On 13 December 2016, the Dutch Central Bank (De Nederlandsche Bank, DNB) published a report titled “Vision for the future of the Dutch insurance sector” (the Report) containing an analysis of the impact that various developments will have on the Dutch insurance sector over the next five to ten years, taking into account technological and economic developments, trends in society, shifting customer behaviour and changes in laws and regulations.
In the Report, DNB notes that insurers will need to make fundamental choices (e.g. cutting costs, investing in innovation, go international, vertical or horizontal integration) in order to safeguard a financially solid insurance sector due to the low interest rate environment, competition in the insurance market and innovative technologies. Life insurers are particularly vulnerable to the low interest rate environment due to their long-term commitments, while non-life insurers are facing increasing competitiveness in the market and a reduction of profit margins. DNB believes that insurers that are incapable of adjusting will need to explore alternative options, such as the consolidation or termination of specific operations.
Besides identifying the challenges that insures are facing and will continue to face, DNB also provides a number of policy recommendations in the Report. Among other things, DNB recommends that life insurers should limit their capacity and secure the long-term interest of their policyholders by adopting their operations to the shrinking portfolio, as well as by making realistic cost assumptions in their technical provisions and subject these assumptions to stress tests. In case of negative results, insurers can investigate opportunities to consolidate, going into run-off or transfer portfolios to specialised third parties.
DNB also notes that technological innovation in the non-life insurance market brings both opportunities and risks for insurers. Technological innovation can lead to more efficiency for insurers and a more diversified range of insurance products. However, insurers that are unable to adapt their business model or product range will face problems and should seek alternative options (e.g. transferring or dismantling their activities). Supervisory authorities should closely monitor this and intervene where necessary. Insurers, policymakers and supervisory authorities should discuss the possible consequences of technological innovation, including the (im)possibility to insure certain risks and the increasing vulnerability for cyber-attacks.
View the Report (Dutch only), 13 December 2016.