“I think we have first to make clear that insurance in Luxembourg is not just one single issue, but we speak about different branches of insurance. In fact, we have first to differentiate between local market or other markets abroad.” So said , CEO at Lalux, one of Luxembourg’s largest insurers, during an interview at the company’s headquarters in Leudelage, in mid-December, after being questioned on the major themes that will impact the insurance industry’s bottom-line in 2024.
Strasser explained that internationally, life insurance is becoming more complex, with fewer new policies anticipated by 2023 year-end. Factors include sophisticated market situations due to local authorities restricting freedom of providing services, as seen in the challenging Italian market. Complications also arise from uncertainty and interest rates affecting product adaptation, foreseeing interest rates staying unchanged.
Referring to Luxembourg’s insurance industry balance sheet, Strasser stated: “This table confirms what I spoke about, you see in life insurance that, in fact, we are going down, 2022 [revenue] is lower than 2021. And unfortunately, we foresee that 2023 will be lower than 2022 was for life insurance.” He also explained that this trend is evident in the overall decrease in 2022 compared to 2021. The main contributor to this decline was life insurance, which saw a decrease of 4.5%. While non-life insurance increased by over 10%, and reinsurance rose by over 4%, their combined growth couldn’t fully offset the drop in life insurance premiums. This year, life insurance remains challenging, but Strasser anticipates compensation from other sectors. It’s essential to note that premiums alone don’t dictate profitability; the reinsurance model differs significantly from life insurance, impacting net profits and overall financial performance, he commented.
The fact that the regulator, the politicians and the sector companies work together is the key for the development of the insurance industry in Luxembourg.
Strasser emphasised: “Premiums don’t fall from the sky but have to be realised year by year.” He added: “The fact that the regulator, the politicians and the sector companies work together is the key for the development of the insurance industry in Luxembourg.”
Strasser is certain about challenges ahead. He opined that navigating these challenges successfully will yield positive results through collaboration among insurance industry stakeholders.
Aca trade association
Strasser is chair of Luxembourg Insurance and Reinsurance Association (Aca) and told Delano that “Aca is not one person. The board of Aca is composed by a lot of people which are all very implicated and work to have results together. And believe me, it’s a real pleasure that to see how the board works together to bring insurance further. I think, if we did not have this good ambiance, this positive approach among us in the Aca board, our sector would not be as efficient and as successful as it is today. That’s something very important for me.”
Technology, innovation, startups
“Innovation, digitalisation or adaptation of processes will make us our life easier. In my eyes it should be seen as a solution to improve quality and not as a solution to replace the human workforce,” said Strasser. He noted that digitalisation offers immense possibilities, with examples like streamlined health insurance processes through mobile applications.
However, the extent of digitalisation varies depending on the market’s size and location. For instance, health insurance benefits greatly, while life insurance, involving complex scenarios, necessitates more human intervention. Although advancements in technology, and AI, are transforming the industry, complete automation is challenging. AI can streamline minor tasks, but human assessment remains vital, emphasising the need for human involvement in client interactions and problem-solving.
Despite the vast potential of AI, the focus should be on AI aiding human efficiency, not replacing human roles. The goal is to harness technology to enhance efficiency, speed and quality without diminishing the essential role of human understanding and compassion.
Challenges
Looking at the top challenges ahead, Strasser said: “For life insurance, it will really depend on the [restriction] issues. If the principles of LPS [libre prestation de services, or freedom to provide services], which are the basic principles of the European Union, are not respected in EU countries, this is very negative for our life insurance sector, especially if it concerns countries in which we do a lot of business. Italy, as I mentioned before, is the second-largest market, which we have not [been] performing in, [which] has an impact on the general results. I’m quite confident for non-life insurance as well as for re-insurance. Concerning life insurance, it is crucial that the EU principles of freedom of services are respected,” Strasser said.
Regarding the effects of geopolitical risks on the insurance industry, Strasser emphasised the industry has indirect exposure to the general market situation, citing the example of reinsurance in the context of the geopolitical situation in Ukraine. While not directly exposed, market impacts, such as fluctuations in shares, can affect insurers.
Strasser expressed his preference for a world characterised by stability over conflict, highlighting the broader global implications beyond their specific industry concerns. “I think that we all prefer to live in a peaceful world than to see day by day the atrocities of the numerous pointless wars around the world,” he said.
This article was published for the Delano Finance newsletter, the weekly source for financial news in Luxembourg. .