Challenges Facing the Insurance Industry and How to Overcome Them
NAME: DENNIS BORURA
ADM. NO.: K16S/11826/2010
COURSE: ECONOMICS AND FINANCE
UNIT: BMS 101 (INTRODUCTION TO INSURANCE)
QUESTION: STATE THE CHALLENGES FACING THE INSURANCE INDUSTRY AND HOW TO OVERCOME THEM
The insurance industry (comprised of accident and health insurance, property and casualty insurance, and life insurance) is faced with slow growth and consolidation.
Price competition is accelerating as customers turn to Internet data aggregators to shop for the best deal on many types of insurance. In addition, while the insurance business and the needs of policy holders and distributors are rapidly changing, many insurance companies can’t keep up because they are unable to differentiate their business, reach customers likely to respond to new sales opportunities or make the most of their valued staff. Insurers that define and implement solutions to these challenges are those that will successfully compete and thrive into the future. Some of the challenges facing the insurance industry include:
Lack of a big pool of customers
Under the system of pooling, insurance companies come together to form a pool, which can provide protection to insurance companies against catastrophic risks such as floods and earthquakes. While risk pooling is necessary for insurance to work, not all risks can be effectively pooled. In particular, it is difficult to pool dissimilar risks in a voluntary insurance market, unless there is a subsidy available to encourage. Lack of a big pool of customers has led to some of the risks to be uninsurable. This reduction in variability allows a decrease in safety stock and therefore reduces average inventory.
Remedy
The insurance industry should put up civic education or awareness of the importance of insurance to the public i.e. by advertising . A good example is the Jubilee insurance in Kenya, which has very many policies a policy holder may want to get a cover against e.g. they insure against riots, political
ADM. NO.: K16S/11826/2010
COURSE: ECONOMICS AND FINANCE
UNIT: BMS 101 (INTRODUCTION TO INSURANCE)
QUESTION: STATE THE CHALLENGES FACING THE INSURANCE INDUSTRY AND HOW TO OVERCOME THEM
The insurance industry (comprised of accident and health insurance, property and casualty insurance, and life insurance) is faced with slow growth and consolidation.
Price competition is accelerating as customers turn to Internet data aggregators to shop for the best deal on many types of insurance. In addition, while the insurance business and the needs of policy holders and distributors are rapidly changing, many insurance companies can’t keep up because they are unable to differentiate their business, reach customers likely to respond to new sales opportunities or make the most of their valued staff. Insurers that define and implement solutions to these challenges are those that will successfully compete and thrive into the future. Some of the challenges facing the insurance industry include:
Lack of a big pool of customers
Under the system of pooling, insurance companies come together to form a pool, which can provide protection to insurance companies against catastrophic risks such as floods and earthquakes. While risk pooling is necessary for insurance to work, not all risks can be effectively pooled. In particular, it is difficult to pool dissimilar risks in a voluntary insurance market, unless there is a subsidy available to encourage. Lack of a big pool of customers has led to some of the risks to be uninsurable. This reduction in variability allows a decrease in safety stock and therefore reduces average inventory.
Remedy
The insurance industry should put up civic education or awareness of the importance of insurance to the public i.e. by advertising . A good example is the Jubilee insurance in Kenya, which has very many policies a policy holder may want to get a cover against e.g. they insure against riots, political