Global Expansion in Life Insurance
13 Nov 2006
Who is Fit for Global Travel?
Global Trends for Life Insurers
The economic, regulatory and technological changes that have enabled increasing interdependence of national economies – in short, globalization – have spurred a new era of international expansion. The methods and speed with which the developing and mature insurance markets integrate, determine much of the internal development strategy among the world’s most successful life insurance providers. The following research aims to provide an understanding of how this integration is unfolding and identify key trends and best practices in global expansion.
Learn more in the Global Life Insurance: Fit for Global Travel paper.
In a recent study, EDS and Datamonitor obtained input from approximately 97 Life insurers from 17 different countries (45% Americas, 39% Europe, 17% rest of the world) to determine their strategies, practices and expectations for providing Life insurance products in non-domestic markets.
The study addresses life insurers:
- drivers and barriers for expansion
- target markets for expansion
- types of products for new and emerging markets as well as the branding of products
- IT and operational functionality for growth
The Engines of Expansion In Global Life Insurance
Understanding how populations change is central to the Life insurance industry, and global changes currently underway are providing a once-in-a-century opportunity for Life insurers. The biggest opportunities for Life insurance, and the driving force behind expansion, are multi-generational demographic shifts. There are two overarching demographic trends upon which most of the recent and future change in the Life insurance industry depends:
- The ageing of the world's population
- The increasing Life expectancy of these populations
According to the United Nations, the global population over 60 years of age is expected to more than double (~230% increase) by 2050, driven not only by the progression of the large “baby-boomer” generation into retirement age, but by declining birth rates, particularly in Europe and Japan.
This trend alone will result in a rising dependency ratio and is already severely testing both public and private pension schemes in the developed world. Compounding the increase in the number of people over age 60 will be rising life expectancy, made possible by advances in public health awareness and disease control, which will require retirees to generate and sustain income for far longer during the later part of their lives.
In addition to this underlying change in demographics, the Life insurance industry will benefit from two other developments that will allow insurers to take advantage of favorable demand trends. First, a wave of financial services deregulation has enabled the creation of a new global marketplace for insurance, with faster growth across more products and channels in mature markets and the opening of entirely new insurance markets in the developing world. A period of gradual deregulation in US financial services culminated in the Gramm Leach Bliley Act of 1999, which repealed the Glass-Steagall Act.
Meanwhile, the European Union (EU) has supported legislation that eases intra-continental restrictions on growth in the insurance industry. Components of the Insurance Mediation Directive have been the driving force behind the integration of national insurance markets across Europe. Along with these legislative developments, economic liberalization has increased the number of potential markets where Life insurance is, or will be, in demand, particularly in China, India, Latin America, SouthEast Asia and Central and Eastern Europe. The Chinese Insurance Regulatory Commission (CIRC) and the Indian Development and Regulatory Authority (IRDA) have aided the opening of their markets to foreign competition, including the permission of minority stakes and joint ventures with domestic providers.
These efforts at liberalization have been undertaken along with offsetting safeguards designed to protect the viability of these new markets. Life insurers based in Western Europe and North America have contributed significantly to the growth of insurance markets in the developing world, often working with international financing organizations such as the European Bank for Reconstruction and Development in order to mitigate investment risk.
The introduction of Solvency 2 legislation is designed to update the European capital adequacy framework to serve a broader marketplace that incorporates Central and Eastern European markets and a number of larger continental financial services players. Even the CIRC and IRDA are beginning to take steps to strengthen solvency and capital requirements while improving regulatory transparency to more closely align with legislation in mature markets.
Finally, these demographic trends and legislative actions are coinciding with advances in computing technology that have transformed financial services in the past 15 years. Mainly, the development of the Internet and the evolution of open source computing have made possible new opportunities for distribution, customer service and data management. The global Life insurance industry is now beginning to use these technologies to reach new customer groups, analyze greater amounts of information and develop more targeted products. All this activity is conducted faster and more inexpensively than it had been in the past.