NU Online News Service, March 3, 1:44 p.m. EST
Zurich Financial Services Group said the insurance industry is undergoing changes at a pace rarely seen as a combination of factors are no longer producing the benefits the industry has enjoyed in the past.
In its 2010 Annual Review, the Zurich, Switzerland-based insurer said the combination of "low investment yields, increased competitive pressure, low economic growth and regulatory uncertainty" has had a profound effect on the industry.
A precipitous drop in 10 year government bonds over the past two decades has meant the industry needs to move away from its dependence on investment results and replace it with "improved underwriting results."
It has responded by developing underwriting and claims professionals to strengthen its practices while at the same time focusing on cost efficiency. The company said it is targeting $500 million in expense reductions on a run-rate basis by 2013.
The company is also planning to pay greater attention to developing growth strategies in profitable market segments.
Zurich noted that one fallout from the economic downturn is increased capacity as insurers compete for a "shrinking pool of insurable assets."
"Inevitably this puts downward pressure on insurers' premium volumes, and therefore earnings," the company said.
On the regulatory side, while there are encouraging developments, Zurich said insurers are operating in an uncertain environment. At its worst, the final picture could mean a continued rise in regulation and quasi-regulatory rules and agencies "will continue unabated."
"The insurance market environment is volatile and open to change in a way that has rarely been seen," the company said, noting its long history and adding that the changes could also mean new opportunities that it can take advantage of.
In one area, general insurance, the company said it is in the process of simplifying the organizational structure, shortening the distance between all employees and the markets the company serves.
This effort and others in this segment are aimed at improving its combined ratio by 3 to 4 percentage points by 2013.
In one claims area, the earthquake in Chile, the company said to date it has closed 88 percent of the 41,400 claims it received.
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