Brochure / report title goes here| Section title goes hereContents
Setting the agenda1
Where do insurers stand as they enter 2018 2
Growth options: Insurers can capitalize4
on connectivity, digitalization
Insurers deal with a shifting landscape 10
Final word: Carriers start to fex their17
muscles in the new InsurTech ecosystem
Endnotes 18
Contacts 20
2018 Insurance Outlook: Shifting strategies to compete in a cutting-edge futureDear colleagues,
Insurance company leaders have a lot on their plates. Political and regulatory upheavals around the world are
changing some of the ground rules about how carriers may operate. An accelerating evolution in the way business
is conducted is being driven by innovation and higher customer expectations, while disruptive newcomers are
looking to take market share from incumbent insurers. In particular, carriers have been racing to keep up with
insurance technology development, as we recently documented in
Fintech by the numbers,
which analyzes startup
fnancing activity and trends.
However, in preparing our annual insurance outlook, we recognize that most insurers remain focused on two
overarching goals: growing top-line sales while bolstering bottom-line proftability. Standing in the way of insurers
achieving these objectives are a wide range of challenges. Not all of them are within the industry’s control, such
as rising interest rates and catastrophe losses. But how efectively insurers anticipate, prepare, and adapt to their
shifting circumstances, both strategically and operationally, is well within their control, and can help diferentiate
them in the market.
In this report we pinpoint key opportunities and threats that should demand attention from insurers over the next
12-to-18 months. We’ll look at why it could be important for companies to address each of these issues sooner
rather than later, include examples of how these developments seem to be already impacting the market, and ofer
suggestions on what could be done to respond proactively.
As always, regulation and compliance requirements are important and seem ever-changing, and this report will touch
on some of the broader implications likely to result from the most signifcant shifts in policy. The Deloitte Center
for Regulatory Strategies is publishing a companion paper dealing with these issues in greater detail, leveraging the
expertise of our insurance practice and research team.
Our outlook is based on the frsthand experience and insights of many of Deloitte’s subject matter specialists,
supplemented with research and analysis by the Deloitte Center for Financial Services. We hope you fnd it thought-
provoking as you contemplate your strategic priorities and adjust your agenda for the year ahead. Please share
your feedback or questions with us. We would welcome the opportunity to discuss our fndings directly with you
and your team.
Setting the agenda
Gary Shaw
Vice chairman
US insurance leader
Deloitte LLP
Jim Eckenrode
Managing director
Deloitte Center for Financial Services
Deloitte Services LP
2018 Insurance Outlook: Shifting strategies to compete in a cutting-edge futureInsurer hopes for accelerated growth and improved
bottom-line proftability were tempered throughout
2017 by the emergence of major speed bumps, both
natural and man-made, although there seems to be
cautious optimism for improving conditions in the
year ahead.
US property-casualty (P&C) insurers saw underwriting
losses more than double, to $5.1 billion, for the frst
half of 2017 compared with the year before—an
even more dramatic downturn when you consider
the industry was in the black on underwriting by $3.1
billion during the same period two years ago.1 Soaring
loss costs, led by higher catastrophe and auto claims,
drove net income down 29 percent in the frst half,2
and this was before huge third-quarter disaster claims
from Hurricanes Harvey, Irma, and Maria. These
storms reverberated globally, particularly within the
reinsurance sector, as did claims from other massive
natural disasters outside the United States, most
notably September’s earthquake in Mexico.
On the other hand, a soft market beyond auto and
property-catastrophe lines continues to prevail,
with global insurance renewal rates falling for the
seventeenth consecutive period in the second
quarter of 2017.3 This appears mainly due to an
overabundance of capital, particularly in the US
market, with industry surplus as of June 30 at an all-
time high of $704 billion.4 Even record storm losses
would be unlikely to put more than a temporary
dent in those reserves, most likely making recent
hurricanes earnings events rather than serious
capital concerns for most primary insurers—although
reinsurers and those issuing insurance-linked
securities may be harder-hit over the long term as
mounting catastrophe claims are settled.
On the life insurance and annuity (L&A) side of the
business, most carriers seemed to enter 2017 expecting
small, but steady US interest-rate increases to put
their portfolios on a more solid foundation. However,
those expectations likely quickly abated, given the
economic headwinds keeping the Federal Reserve
from taking more aggressive action, thus leaving rates
at historically low levels and undermining industry
proftability. Stubbornly low fxed-investment yields are
prompting L&A writers to cut the crediting rates ofered
to policyholders.5
The MIB Life Index, which tends to give a strong
indication of individually underwritten life insurance
activity, fell 3.2 percent the frst half of 2017, while
activity in the critical 45-59 target age segment was
down 5.5 percent.6 Meanwhile, revenue from annuity
sales was down 18 percent in the frst quarter of 2017,
according to the Insured Retirement Institute.7
Life insurance and annuities could be a harder sell in
the United States in 2018, given the potential impact of
new fduciary standards set by the US Department of
Labor on the sale of retirement-related products. While
the fnal form of the fduciary rule is still being debated
following the change in US presidential administrations,
many insurers have already made substantial changes
in their business model to accommodate the regulation,
and most are unlikely to turn back the clock at this point,
instead adapting to their new operating environment
(see sidebar on page 5, “L&A insurers in a ‘hurry up and
wait’ position over DOL fduciary rule”).
A similar challenge faces carriers in the United
Kingdom, where “pension freedom” was established
two years ago, allowing pensioners to draw down their
retirement accounts at will. Before the rule change,
most retirees had purchased annuities ofering regular
payments for life. Annuity sales have plummeted 91
percent since pension freedom.”8
Growth prospects on the horizon
Looking ahead and abroad, emerging markets—
particularly China—appear to be a better bet for rapid
growth, at least on a percentage basis, especially for
P&C insurers. A report by Swiss Re’s sigma research
unit found that emerging market P&C premiums
rose 9.6 percent in 2016, compared with overall
global growth of 3.7 percent—with China, now the
world’s third-largest insurance market, seeing non-life
premiums soar 20 percent.9
In addition to expected hikes in property-catastrophe
premiums, particularly for reinsurance, look for a large
share of US P&C premium gains to be generated by
higher auto insurance rates (which were already rising
in 2017 due to worsening loss frequency and severity).
Even with price increases, however, proftability could
remain elusive, given the multitude