The insurance industries and governments need each other

In the past decade, the insurance industry has not yet undergone a fundamental switch. Not from the distribution or from the regulatory side. However, in the thirties, which are now beginning, I do expect the industry to be shaped by the fundamental evolutions of the last decade. The years of free money and low interest rates are definitely gone and currently the insurance industry plays, and will continue to play, a much more prominent role in dealing with solidarity. The social dimension of our business has already undeniably gained importance in 2030. Countries with high debt ratios have been experiencing problems financing their social security. Insurers, therefore, have a role to play in providing a safety net.

CEO of Athora Belgium

One option would have been to reduce the role of the industry by increasing the country's commitment to raising additional resources through financial institutions and taxes. However, it turned out to be fundamentally better to see the insurance industry as part of the solution. Better cooperation was sought in consultation with the states and government leaders. We needed each other tremendously. Insurers require a strong state to remain solvent, as they are amongst the first debtors. And states need strong insurers to continue lending to them. The interplay between states and financial institutions is crucial. The same goes for the banking sector, by the way. Insurers remain the organizers of solidarity, while an over-personalization of insurance solutions for clients impairs the idea of solidarity. Everyone should be able to get protection and that was exactly the subject of the dialogue we had and still have with the government. It is a change that affected the positioning of the industry, but it was also a change that was badly needed to keep the financial system credible in the long run.

In this evolution, federations like Assuralia and Febelfin played a very important role. They encouraged mutual understanding. Although we must also be honest: the transformation came about out of necessity. A good example is pensions. The inflation that started in the early part of the twenties taught us that inflation doesn't inflate your pension outflow. Awareness grew for the need to create more employee benefits plans. As the cost of living went through the roof, the safety net revealed bigger and bigger holes. States had no choice but to leverage the private players.

In parallel with this evolution, insurance companies faced the challenge of simplifying themselves during the twenties. To survive they even had to oversimplify their business. The cost of doing business grew, but the business itself did not. Premiums did not keep up with the increase in costs, so insurers needed additional value from the risks they insured.

At the same time, customer demand changed and getting returns no longer appeared to be enough. Expectations grew: instant access via smartphone, digital solutions, etc. The models changed, but the insurance industry remained conservative and stuck to its traditional model. Although drastic change was needed, the insurance sector remained a big tanker, whose course was difficult to change. But insurtech and companies in research and development also characterized the twenties. They became speedboats alongside the big tanker, who hoped to tap the potential for change.

For a long time, the insurance industry kept working with old definitions and was blind to emerging changes: insurance as a service, fully embedded, etc. The old canvas no longer reflected reality. Think of the online broker, where you can do everything yourself. Brokerage remains the largest distribution channel, with consolidation and digitalization at light speed. There will be more online brokers, but brokers will also dare to opt for a physical presence.

Online offering has increased undeniably over the past decade: there was too much offering that brokers did not want to do. Pure online business also saw the emergence of traditional players, but it was slow and there was a good reason for that: the elasticity of the market. Earning a premium of 300 euro for which you had to spend hours interviewing and filling out piles of paperwork; it is only logical that something so time consuming moved online.

These changes played out against a backdrop of market consolidation. Capital allocation had to be rethought. Where do I put my money and in which model can I provide the most value to my stakeholders? But where one party puts their money can be different from where another puts theirs, and that is where consolidation opportunities lie. A European company that wants to enter an Asian market might decide to sell one of its European subsidiaries to free up capital and deploy it somewhere else. This is an evolution that we didn't just see in life insurance, but has manifested itself in a variety of industries.