THE FUTURE OF THE INSURANCE MARKET
± DO INSURERS NEED CRYSTAL BALLS?
Eamonn Rice is Head of the Scottish Financial Service Practice of Arthur Andersen. He was previously with Price
Waterhouse where he was global leader of their retail financial services compliance risk management practice.
Abstract This article looks at the changes in the insurance market
which are being forced by new economy pressures. The author
considers the squeeze created by consolidation in the financial
services market and by globalisation and how companies have
responded by creating asset management products and tapping
increased customer demand for an ever wider range of products. The
benefits of technology are turning the market upside-down but are
benefiting new entrants rather than existing players. The key in the
end will be those companies which can add value.
Keywords Insurance, Globalization, Technology, Convergence,
Financial services, Customers
here is no doubt that, as financial service
institutions have become immersed in the new
economy, sweeping change has permeated
virtually every aspect of business. Market boundaries
that were once clearly defined have been erased, raising
competition to unprecedented levels. Technology, a
critical element in today's business world, has
completely restructured how companies interact with
their customers and with each other. Traditional
business models are giving way to new and more
innovative market strategies.
The insurance sector, like all other financial services
segments, has been impacted by an array of economic
trends and market forces, including soft market
conditions, sluggish sales results and fierce competition.
In this article, I consider the significant factors
contributing to the changing landscape of the insurance
sector and predict the impact of these factors on the
First, we have the macroeconomic trends impacting all
financial services organisations. There is a low inflation
environment in all the key global economies. An
integrated European marketplace has been created and
there are trends towards economic unity in other
regions. There has been consolidation and convergence
throughout the financial services industry. We have seen
mergers within the insurance sector, mergers across
financial services sectors and mergers with non-financial
services institutions. The new economy has transformed
economic models with an emphasis on earnings.
Insurers are under continuous shareholder pressure to
increase market share and wallet share, i.e. share of
disposable income. The information model has also
been reshaped, with the consumer as champion.
As well as these global economic issues, the landscape of
the insurance market has been significantly influenced
by a host of market forces.
The pace of consolidation in the financial services
industry over the past few years is unprecedented and
consolidation continues to be the dominant force
reshaping the insurance industry around the globe.
Driven by the need to grow market share, provide
services, expand distribution capabilities and improve
operational efficiency, many financial services
organisations are continuously pressured to look for
synergetic acquisitions and shed unprofitable or non-
Consolidation is the result of a variety of factors,
globalisation of financial markets;
homogenisation of financial products;
demands of customers who want to obtain a full
range of financial services from a single institution;
lack of opportunities for organic growth;
existence of too many inefficient insurance
insurers seeking to acquire new distribution
access to better technology;
entry into new markets through affiliations and
B a l a n c e S h e e t 9 , 1 2 0 0 1 , p p . 1 4 - 1 6 , M C B U n i v e r s i t y P r e s s , 0 9 6 5 - 7 9 6 7
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# Eamonn Rice