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 Frontiers in Finance is Financial Services global industry magazine. It assembles the thinking of our professionals around the globe, providing you with informed perspectives on recent and current issues. In doing so it is designed to stimulate your thinking about the best way forward by highlighting practical issues at both the strategic and tactical level.
In This Issue:
02 Foreword
Growth, performance and governance are key issues for CEOs of insurance companies around the world. To become, or remain, a major player, insurers are expected to consistently deliver double-digit revenue growth. Cost management, operational excellence and the optimization of business operating models are all on the CEO agenda. Governance is also crucial in an industry that is fundamentally concerned with the management of risk and is closely watched by a range of global, national and state regulators.
Growth
04 Pace of change opens up further opportunities in Central and Eastern Europe
Despite strong growth rates over the last 15 years in Central and Eastern Europe and the Commonwealth of Independent States, the region’s insurance markets continue to lag behind Western Europe, both as a percentage of GDP and per capita. However, it would be a mistake to treat the region, even if one excludes Russia from the definition, as homogenous.
08 Russian insurance booms
The Russian economy has grown rapidly and consistently for the last nine years. High oil prices, growing profitability, increasing access to international capital markets and the emergence of a consumer society, marked by increasing personal consumption and market choice, are some of the factors having a significant impact on Russia’s insurance industry which is seeing tremendous growth in both the retail and commercial sectors. However, this does not mean that market entry is easy. The message is clear: if you want to get in, get in now; but make sure you do your homework.
12 A changing climate
Climate change is likely to represent the single biggest issue facing insurers over the next 50 years or so. Having been substantially researched, there is no longer a debate over whether it will occur, but rather how insurers will adapt and who the winners will be. In the last few years, climate change has rapidly risen up the survey lists of hot issues, appearing from nowhere to right at the top. It is clear that this is now an insurance CEO issue and for good reasons.
Performance
16 Insurance outsourcing: India leads the way
Insurance companies have traditionally been among the slowest adopters of outsourcing/offshoring. But in the past few years the market has changed as a result of shrinking margins, higher claims disbursement and increasing competitions, especially since September 11, 2001. The size of the insurance industry, with over 1,500 property and casualty insurance companies and 1,300 health insurance companies in the U.S. alone, makes insurance outsourcing an attractive market.
20 Profits down the drain?
Why should an insurance group, awash with cash, prioritize effective cash management? The general insurance industry generates an abundance of cash, retains it for long periods, and pays out vast amounts in claims settlements, so why worry? The answer is simple
22 Beating insurance fraud – there is a smarter way
Insurance fraud is a massive problem in all advanced economies. With increased pressure on insurers’ margins, even incremental reductions in leakage can yield substantial benefits. Traditionally, insurers relied on internal identification and referral processes and specialist investigators to spot suspicious claims. But there are more sophisticated tools…
26 Bringing down the barriers: Securitizations go global
The increasing speed of globalization and the blurring of boundaries between financial services providers are helping drive the significant rise in securitizations. Barriers to securitizations, such as the quality of data and the understanding of risk by the capital markets, are slowly being eroded. However, insurers are best advised to carry out feasibility studies to understand whether an insurance securitization is the right option.
30 Building a robust defense – transfer pricing
Transfer pricing is a key issue for multinational
groups because it is one of the main mechanisms by which capital, and hence profits, are allocated between headquarters and operating subsidiaries. Careful allocation of capital and application of appropriate transfer pricing policies can also be a legitimate means of ensuring profits are taxed in the lowest possible jurisdictions. Historically, transfer pricing policies for cross-border reinsurance in multi-national insurers have tended to escape the closest scrutiny, but this has now changed…
Governance
34 Taking an enterprise-wide view of risk: The evolving role of the CRO
The insurance industry is all about risk, and some aspects of risk management have been developed to a high level of sophistication. But in the past, the focus was on managing risk separately within individual business areas. At the same time, individual business units concentrated only on those risks they perceived to be key. By its nature, this approach to risk management was quantitative and analytical. The disadvantages of this approach were recognized some years later and it has since changed dramatically.
38 New IASB discussion paper: What’s the story?
On May 3, 2007 the International Accounting Standards Board (IASB) published a discussion paper on Phase II of its insurance project. The paper is in line with expectations, but the grouping of the various issues allows a better understanding of the way in which the views were reached. However, at some points a theoretically sound and principle-based approach is still lacking.
40 Time to take a look under the hood of your economic capital models?
Internal economic capital models are continuously gaining in importance due to regulatory and business drivers such as regulators, ratings and risk and return optimization. While the drivers for models are universal, internal models exhibit – more often than not – highly complex and company-specific features reflecting firms’ individual business plans, market views and management assumptions. On the one hand these features are part of their appeal. On the other hand they make it difficult for senior management to assess their quality and accuracy.
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PDF, 848KB, 48PAGES.
Growth, performance and governance are key issues for CEOs of insurance companies around the world. To become, or remain, a major player, insurers are expected to consistently deliver double-digit revenue growth.
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