Since the financial crisis of 2007-2008, global regulators have sought to re-shape financial institutions to be more resilient through a series of structural reform regulations. In this set of blog posts, I’ll explore how global structural reform (GSR) is affecting the insurance industry as well as how insurance carriers can best respond to its imperatives.
This year, Accenture’s Global Structural Reform Study surveyed 131 banking, insurance and capital markets institutions across regions.
Our research leaves little doubt that surveyed insurance companies face some hard choices about their post-crisis business model in the wake of prolific rule-making around the world. We found that despite investing in their response to GSR, their plans still appear focused on meeting regulatory demands alone, rather than accounting for the more strategic implications of structural reform.
The context of reform
Regulators in individual jurisdictions have sought to reshape financial institutions to add greater resilience to their operations. As a result, rules have often been developed at a jurisdictional level without clear convergence. What’s more, this persistent wave of GSR regulations shows no sign of abating.
The cumulative impact means that many insurers’ traditional ways of working will no longer be viable. For example, we should expect capital allocation across different business lines to be more heavily scrutinized with a particular focus on cross-entity flows. It’s hardly surprising, then, that 71 percent of study respondents agree that smaller institutions may fall out of the market as they fail to keep pace with these new market drivers. The pressure will also be felt by larger institutions.
In response, institutions are starting to tailor their reactions to GSR regulations along three lines:
- Developing tailored propositions by geographic market to help drive efficiency in the use of scarce capital.
- Developing a more targeted set of offerings that allocate capital to those business lines able to generate appropriate returns on equity.
- Targeting more profitable client segments and exiting relationships with higher costs to serve.
In my next post, I shall look at the investments insurance carriers are making in responding to GSR.