In the next few years, insurers in the Netherlands will need to make extra efforts to respond to the sweeping changes to their markets. Fundamental choices must be made to safeguard a financially solid insurance sector that continues to serve society, given the low interest rate environment, innovative technologies and fierce competition in a market that is saturated in some areas. This is the view presented today by De Nederlandsche Bank (DNB) in its report entitled "Vision for the future of the Dutch insurance sector".
The report analyses the impact various developments will have on the Dutch insurance sector over the next five to ten years, looking at technological and economic developments, trends in society, shifting customer behaviour and changes in laws and regulations.
While we have noted that the Dutch insurance sector is working to develop future-proof business models, market changes demand that insurers further bolster their capabilities to respond faster to emerging challenges.
They have important strategy choices to make – should they cut costs, innovate, specialise, go international, integrate vertically, or integrate horizontally? In the current low interest rate environment, this is true particularly of life insurers, given their long-term commitments. But non-life insurers, too, need to reconsider their business models, as competition in their markets is fierce and profit margins are depressed. The most suitable solution will differ from insurer to insurer. Insurers incapable of adjusting will need to explore alternative options, such as the consolidation or termination of specific operations.
In our policy recommendations, we also identify opportunities for insurers which are successfully able to leverage innovative technology and change customer needs and preferences. Examples include big data analyses, the sharing economy, the impact of climate change and cyber risks, as well as ongoing digitisation and automation.
Furthermore, additional opportunities exist outside traditional insurance activities, for example in the area of pensions. We would also encourage specific insurers to launch cross-border operations in order to diversify and create critical mass. Setting up an international organisation is, however, not an easy task and requires prudence and well-considered strategy choices.
Market change also requires supervisors and policymakers to devote heightened attention to safeguarding stability. Once an insurer's business model is in danger of becoming untenable, closer supervision must be exercised. To do so, supervisors need adequate intervention tools for the recovery and resolution of insurers. It is desirable for this to be arranged in a European context so as to ensure a level playing field. In addition, it is the task of policymakers and supervisors to remove barriers to innovation and internationalisation as far as possible.
Vision for the future of the Dutch insurance sector.
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