Seeds of Uncertainty in The Insurance Industry
One of the industries that has gone unnoticed since the beginning of the crisis in our country, despite belonging to the financial world has been the insurer. Not without reason. Little is apparently newsworthy in a sector whose activities are limited, generally, the domestic market, the bulk of its business focuses on products that might be called plain vanilla as auto, home or health-hazard and has not entered into new markets or pictures that time has proved hazardous if the monoline reinsurance, or rating-guarantors, figures more characteristic of Central Europe and Anglo-Saxon area.
In fact, if you go to the big numbers you see little reason for concern. At the end of September the life business, about 45% of the total, grew about 5% while non-life ebbed just 3%. Virgin, virgin, I stay as I am with you are falling, the total added was an overall increase slightly more than 0.5%. All reasonably in order. However, the first warning sign should be given to the fact that while the cost of living as low as 1% of technical provisions (in particular 0.65%), the remaining 55% multiplied by far the return measured in this case on earnings. Um, the first and second floor up … do you have to worry about companies?
Let non-life sector. Of its four main business areas, cars (37% of total) experiences so far in 2009 a volume reduction of 6.2%, health (20%) increased by 5% its turnover, multi-hazard (another 20%) does it in 3.3% and the rest umbrella falls by 7.5%. While the slowdown in the latter may be linked to economic developments in Spain, to be largely linked to the future of their business, is in motor insurance business where contraction is more surprising since it has not been a reduction in the national fleet.
What’s happening? The market is breaking down. The landing of new players taking advantage of the Internet to market their policies directly, thus saving the average 12% of traditional signatures commission paid to brokers, agents and brokers, has provoked a price war that is acting directly against the margins of a sub-sector had grown accustomed to the days of wine and roses for much of this decade when they enjoyed historically high gross margins technicians, superior in some exercise at 15%. A fight for the new production (decrease of the average premium) that affects the current portfolio (which is outdated in price) which, in turn, increases the ratio of cancellations, especially the best customers. It sometimes reaches a subtarificación of underwriting new business or a dangerous risk to future, can take its toll.
The result is that if one compares the aggregate accounts of results achieved in 2007 and 2009, verify how the level of premiums while maintaining the imputed (extrapolated in this financial year to June data) contract for nearly 4%, how that causing revenue impact on the cost of claims, although in global terms has not grown as a consequence of lower car use caused the crisis and the new traffic regulations, rose from 74% to 77.5%-eye, with abilling, with extra inputs, and up to 5% without them. How long will the recovery mattress stores to continue pulling it? That’s the million dollar question.
Although some groups such as Groupama, Allianz, Liberty … have set up subsidiaries direct to adapt to new competition without cannibalizing their existing business, the problem is that much of the industry is behind this reality. Not only the new situation wrongly perceived as merely incidental to the point that does not hesitate to buy portfolios through the traditional channel when they start shooting (better to pay higher fees for the new business that subtarificar risks) rather than focusing on improving customer satisfaction alive, but has lacked enough reflexes to perform the necessary adjustments to suit the new reality, proof of which is the maintenance of its operating expenses in time about 18% sales. Given the lack of customer loyalty in cars will cost, the natural convergence will be towards the return of the direct marketer and not the reverse. The line profit / loss that move will be very thin. They’d better put the batteries before it’s too late.
