Magazine article New Zealand Management

Managing Risk -- the Four Global Megaforces Impacting Business Risk; No Industry Has Felt the Impact of Recent Disasters like the Insurance Sector -- and Every Business and Householder Wears the Downstream Outcomes. Reg Birchfield Talks to KPMG about the Outlook for Insurance, and Its Business Impact, for at Least the Next Decade

Magazine article New Zealand Management

Managing Risk -- the Four Global Megaforces Impacting Business Risk; No Industry Has Felt the Impact of Recent Disasters like the Insurance Sector -- and Every Business and Householder Wears the Downstream Outcomes. Reg Birchfield Talks to KPMG about the Outlook for Insurance, and Its Business Impact, for at Least the Next Decade

Article excerpt

Byline: Reg Birchfield

The catastrophic events of the past few years, in Christchurch and Japan in particular, have shone a light on risk management and insurance like never before.

As global consultancy KPMG said in its 2012 New Zealand Insurance Industry Update, this was another "difficult" year for everyone in the insurance industry. And this next 12 months look "just as challenging", according to the report.

Last year saw insurers re-examine their risk exposures and respond by revising geographic exposures, increasing premiums to match risk, and/or adapting their products with, for example, the emergence of fixed-sum cover for new homes rather than traditional open-ended replacement.

But what KPMG says about the future of the insurance industry on the broader global front makes even more compelling reading. It predicts, for example, that insurers who embrace challenges posed by "four megaforces" the consultancy has identified, will both survive and thrive. "They will be innovative in adapting their business models and strategies" to capitalise on a new environment.

The global megaforces will impact on the insurance industry in the next decade and beyond, according to Jamie Sinclair, KPMG New Zealand's director advisory: risk consulting -- sustainability. His consultancy's analysis suggests the four sustainability-based global megaforces are about surviving and thriving over the long term. "And these forces are changing the face of risk and the future of the insurance industry," he says.

The forces will impact the key building blocks of the insurance business model. They will affect products and markets; distribution and operations; regulation and capital management, and governance and people.

Products and markets

Tomorrow's insurance industry will be quite different from today's, says Sinclair. Industry leaders will need to understand how markets change and what products will be relevant. It will, for example, be a demographically and culturally different marketplace. The typical household is becoming smaller, older, better educated and more urbanised. By 2050, 70 percent of the world's population will live in cities.

Increased urbanisation will be accompanied by increased wealth, though this won't be evenly distributed and the gap between rich and poor will grow. And as the world gets older, the declining birth rate will increase pressure on workers to support themselves in their retirement.

What retirement means will also change as the cost of living increases and government support struggles to keep up, Sinclair explains. The implications of the product development megaforce include:

* Adapting to the changing face of retirement. This will include providing product to support the 'new retirement' that has multiple phases with sabbatical breaks, rather than traditional retirement.

* Importance of asset protection. As wealth grows, so too will the assets that need protection.

* New ways to transfer wealth. Innovative wealth transfer products will be required, to enable the baby boomers to pass their wealth onto the next generation.

Distribution and operations

Technology changes are impacting how customers interact with insurers and the service they get. …

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