[OPINION] Davos: Unpacking the future of the insurance sector
How does the insurance sector – a sector highly correlated to GDP growth - prosper in a global economy that is stuttering?
At the World Economic Forum at Davos, the chairman and CEO of the Dow Chemical Company presented a talk which dealt with the broken global economy and suggested that inclusive capitalism is the answer to fixing it.
Inclusive capitalism is defined as generating profits as well as creating holistic value for all by solving problems and improving lives.
Insurance companies could argue that they are already doing this by being innovative in managing and pricing for risk as precisely as possible which is a social benefit.
While the global economy is growing, it is not growing equally, with many households seeing stagnating or declining incomes.
This is negative for the insurance sector where growth in assets and the value of assets underpins the business of insuring for risk. At the same time we have seen a rising tide of social discontent with heightened political unrest and attacks on globalisation.
This discontent could be exacerbated by the trend of technological innovation and automation where, over time, repetitive and administrative work will be done by automated processes and artificial intelligence.
Oxford Martin School suggests that 47% of jobs will be lost to automation over the next two decades. Technological disruption poses an imminent risk to large, legacy insurance institutions who are coming up against newer, nimbler fintech innovators.
While the insurance sector has many clerical jobs that can be easily automated, it is also a sector that needs highly skilled individuals to forecast and underwrite risk. As the sophistication of risk forecasting becomes more complex, the skill set needed by the insurance sector also increases.
Insurers in emerging market economies highlight a lack of skills in the underwriting space as a limitation on growth.
To offset the rise of automation, global sharing of best practice, implementation of laws and legislation, increasing worker bargaining power and policy harmonisation on tax and employment policies are suggested as some remedies by Shuaihua Cheng, MD for China International Centre for Trade and Sustainable Development.
We at Ashburton would agree that the overall upgrade of education generally, and financial literacy, in particular, are important drivers of sustainable development leading to economic growth, which is key for the longevity of the insurance sector.
Rahima Cassim is fund manager at Ashburton Investments.
For more news, analysis and insights on Davos 2017 go to EWN’s WEF portal in partnership with Ashburton Investments.