THE INSURANCE INDUSTRY TODAY AND WHAT MAY THE CONSUMER EXPECT TOMORROW?

Presentation given by Mr Philippe Colle, Managing Director with Assuralia, and Professor Economic – and Commercial Law and Pensions at the Free Brussels University (VUB), organized by Financial Forum Antwerp.

I. Actual situation of the insurance industry

Starting point for a picture of the actual situation is the evolution of the total premium collected for Belgium in 2017. Important to keep in mind is that the top-15 Insurance companies accounted for 91,6 % of the market (1).
What strikes is the strong revenue-decrease of the Branch Life. The decrease in 2013 can completely be explained by the increase of the premium tax from 1,1 % to 2 % for individual life insurances, Branch 21 (guaranteed capital and yield) and Branch 23 (an individual life insurance linked to an investment fund). The increase of the premium tax in 2013, a budget measure of the government, aimed for an additional revenue of 139 million euros, but ultimately only resulted in an increase of 9 million euros. In reality, a budget stroke into water, but a very painful operation for the industry.

Regarding employment, the digitisation also leaves its traces in the insurance industry. In 2008, the industry still counted 24.300 FTE, whereas in 2017, 22.478 FTE remained. The total employment in the industry, intermediaries and their staff included, in 2017 still was 44.500 FTE.

The social importance of the insurance industry is also reflected in the financing of the public finances and the economy.

II. The social importance for the public finances and the industry

In 2017, the insurance industry financed the Belgian public debt for an amount of 62,7 billionsof euro, by investing in Belgian linear bonds (OLO), which means approximately 14 %. The Belgian economy was also financed for 116 billions of euro, 65 billions of euro in corporate bonds, 35,9 billions of euro in shares and participations. The insurance industry also directly supports the construction industry for 15,1 billions of euro via the financing of loans and mortgages.

The total amount of cover assets – investments of the premium collected to comply with the proper obligations – in 2017 was 263,4 billions of euro, of which two third was traditionally invested in bonds and fixed income securities. The relative importance of shares in this investment portfolio decreased from 23 % in 2005 to 14,2 % in 2017. This decrease is due to the application of the Solvency II-regulation.

III. The impact of Solvency II on the investment policy of the industry and the cover assets

Solvency II imposes capital requirements in relation to the risks which weigh on the insurance company. This regulation considers the long term (for Life 8 years + 1 day) as more risky, which implies higher capital requirements and therefore long term products are deleveraged in favour of less risky assets. This shift entails also a competition distortion with asset management companies and pension funds.

Besides the risk-assessment of the assets by Solvency II, this regulation also obliges to take into account the market volatility when evaluating the market value of the cover assets. In general, the cover assets are kept until maturity. The volatility of the markets can lead to artificial capital requirements, since Solvency II imposes the compensation of minusvalues in between, via additional capital injection, so-called Volatility Adjustment. However, the additional contributions cannot be used anymore for the financing of the public finances, the national debt and the economy. To correct this situation, the industry proposes to work with a Matching Adjustment i/o Volatility Adjustment. The evaluation value of the assets is than represented correctly via an actuarial yield, without additional capital injection.

The insurance industry does not only have to come up with adequate solutions for the challenges of Solvency II, but also for the additional needs of the ageing and the changes in the wishes of the consumers towards the insurers as a consequence of the internet. New, innovative products and also a modified service will therefore be proposed.

IV. What may the consumer expect tomorrow?

– The industry reflects on securing the standard of living of the senior citizens. In that respect, the insurance industry pleads for a broadening (all employees) and a deepening (sufficient contributions) of the additional pensions (via group insurance). Possible options to do so are the separation of the salary criterium, the increase of the Free Additional Pension for Employees till 7 % of the salary and additional contributions in the group insurance from a certain age (50 – 55 years). The financing of the additional contributions can be done via an option in the cafetaria-plans.

– For the Branch Non-Life, a service in-kind can be proposed instead of the payment of the estimated damage, in other words, the insurer will have it fixed and unburdens the insured, who, in many cases, does not have the time to find a competent professional, nor has the competences to organise the repair. Via a performant – and qualitative network of professionals, the insurers can, a.o. improve their commercial image, better manage their costs and also act more efficiently against fraude.

– Better anticipate the wishes of the consumer, who, via internet, more and more wants to take care of his affairs, at his own pace and according to his criteria. It is obvious that the internet demands an individualized relationship between insured and insurer. Some figures:

• 35 % wishes to conclude an insurance contract online,
• 68 % wishes to declare a claim and monitor it online,
• 75 % wants to have an overview of his insurances via an app,
• In most cases, Independants and SME’-s do not have the time, nor feel like concluding and monitoring themselves their insurances.

Besides a customized service, the industry will also propose innovative products which meet the social changes.

– The First Party insurance where the insurer, following the compensation, will introduce a claim against the responsible(s). A compensation regulation for the insured will replace the traditional responsibility regulation.

– A global insurance of the person, which gathers all coverages related to the integrity of the person: hospitalization, assured revenue, individual insurance non-life,….

– A mobility insurance i/o Civil Liability Car which responds to the evolution towards an economy of sharing, notably car sharing (Cambio, Poppy, Drive Now,….) i/o owning a car. A threshold to be taken for these innovative products is the pricing, because historical data regarding damage frequency and size within this new framework are still lacking.

On a larger scale, the insurance industry also reflects on an indemnity for the victims of terrorism and the application of sustainable finance, both in products offered, a.o. Branch 23 and investments of the industry, the cover assets.

Regarding the indemnity for the victims of terrorism, a draft resolution exists and foresees an indemnity of all victims, whether or not insured and irrespective if the attempt has occurred in Belgium or abroad. A decision on this resolution will certainly be on the agenda of the next government.

As for sustainable finance, clear and transparent criteria on sustainability are essential. The industry wants to be able to comply with its obligations at all times and moreover, the financing of the economy may not be compromised. A fair – and pragmatic approach is therefore necessary, through the offer of own products and also sustainable and qualitative assets and longterm investments to cover the longterm obligations of the insurer.

The social transformation is evident and just like the legislator, the insurance industry closely follows the changes and adapts itself.

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(1) The top-15-list from 2017, has seen some modifications. Fidea and Delta Lloyd were taken over by competitors, Baloise, resp. NN.
Generali Belgium was bought by Athora and rebranded accordingly. Ergo stopped offering life-insurances and the majority of its agents joined the network of P & V, which also took over the department of Non-Life-insurances.