The biggest risks and challenges facing the insurance industry

In recent years, the insurance market has been exposed to a number of unfavourable factors that have left their mark on the financial results of the largest entities. However, regulatory changes and rising operating costs are not the only challenges facing the insurance industry today. There are many more challenges, thanks to which professional business consulting in this area becomes more and more necessary every year. What challenges are we talking about?

Insurance industry - challenges and threats

Dynamically changing macroeconomic environment and legal regulations, technology development and market competition are just some of the challenges faced by organizations around the world every year. These also include insurance companies that operate in a highly regulated environment. Changing legal regulations not only force them to reorganize their business, but also often generate additional costs, which directly translate into the financial results of insurance companies.

The recently introduced bank tax, restrictive legal regulations and strong price competition are the three main reasons for the drop in insurance profitability of business on the Polish market last year. In order to improve their financial performance and adapt to the new regulatory environment, insurance companies were forced to reorganise their operations. In order to take advantage of the cost synergy effect, some entities decided to take over competitors. Changes in the pricing policy and adjustment of the offer to current market needs have also become necessary.

Significant increases were introduced by insurance companies in the area of third party liability insurance. This segment of their business remains the least profitable, and the regulatory changes introduced in recent months have only increased the scale of the problem. The changes in the so-called polisolocat policy have also been a blow for insurance companies. The amendment of the Act on Insurance Activity introduced many pro-client changes. These include, among other things, lowering the amount of liquidation fees and facilitating the resignation from the concluded agreement. The provisions favorable for customers, adversely affected the financial results of insurers, forced reorganization of business strategies and implementation of costly changes in the operation of IT systems.

What is also worrying is the significant, over 20% drop in sales in the life insurance segment compared to last year, which translates into lower revenues by as much as PLN 3 billion. The decrease in the number of life insurance policies sold is partly compensated by the growing interest in health insurance policies. Opportunities for additional income can also be seen in the liquidation of open retirement funds. However, convincing our compatriots to make long-term savings will be a huge challenge for insurance companies.

Cyber threats as one of the biggest challenges

Cyber threats are an extremely disturbing phenomenon, both for insurance companies and for all other organizations, which base their activities on information systems. A great danger is both the ignorance of the possibility of cyber attack and its disregard. We are talking not only about the risk of leakage of customers' personal data, which may significantly damage the company's reputation, but also about the deliberate action of activists aimed at paralysing the company. Another problem is the mass distribution of the so-called malicious software, which, unknowingly run on a company computer, can lead to considerable devastation and organizational paralysis. Despite increasing investment in security and emerging cyber-security regulation, the threat remains enormous.

New technologies and the risks associated with them

New technologies are partly related to the topic of cyber threats, but separately they also pose a considerable challenge for entities operating in the insurance market. Progressive digitalisation, strong market competition and InsurTech's "cake" (one of FinTech's branches) claiming its share of the market are factors that force insurance companies to invest in modern technology. This allows for automation of many processes, better use of company databases and, above all, retention of existing customers. The purchase of insurance via mobile applications is already offered by several Polish banks. Interesting solutions, in response to changing market needs, are also offered by several startups. Ignoring risks and changing market trends can be a costly mistake for insurance companies. However, the development of new technologies and their implementation in the company requires specialists, whose acquisition is becoming more and more difficult every year. What is more, everything points to the fact that the shortage of IT professionals in the coming years will be an even greater problem.

Change management increasingly demanding

According to experts, another important threat to the market is the increasing difficulty in managing change. The blame for this state of affairs lies, among other things, with the constantly shortening life cycles of both the products themselves and the technology. Ongoing monitoring of the situation, creation of new business strategies and their implementation require insurance companies to be highly flexible, develop project teams and respond to changing market realities much faster. Unfortunately, the prospects for the future are not very optimistic - the huge and steadily growing competition only increases the scale of the problem and leads to even shorter life cycles of insurance products.

How do insurance companies cope in an increasingly difficult market?

Major changes taking place in insurance markets, but also global changes concerning, for example, the development of new technologies and cyber threats, are the challenges that are constantly appearing in the lists of the most important challenges for the industry. But there is much more of them, thus insurers are forced to continually seek manners of earning a competitive advantage, reducing the level of risk, and improving the financial results. They are helped by professional companies offering tax and business consulting services. They have extensive experience in the insurance area and human resources prepared to solve the most difficult business problems. Mergers and acquisitions leading to cost synergies, new market segments and the use of new technologies are also ways to address new challenges. The latter allow many existing problems to be solved, but are also challenging in themselves.