Skip to content

Insurance – in safe hands?

April 12, 2012

It’s not often that people in financial services take a very long view of the future but earlier this year the Long Finance Forum of Futurists (L3F) produced an interesting report “In Safe Hands” [1]on possible scenarios for the future of financial services heading towards 2050. Gill Ringland authored the report and I was please to take part in its development. Unlike financial modelling under solvency rules which is driven by a set of pre-determined rules, these scenarios are qualitative, global and take account of the full range of external factors which may impact on our industry. Financial services strategists should find the report very useful in testing out their long term strategies against the challenges and opportunities that may affect their business models. Here is a taste of this detailed report.

Underpinning the scenarios are some assumptions: that the global population will grow to nine billion and get older, with most of the additional people in Africa and Asia – this will cause major shifts of economic power: the new centres of power may not share the value systems of the west: technology will advance and affect society and how commercial arrangements operate; ecological, energy and environmental limits will be tested or breached as the population increases; and the percentage of the population living in cities will approach 70 percent.

Beyond these assumptions four potential scenarios are envisaged. It is important to note that the scenarios are not predictions. It is highly unlikely that any one of them will happen in “pure” form, but they are a helpful basis for stress testing against uncertainty. In Second Hand we have a situation where western values and institutions and the nation state are still very important although they may have weaker powers than today. We continue to muddle through, as is being attempted with the euro crisis at the time of writing. Visible Hand is a more proactive version of Second Hand. Here the political classes get their act together and there is a period stability in the financial sector – driven by global consensus on the existing model and the growth of regional super states. But, this turns out not to be sustainable in the longer term and breaks down into the next two scenarios which are very different from the world in which we live in today. In Long Hand, we have melt down in many western countries.  There is a retrenchment in state expenditure, consumer spending power and overall consumption. People “opt out” and virtual connections which span geographies and are based on ethnic and religious affinity groups become the main global organising structures. In Many Hands globalisation is seen to have failed and western value systems are isolated. The concept of the nation state disappears. In its place, a multitude of city states emerge – each with different strengths, weaknesses, wealth levels and brands.

In my view, for insurance in the medium term, the implications are continuing regulatory pressures, for example on underwriting and reserving. Initially these could be, as now, as an iterative response to one crisis after another but if we move to Visible Handwe can expect an avalanche of regulation at super state and global level with the promise of long term stability. There will be political pressure to sign up to this vision but we would be well advised to do contingency planning for the possible breakdown of this consensus. Business models based on cities and affinity groups are quite common today and companies would be wise not to ditch them in favour of the promise of global stability. If the breakdown happens the market will pick up the pieces and those companies that are not nimble will fail and new comers will dominate the longer


It’s not often that people in financial services take a very long view of the future but earlier this year the Long Finance Forum of Futurists (L3F) produced an interesting report “In Safe Hands” [1]on possible scenarios for the future of financial services heading towards 2050. Gill Ringland authored the report and I was please to take part in its development. Unlike financial modelling under solvency rules which is driven by a set of pre-determined rules, these scenarios are qualitative, global and take account of the full range of external factors which may impact on our industry. Financial services strategists should find the report very useful in testing out their long term strategies against the challenges and opportunities that may affect their business models. Here is a taste of this detailed report.

Underpinning the scenarios are some assumptions: that the global population will grow to nine billion and get older, with most of the additional people in Africa and Asia – this will cause major shifts of economic power: the new centres of power may not share the value systems of the west: technology will advance and affect society and how commercial arrangements operate; ecological, energy and environmental limits will be tested or breached as the population increases; and the percentage of the population living in cities will approach 70 percent.

Beyond these assumptions four potential scenarios are envisaged. It is important to note that the scenarios are not predictions. It is highly unlikely that any one of them will happen in “pure” form, but they are a helpful basis for stress testing against uncertainty. In Second Hand we have a situation where western values and institutions and the nation state are still very important although they may have weaker powers than today. We continue to muddle through, as is being attempted with the euro crisis at the time of writing. Visible Hand is a more proactive version of Second Hand. Here the political classes get their act together and there is a period stability in the financial sector – driven by global consensus on the existing model and the growth of regional super states. But, this turns out not to be sustainable in the longer term and breaks down into the next two scenarios which are very different from the world in which we live in today. In Long Hand, we have melt down in many western countries.  There is a retrenchment in state expenditure, consumer spending power and overall consumption. People “opt out” and virtual connections which span geographies and are based on ethnic and religious affinity groups become the main global organising structures. In Many Hands globalisation is seen to have failed and western value systems are isolated. The concept of the nation state disappears. In its place, a multitude of city states emerge – each with different strengths, weaknesses, wealth levels and brands.

In my view, for insurance in the medium term, the implications are continuing regulatory pressures, for example on underwriting and reserving. Initially these could be, as now, as an iterative response to one crisis after another but if we move to Visible Hand we can expect an avalanche of regulation at super state and global level with the promise of long term stability. There will be political pressure to sign up to this vision but we would be well advised to do contingency planning for the possible breakdown of this consensus. Business models based on cities and affinity groups are quite common today and companies would be wise not to ditch them in favour of the promise of global stability. If the breakdown happens the market will pick up the pieces and those companies that are not nimble will fail and new comers will dominate the longer term landscape.

This is based on Richard Walsh’s column in Cover, and he can be reached on richard.walsh@samiconsulting.co.uk


Advertisements
No comments yet

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: