North American Insurers Find Growth in Emerging Markets in Asia, Europe and Latin America: TowerGroup

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TowerGroup Examines How Effective Vendor Partnership Strategies Can Be Critical to Success for Insurers in Going Global

NEEDHAM, MA, August 3, 2004 — North American insurers currently are pursuing global expansion at a pace rivaling that of European insurers’ entry into US markets in the early 1990s. TowerGroup finds that more favorable economics, key demographic trends and the gradual dissolution of international barriers to entry underscore the high growth possible for US insurers in key emerging markets.

“TowerGroup believes that the most compelling emerging markets for North American insurers are South and East Asia, Central and Eastern Europe, and Latin America,” said Cindy Saccocia, senior analyst in the Insurance practice at TowerGroup and author of the research. “Swiss Re found that the inflation-adjusted growth rates for life and non-life insurance premiums for these emerging regions were 6.6% and 8.5% respectively in 2003. This is compared with 2003 growth rates in industrialized countries of negative-1.7% for life insurance premiums and 5.7% for non-life premiums.”

Highlights of the research include:

  • Relatively low penetration rates for insurance in these emerging markets, as well as the aging of populations around the world, represent substantial opportunity for North American insurers. In addition, the stability of many employer-sponsored pension plans is uncertain. Over time, this will drive demand for insurance-oriented products as individuals in emerging markets take on more responsibility for their retirement security.

  • TowerGroup cautions insurers to approach new markets with a fresh perspective on distribution, operations, technology and services. Of particular importance is a thorough evaluation of how the insurer will manage infrastructure, insurance operations and regulatory demands. If not carefully examined, these areas can later incur the greatest costs and cause the insurer to miss break-even targets.

  • While insurers have many options relative to implementing a globalization strategy, nearly 50% of those interested in international growth prefer to “go it alone” and build out new operations — as opposed to leveraging the on-the-ground expertise and infrastructure of a vendor partner. Building unique operations for each new market is costly, while trying to leverage end-to-end operations across all international markets can be challenging due to regional differences.

TowerGroup believes North American insurers can best maximize their opportunities in emerging markets by leveraging the capabilities of select vendors with global expertise in software applications and services. “Leveraging the right vendor partner affords an insurer the necessary leeway to focus on the critical success factors of cultural acceptance, distribution, regulatory or accounting differences, and setting strict governance policies,” Saccocia said.

One way insurers can do this is by establishing “processing hubs” in select locations to bring together common, regional functions and deliver cost-effective standards for business operations and technical support. Saccocia noted that this approach drives down operational and infrastructure costs, because the insurer maximizes its investments and derives economies of scale.

“Globalization is not for all insurance companies. It is a challenging strategy that requires thoughtful planning and long-term investment. While revenue may take many years to realize, the eventual returns will be substantial,” she said.

TowerGroup’s research report, “North American Insurer’s Global Expansion: ‘Go West, Young Man,’ or is it East?” is available for purchase by contacting TowerGroup at +1.781.292.5200 or

About TowerGroup: TowerGroup is the leading advisory research and consulting firm focused on the global financial services industry. A respected source for trusted information and advice, TowerGroup brings many of the world’s largest financial services, technology and professional services firms a deeper understanding of the business and technology issues impacting their organizations. Headquartered near Boston in Needham, Massachusetts, and with offices in New York, London, and Kuala Lumpur, TowerGroup serves a global client base.