Solvency II and other regulatory changes have put so much cost pressure on insurers that better solutions are needed to help them survive and continue to provide competitive products.
This is the finding of the latest Swiss Re Sigma report, which found the fast-paced development and implementation of new regulation has created a situation where insurers are finding it tough to compete and grow market share.
This could lead to restrictions on what insurers can offer to the end policyholder, or lead to increase premia on product lines, unless solutions can be brought in to help lighten the load.
According to the 39-page Sigma report: Strategic Reinsurance and Insurance: The Increasing Trend of Customised Solutions, the world of reinsurance - which underwrites insurers as a means of risk management - needs to change with the times.
New regulatory capital standards could put some mutual firms at a competitive disadvantage compared to highly diversified insurers
The report said: “The impact of new capital rules, including Solvency II for European insurers, are significant.”
It claimed the high costs of meeting the new Solvency II rules - which came into force in January this year - could be mitigated by reinsurers coming up with better, more customised risk metrics to provide more tailored underwriting for insurance firms.
This would help, the report said, to “mitigate the potential costs of regulatory change”.
The report also claimed the UK’s mutual insurers - some of whom have been operating for more than 100 years in the UK - would be better served by bespoke reinsurance, which would help them to remain competitive and able to withstand regulatory change.
According to the report: “Mutuals face limitations in their ability to access capital. Many mutuals have a focused client base and a less diversified portfolio.
“New regulatory capital standards could put some mutual firms at a competitive disadvantage compared to highly diversified insurers.
“Reinsurance can provide mutuals with increased financial flexibility to cope with unexpected losses, grow their business and compete with other types of insurers.”
Without better, customised reinsurance solutions, and clearer and better communications, many insurers will not be able to show the flexibility and competition needed to provide consumers with the appropriate cover, the report concluded.
A lack of flexibility and competition would not do anything to fill the so-called protection gap, which Swiss Re’s 2015 annual protection report revealed was nearing £200bn in the UK for disability protection alone.
According to the 2015 statistics, just short of 1.7m individual financial protection policies were sold in this country – an increase of 0.9 per cent on the year before.
