zeb European Insurance Study 2020
Europe’s top insurers are feeling the effects of the COVID-19 pandemic. In 2019, prior to the crisis, insurers still recorded strong premium growth averaging 6 percent and a 25 percent higher pre-tax profit compared to the previous year. In 2020, however, their situation will deteriorate noticeably. It is to be expected that the insurance industry’s profits will decline by 30 percent this year and that growth will also slow down. The half-year figures of the five largest insurers in Europe set the trend in this respect. Nevertheless, the crisis is not yet threatening the existence of the industry. In zeb’s opinion, this is primarily due to the sound capital base and thus strong condition European insurers benefited from before the outbreak of the pandemic.
These are some of the core results of the latest European Insurance Study (EIS) by zeb. After the first edition in 2019, the strategy and management consultancy for the European financial services industry has for the second time examined the state of the 25 largest European insurance groups – this time to shed light on the profitability, solvency and growth of the insurance industry against the background of COVID-19. In addition, data on the overall market was evaluated and growth analyses of 37 countries that are members of “Insurance Europe”, the umbrella organization of European insurance companies, were included. In addition, zeb conducted deeper investigations into ten selected, particularly important markets.
Declining profitability due to COVID-19
In detail, the EIS shows that in 2019 the 25 largest European insurance groups were able to improve their returns significantly compared to previous years. The return on equity of the European “Top 25” climbed from 8.6 to 11.3 percent. Pre-tax operating profit increased by 25 percent, not least thanks to low loss ratios in property and casualty insurance.
The picture for the first half of 2020 is different. An analysis of the half-year financial reports of the five largest European insurers provides a good example of how COVID-19 is now affecting the entire industry. Both in the life insurance segment (-13 percent) and in the property and casualty insurance segment (-36 percent), operating profits plummeted.
Despite COVID-19, stability of the industry not at risk
Against this background, the authors of the study believe that, contrary to what is often assumed, the low interest rates in 2019 do not pose a threat to the financial stability of the sector. Almost all insurers met the solvency requirements of the European Union. The “Top 25” were even able to increase their solvency ratios from 214 percent (2018) to 219 percent (2019) on average by increasing their equity capital.
The COVID-19 year 2020 put an end to this positive trend. The average solvency ratios of the five largest European insurers declined by almost 25 percent in the first half of 2020. A key reason for this was the development on the financial markets, in particular the further drop in interest rates. Overall, however, the solvency of almost all insurers is currently at such a high level that their financial stability remains unaffected.
Premium income – from growth to stagnation
In 2019, insurers were also able to achieve strong growth in important premium income after rather weak growth in previous years. Measured in terms of gross premiums, the average growth of the “Top 25” was six percent. At the same time, the overall European market also grew considerably. This development is mainly driven by the life insurance (+7 percent) and property and casualty insurance (+3.7 percent) segments.
Currently, due to COVID-19, a different picture is emerging. The “Top 5” European insurers experienced inconsistencies in the development of premium income. Compared to the first half of 2019, the life insurance segment shrank by two percent, while the property and casualty insurance segment grew by two percent. On the whole, premium income stagnated in the first half of 2020.
Dr. Jan Hendrik Sohl, zeb Partner, gives the following summary: “European insurers are feeling the effects of the pandemic. But it does not threaten their existence. This is also due to a successful year in 2019. The crisis has hit insurers in an overall strong position.”
No future growth without digital sales models
Even before the crisis, the digitalization of sales was at the top of the insurance industry’s agenda. This trend has been radically and irreversibly accelerated by COVID-19, as the authors of the study expressly point out. While insurers were still able to grow via traditional sales channels until the beginning of 2020, this has no longer been possible since COVID-19. Functioning digital sales channels will thus become a basic prerequisite for future growth.
By this we mean both the digitalization of direct sales and the digital support of managers and employees responsible for personal sales. In recent months, insurance customers have realized that advisory services over digital channels actually work. Insurers must anticipate this and offer holistic digital advisory models depending on their own strategic orientation.
Dieter Kipp, zeb Partner, puts the objective in a nutshell: “All products and customer services of an insurer can be bought or used by customers personally and digitally without the involvement of an intermediary.”
Further results, figures and success factors of the current European Insurance Study are here available.
As a leading strategy and management consultancy, zeb has been offering transformation expertise along the entire value chain in the financial services sector in Europe since 1992. In Germany, we operate offices in Frankfurt, Berlin, Hamburg, Munich and Münster (HQ). Our international locations are in Amsterdam, Copenhagen, Kiev, London, Luxembourg, Milan, Moscow, Oslo, Stockholm, Vienna, Warsaw and Zurich. Our clients include European large-cap and private banks, regional banks, insurers as well as all kinds of financial intermediaries. Several times already, our company has been classed and acknowledged as “best consultancy” for the financial sector in industry rankings.
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