The insurance sector is undergoing change and this is causing pressure on the sustainability of its business model and its product offering. In the changing market, insurance companies are grappling with increasing competition, not just from each other, but also from non-traditional players such as fintechs and insurtechs, which is fuelled by digitalisation in the sector.

The market is opening up and consumers have more options. This presents a major challenge for insurance companies. They’re feeling the pinch of having to find the best way to market their products, so that their customers are offered a better product and they can improve their own margins in the process. This is perhaps best illustrated by the current premium differentiation, which calls for due care, also with a view to preventing loss of reputation.

More efficient market and different business models

In a saturated market, with so many players and pressure on margins, many insurance companies see consolidation as the way forward. The Dutch Central Bank (DNB) pointed out as early as years ago that insurance companies should look to consolidate in order to streamline the market. A growing number of insurance companies are now taking this to heart. Another trend that’s manifesting itself is that insurance companies are starting to offer more than just insurance products. They’re increasingly looking to provide third-party asset management services. This is an example of them adopting an entirely different business model in the process of offering adjoining services.

Data quality for strategic purposes

Insurers have access to huge volumes of data, which occasionally include medical records. Compliance with statutory requirements, such as privacy rules and regulations governing the duty of care, is obviously the top-most priority for insurance companies. That said, the available data offers many opportunities for insurance companies to provide better and more customised services to their customers, for instance through premium differentiation. Clearly, in their strategic decision-making, insurance companies too are placing more and more reliance on data , while in the past this data was mainly used for ex-post analysis. What’s crucial here is that those strategic decisions are based on correct data. The data must be of high quality so as to prevent insurance companies from making the wrong decisions. 

Stricter supervision of outsourced services

DNB has announced that it will be monitoring outsourced services more closely over the coming years. A sector-wide survey showed that many organisations do not comply with the DNB-issued Good Practice document for outsourcing by insurance companies. Although this Good Practice is still optional today, it’s becoming stricter all the time and will ultimately be binding. Insurance companies need to start to make serious work of complying with the Good Practice and draw up a policy for outsourcing business-critical services.

There are developments in the area of financial reporting in the insurance sector as well. Insurers who use IFRS as the basis of preparation for their financial statements will soon have to deal with the entry into force of IFRS 17 (Insurance Contracts), which will introduce new reporting requirements for insurance companies. In addition to IFRS 17, they will also have to apply IFRS 9 (Financial Instruments). This will again require the expertise of IFRS reporting specialists. Read more about this here.

What BDO can do for you

Do some or all of the issues we described above apply to your organisation? We provide added value by using innovative digital techniques to perform analyses that offer you new perspectives. These techniques make our services more efficient and cost-effective, and allow us to focus on the specific challenges you face. 

Want to find out more about BDO’s personalised and pragmatic approach for your insurance company? Our specialists would be happy to talk to you about your options.