term”, according to a joint statement released after the signing of their agreement.
Allianz Group is one of the leading global services providers in insurance and asset management. With approximately 153,000 employees worldwide, the Allianz Group serves approximately 75 million customers in about 70 countries. On the insurance side, Allianz is the market leader in the German market and has a strong international presence.
The Volkswagen Group with its headquarters in Wolfsburg is one of the world’s leading automobile manufacturers and the largest carmaker in Europe. The Group operates 61 production plants in fifteen European countries and a further six countries in the Americas, Asia and Africa. Around the world, nearly 370,000 employees produce about 26,000 vehicles or are involved in vehicle-related services each working day. The Volkswagen Group sells its vehicles in more than 153 countries.
German based Gothaer Group has acquired a 45.42% stake in Polskie Towarzystwo Ubezpieczen (PTU) – PTU is one of Poland’s largest insurance companies.
The acquisition of the substantial stake in the Warsaw based PTU is part of the Gothaer Group’s strategy to venture into the growing Eastern European insurance markets. This realizes an important company objective after previous failed attempts to expand their presence in Germany.
Gothaer obtained the 45.42% equity in PTU, valued at E34m (US$44 million), from Ciech group, a Polish based Chemical company. The deal comes as a blow to the Polish arm of RE (Polskie Towarzystwo Reasekuracji) who have a 23% stake in PTU. RE initially declined an approach from Gothaer as the company had planned to increase their own stake in PTU. Techwell is another significant shareholder with a 29% stake in PTU, and is in negotiation with Gothaer regarding the possible acquisition of the Techwell share of the Polish Insurer. The rest of PTU is owned by seven smaller shareholders.
The move into Poland is seen as a positive move for Gothaer which aims to increase their E4 billion (US$5.2 billion ) insurance premium income – although still significantly smaller when compared to Allianz, the market leader, which has an E28 billion (US$ 36 billion) premium income.
The expansion into a growing Europe economy is part of the Gothaer strategy to increase their status in the Central and Eastern European insurance markets. With a population estimated at 38 million, the insurance sector in Poland has experienced significant growth since joining the EU. The demand for products such as life and health insurance grew from 2005-2009, although the premium volume for life insurance fell sharply in 2009 owing to adverse economic conditions. The forecast for the insurance sector in Poland is very positive, with an increase in demand envisaged.
Dr Gorg, a member of Gothaer board said: “The Polish economy has an enormous growth potential and has capacity to cope with financial crises…….. The high growth rates not only in the insurance sector, the safe legal system, the monetary and cultural ties with Germany are very good basis for our commitment.”
2010 has seen numerous takeover and mergers between insurance companies, partly due to changes in business strategies since the 2008-2009 economic upheaval, and changes in world markets. Gothaer moves into an emerging European market through the purchase of one of Poland’s largest insurance companies – PTU – with the expectation of significant market penetration.
Central and Eastern Europe (CEE) has been a region of strong growth since the early 1990′s. This followed the fall of the eastern Soviet bloc, allowing countries in the region to expand their economies. However, since 2008 the demand for insurance products in the CCE has declined slightly, but there are promising signs indicating opportunities for potential growth in the region. In 2008, it was estimated that the CEE region premium income totaled US$93.3 billion, accounting for 2.31% of the global total. A sigma report indicates scope for expansion for the CEE region, in both the non-life and life insurance products.
2008 data from Polska Izba Unezpieczen (PIU) reported that the non-life insurance market in Poland was dominated by motor insurance, with health insurance only contributing PLN 120-120 (US$ 4-5 million) in premiums collected. This was explained by the lack of private health facilities present in Poland, but is seen as an opportunity for Gothaer to penetrate the health insurance market in this country, based on its expertise gained in Germany.
Insurances Companies Mentioned
Gothaer Versicherung AG
Polskie Towarzystwo Ubezpiecze?
Polskie Towarzystwo Ubezpiecze? S. A., established in 1990, is among the top ten largest insurers in Poland in terms of premiums collected, scale of operations, growth rate and the breadth of product range
Aiming to gain a sales foothold in Europe, Maiden Holdings Ltd., the Bermuda-based re-insurer has reached an agreement with British-based GMAC International Insurance Services Ltd. to buy the majority of their infrastructure, assets and liabilities. Currently, GMAC is part of Detroit-based Ally Financial, which was formerly named GMAC Financial Services Inc.
As part of the deal, Maiden also gets renewal rights on nearly US$100 million (EUR 79 million) of mostly auto re-insurance, plus unearned premiums and the assumption of more than US$100 million (EUR 79 million) in loss reserves, funded by cash and other investments.
The client base of GMAC International Insurance are retail customers buying its auto-related insurance products in the European Union and other markets.
Until the regulatory approval of the deal is obtained, GMAC will remain a part of Ally Financial. Not immune to the effects of the financial tsunami, Ally received three bailouts from the US government and has in the past been selling insurance-related assets to repay its rescuer. Last year, Ally posted a loss of more than US$ 10 billion (EUR 7.9 billion).
Maiden aims to continue building on the successful business development platform, taking advantage of the unique auto-related distribution networks, which include the sale of extended service contracts and insurance for auto dealer inventories. The underwriting portion of the portfolio is profitable and there is future fee income growth potential through the distribution networks developed by GMAC.
The deal is expected to be completed towards the end of the third quarter of this year; the financial details of the deal were not disclosed.
Founded in 1939 as Motors Insurance Corporation, the GMAC Insurance Group is part of GMAC Financial Services. The company provides a broad range of insurance and insurance-related products and services for individual consumers, as well as automotive dealerships and other businesses. Today, GMAC Insurance is one of the largest insurers in the nation. GMAC Insurance has offices in many different countries around the world.
Maiden Holdings, Ltd. is a Bermuda-based holding company with insurance subsidiaries that provide specialty reinsurance products for the global property and casualty market. Their differentiated model is focused on delivering high returns and low volatility, taking a value-added approach to meeting the non-catastrophic working capital reinsurance needs of their clients. Maiden has underwriting operations in both Bermuda and the United States.
Aviva, the fifth largest insurance group in the world, has continued the expansion of their Asian operations with an online car insurance service in Singapore.
With the Singaporean car insurance market having risen 21.5% in premiums last year, Aviva’s new online service is meant to offer lower cost motor insurance coverage by eliminating the costs of commission and administration processes.
Aviva plans to make their new service as flexible as possible by offering a variety of optional coverage choices to consumers online, with quotes taking about 60 seconds to generate. Coverage options include: higher excesses, personal accident coverage, additional named drivers, identity theft and loss of keys protection, among others.
Aviva says the service includes on-site ‘accident support’ to distinguish its claims service from competitors. Accidents can be reported to Aviva’s dedicated hotline all day every day, after which ‘accident support’ personnel will arrive on scene within 20 minutes, anywhere in Singapore, to help take photographs, complete paperwork and take down witness statements. Customers are then hailed a complimentary taxi to take them home.
According to Aviva, all policies are able to be modified or renewed at any time and customers are given the “Go Green” option, where they can save SGD$25 by receiving their policy documents through their email.
The company plans to follow on their re-entry into the Singaporean general insurance market by introducing home and travel insurance services at a later date.
Citing the massive increase in awareness to insure themselves against possible causalities, the Associated Chambers of Commerce and Industry of India (ASSOCHAM) has projected that premium from General Insurance will rise to levels of close to US$22.2 billion (EUR 16.4 billion) in the next 5 years.
A recently released assessment by ASSOCHAM estimates the current insurance premium collection to be close to US$77.8 million (EUR 57.6 million), with a high likelihood in future that it will gain a speedier pace.
The year-on-year annual growth of general insurance premiums between 2000 and 2009 is estimated to have been in excess of 15%. The gross premiums of general insurance in 2000 were estimated to have reached almost US$22.2 million (EUR 16.4 million). This amount by 2009 is estimated to have climbed to close to US$77.8 million (EUR 57.6 million) due to increased penetration levels, particularly in large towns, metropolitan areas and other cities.
According to ASSOCHAM, over 60% of the population in India, largely in the rural parts of the country has yet to be tapped by the insurance industry. The social schemes of the government are having the effect of raising levels of awareness and improving the income among a large chunk of the rural population, and this is believed to become one of the driving factors for the growth of insurance premiums up to the projected level of US$22.2 billion (EUR 16.4 billion) by 2015.
The automotive sector is experiencing high growth, together with great improvements in healthcare, both of which factors will substantially open up the potential of health insurance as well.
The market size of general insurance in the United States is currently worth US$488 billion (EUR 361.5 billion), compared to US$10.5 billion (EUR 7.8 billion) of Switzerland, US$74 billion (EUR 54.8 billion) of France, US$77 billion (EUR 57 billion) of Germany, US$70 billion (EUR 51.9 billion) of Japan, US$14.2 billion (EUR 10.5 billion) of Brazil, US$14.1 billion (EUR 10.4 billion) of Russia, US$2.6 billion (EUR 1.9 billion) of Thailand, and US$26.3 billion (EUR 19.5 billion) of China. As per latest estimate, the size of this market in India is US$6.2 billion (EUR 4.6 billion).
The penetration level of general insurance in India is estimated to be 0.60% of its GDP, which compares to a world average of 2.14%. In the United States it is 3.94% of its GDP. While in Switzerland, France, Germany, Japan, Brazil, Russia, Thailand and China, this percentage in relation to their GDP amounts to 2.4%, 2.34%, 1.99%, 1.46%, 1.10%, 1.10%, 1.08%, and 0.81 respectively. India ranks 136th in penetration levels worldwide, compared to rankings 106 of China, 87 of Thailand, 86 of Russia, 85 of Brazil, 61 of Japan, 36 of Germany, 25 of France, 20 of Switzerland and 9 of The United States of America.
The great potential for growth in general insurance premiums in India lays in its rural sector, in which a large number of micro financing institutions will explore possibilities for wider coverage of general insurance, together with the government initiatives on mass insurance, which will also be gradually widen to cover large portions of the countryside for general insurance, including the urban pockets in India.
In a more distant future, non-banking financial companies will also be tied up with the entire banking infrastructure to better utilise the distribution of insurance products.