Property and casualty insurers fear and uphill when they start selling other financial services because the consumer will still prefer traditional outlets such as banks, finds a report by The Economist Intelligence Unit and PricewaterhouseCoopers.
The report, 'Property and Casualty: Mapping the Future' which is based on a global survey of 210 senior P&C insurance executives, finds 49% of respondents plan to offer a broad range of financial products by 2005 – an increase of 24% at present.
But just 7% of respondents believe that customers will want to buy multiple financial products from non-life insurers. Most will prefer to buy from banks and non-affiliated sources.
"Not all companies will be able to succeed in the broad-based financial services arena, particularly against existing financial organisations with more established brands," said Jeremy Scott, global insurance head at PricewaterhouseCoopers. "Some companies may choose an alliance as an effective way to offer a wider range of products and services, while others may find they create the greatest value as niche players in very specialised product lines."
The trend towards broadening the portfolio is a reaction to two factors. Firstly, the P&C market is highly competitive: about 90% of the industry's insurers are competing for 10% of the available premium volume. It means prices have continued to fall, eating away at reserves and causing shareholder value to plummet. Secondly, the boundaries between financial providers are disappearing and the sectors are converging anyway.
The report finds insurers expect the current wave of market consolidation to be effectively over by 2005, when the industry will be dominated by these convergence issues as well as ecommerce.
Revenue from the internet is expected to rise from less than 2% today to 16% in 2005. Many executives expect product innovation will be the make or break factor.
The report expects nearly 25% of premium revenues will be created from new products between now and 2005. Some companies expect 50% of revenues to come from new products. However, only 27% felt claims handling will be a top skill by insurers in 2005. It is expected many will consider outsourcing claims management to specialist providers.
It is also anticipated smaller companies will have a stark choice of associating with a larger brand or going it alone as a niche player if they are to survive.
Mastering alliance skills and understanding the varying requirements of different alliance types will be a key to be a successful insurer.
The report also indicates that customers will no longer be satisfied with traditional product and services.
