Financial repression? That is not the half of it ....
UK inflation has risen to 2.7%. Sydney Australia has seen property prices rise by 25% in the last calendar year. Heaven forbid, even the Eurozone is getting in on the act, with headline inflation jumping from negative to +2% in Q1 2017 (https://www.ft.com/content/fa55fbe4-2a58-3f28-b9f6-a636fc336c6c ).
Yet central banks still maintain interest rates at historic lows. Adding fuel to the fire of the argument that they are deliberately holding them below inflation to tax savers.
This financial repression hits the corporate sector too. Insurers are required to invest heavily in bonds, with the effect that they are managing inflated balance sheets and low investment returns.
To make the returns they have promised, many chase premiums. With the effect that supply outstrips demands, commoditisation reigns and the connection between the cost of insurance and its market price is broken.
So far, so bad. But I am afraid that is not the half of it. Economics aside, there is a huge human impact. Intellectual repression, if you will.
Traditionally it paid insurers to invest in thought leadership. If they could source risks better than others, appraise risks better than others, manage risks better than others, then they could protect their (costly) capital better than others, ensuring they were both more capable and resilient for their clients and more profitable for their shareholders. But the magic only works if capital has a cost. If capital is abundant and insurance a commodity, what is the value-add of the "clever-er" carrier?
The answer lies in accepting reality and looking elsewhere. Our efforts in the commodity market should focus on reducing costs. Punkt. But elsewhere, we should be working flat out to access new risk pools and even create them. To be a step ahead. To customise the deal so that it solves the real problem. There, the clever-er carrier can still add significant value.
Which is why it is vital that the industry continues to invest in moves that take us away from the commodity market and recapture the industry's purpose - to support individuals and industry to take the (highly specific) risks they want to take to progress. Not haggle over standard products.
We need to keep our heads when all about are losing theirs .... and keep those heads thinking.