Insurance
PwC’s Insurance practice saw revenue growth of 27% in the year ended 30 June 2020
2020 represents the strongest year ever for our insurance practice. Supporting clients on several aspects of the transformation journey, at both a local and international level, has been a key driver of our insurance practice’s performance. Similarly, our core Assurance practice benefited from a number of key audit mandate wins, including increased activities arising out of Brexit-related new entrants, which continue to enhance their substance and investment into their Luxembourg footprint. Tax recorded a small reduction in revenues due to the one-off nature of prior year projects but also due to the evolution of tax rules with some impact at a local and international level.
The growth reflects the significant ongoing investment made by PwC Luxembourg into the sector which has seen our business grow nearly three fold during the past five years. These include investments in people and technology, in alliances with specialist third parties as well as working alongside our global network to bring requisite skills and experiences to the benefit of our clients in Luxembourg. Like insurers, we are also transforming.
In May when we welcomed the C-suite of the Luxembourg insurance sector in a virtual event with the support of ACA, Luxembourg’s Insurance industry body, to join Jim Bichard, our newly appointed Global Insurance Leader and ten of our global leaders to consider what we identified as the six key priorities for the sector. Close to 100 executives from the Luxembourg market - comprising representatives of major local market players; international life and wealth insurance specialists; through to captive leaders and international players with European business headquartered in Luxembourg including new Brexit entrants - joined the session where colleagues shared points of view relevant for insurers with their post-crisis business models.
Beyond COVID-19: The six key strategic priorities for Luxembourg insurers in a post-crisis world
Alongside Abhijit Mukhopadhyay, PwC’s Global Insurance Advisory Leader, we identified key priorities for our insurers. While each should be considered in light of our clients’ specific business segment focus, all are relevant especially as we see a longer road to economic recovery than may have been envisaged at the outset of the first wave of the pandemic.
Realign your cost structure and sharpen productivity;
Supercharge digital transformation to create a digital enterprise;
Carve out new revenue streams;
Prepare your workforce for the new world;
Strengthen capital efficiency;
Enhance your societal role – your purpose – and underpin your reputation.
PwC has established at both an international and local level several alliances to support these strategic priorities and to optimise our client outcomes. We have several examples currently active in Luxembourg, one of note being the partnership we have formed with Lifeware to support wealth and life insurers modernise their business with an end-to-end bespoke platform to digitise entire businesses models. The result, enhanced client / distributor experience while delivering step-changes in cost efficiency and resultant insurer profitability. Furthermore, together with insurance colleagues in the wider PwC Network and our local technology and data analytics / machine learning teams, we have developed several digital assets and accelerators to allow insurers to reach their return on investment more quickly.
The global insurance sector encountered one of its most challenging environments over the past twelve months. COVID-19 creates a multitude of difficulties in several jurisdictions, raising questions about policy clarity and transparency and the important “protection gap” exposed by the pandemic. Meanwhile, the economic consequences unfolding mean “zero” (or negative) interest rates for even longer, rendering investment return more difficult to come by. All of this is causing insurers to ramp up their modernisation and transformation objectives, review entire business lines and future focus areas and operating models. And then there’s Brexit. Those players who have established in Luxembourg have added considerably to the sector ecosystem and underscore the centre’s relevance as a global insurance hub.
Continuing regulatory evolution
There are several regulatory and taxation topics where we are supporting our insurance clients to navigate. Implementation of the EU Council’s tax transparency Directive (2018/822) on Administrative Cooperation with the sixth amendment (DAC 6) is a key focus where our tax colleagues provide guidance and advice on strategies to meet the full range of requisite obligations. Similarly, Luxembourg’s new requirements on Anti Money Laundering places greater onus on insurers, brokers and distributors going beyond the 5th AML Directive and incorporating recommendations of the Financial Action Task Force (FATF). The planned, yet delayed, on-site evaluation of Luxembourg by FATF underscores the need for all actors to maintain a heightened focus on the quality of their business.
Evolution at the Luxembourg insurance regulator, Commissariat aux Assurances (“CAA”)
Luxembourg is one of only three jurisdictions within the EU to maintain a standalone insurance regulator. This dedicated regulatory authority has seen its workload increase considerably given the decision of the UK to exit the EU and hence requiring certain insurers to establish a new regulated entity to maintain distribution access to the wider European market. After a distinguished career of close to thirty years at the CAA and since January 2014 as Director General, Claude Wirion announced his planned retirement as intended for end December 2020. He will be succeeded by Thierry Flamand, an Insurance industry veteran for over 25 years. 2020 also saw Annick Felten, Executive Director and member of the Board of the CAA, take on new responsibilities as a senior executive with one of the main insurers in Luxembourg. Wishing each of them well with their new endeavours.
2020 and beyond
The recent flurry of announcements, such as the joint venture initiative in recent days between Swiss Re and Daimler, Movinx, designed to transform the automotive and mobility insurance business, highlight many examples of players seeking to reshape the industry. We see the creation of new ecosystems and delivery models across and expect it will lead to marked change in the coming quarters and years. What is most notable is the step-up in transformation ambitions as well as the increase in desired pace, influenced in part by COVID-19. At the same time, the pandemic underscores the importance of insurance in society, its benefits as well as certain shortcomings through an ESG lens.
Insurers have generally managed their business operations well through this period. However, it has led leadership across the sector to reevaluate entire business areas and how to reduce “cost to serve” while seeking to enhance stakeholder experience. These contribute to the burning platforms catalysing the change agenda and new thinking in the sector.
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