Tough year ahead for insurance sector

by David Masters

Story link: Tough year ahead for insurance sector

The year ahead is set to be a difficult one for the insurance industry, according to consultants at insurance advisory firm Watson Wyatt.

Philip Brook, global head of insurance consulting at the company, said many companies will have to deal with falling demand from the retail sector due to the global recession.

Furthermore, product designs will start to look expensive as the cost of guarantees increases because of low interest rates and continuing high levels of volatility.

Craig Buck, Watson Wyatt’s head of US insurance consulting, said the credit crunch has reduced insurer’s income and at the same time has increased the cost of providing guarantees.

Regulation of the financial markets is set to increase, as government bodies start working out how to avoid a repeat of the 2008 credit crunch.

This raises fears that regulators could start placing burdensome restrictions on the insurance sector.

Most companies will reduce their expansionist activity as they seek to consolidate risk.

However, mergers and acquisitions are set to increase, as stronger companies take over the weaker during the difficult times ahead.

Insurance companies with capital to spend are likely to use the opportunity to expand into new territories, products, and markets.