The Norwegian insurance industry registered the strongest growth in the Nordic region between 2008 and 2012. The industry recovered from the financial crisis and posted a CAGR of 5.9%. This was attributed to the country’s economic strength, continued expansion in the energy sector, new demand for marine and energy insurance products, and growth in the consumption of motor and workmen’s compensation insurance by SMEs. Industry growth was further supported by the strong premium growth registered by the personal accident and health insurance segment, which posted a CAGR of 9.0% in the same period.
The segment’s growth was a result of increased demand for health insurance driven by an increase in medical expenditure and a rise in the country’s aging population. These factors are likely to support the growth of the industry over the coming years. The written premium of the Norwegian insurance industry is expected to increase from NOK134.5 billion (US$18.0 billion) in 2012 to NOK179.8 billion (US$22.3 billion) in 2017, at a projected CAGR of 6.0%.
Growth in the Norwegian financial sector has been partially impacted by high house prices and household debt. Consequently, the country recorded a prolonged period of low interest rates, which affected the financial resilience of insurers as they were unable to maintain pricing margins. The country’s interest rate is likely to remain low, which will adversely impact insurers’ revenues. During this period, some insurance providers might look to increase product prices, which will alter consumers’ purchasing behavior.
High levels of market concentration, a low-interest-rate environment and weak profit margins discouraged multinationals from participating in the Nordic region. Furthermore, Norwegian policymakers are expected to implement Solvency II measures in January 2016, in line with the EU. This change will result in higher capital requirements, which may subsequently discourage new and small-scale insurers from entering the industry. This will lead for further consolidation in the industry. However, the stringent regulations are expected to benefit the country’s insurance industry in the long term.
Despite high house prices, household debt, low interest rates and a high combined ratio, the Norwegian insurance industry is still attractive and provides ample growth opportunities for global investors as penetration levels stood at 2.8% in the life segment in 2012.
The written premium of the Norwegian insurance industry increased from NOK107.1 billion (US$19.0 billion) in 2008 to NOK134.5 billion (US$18.0 billion) in 2012, at a CAGR of 5.9%.
The life segment accounted for 61.4% of the industry’s written premium in 2012. The written premium of the life segment valued NOK82.6 billion (US$11.0 billion) in 2012, at a CAGR of 5.8%.
The non-life segment accounted for a 33.1% of the industry’s written premium in 2012. The segment’s written premium increased from NOK35.8 billion (US$6.4 billion) in 2008 to NOK44.5 billion (US$6.0 billion) in 2012, at a CAGR of 5.6%.
The personal accident and health segment accounted for 5.5% of the industry’s written premium in 2012, with a value of NOK7.4 billion (US$1.0 billion), at a CAGR of 9.0%.
The Norwegian life insurance segment is one of the fastest-growing in the Nordic region. The segment posted a 2008 to 2012 CAGR of 5.8% in gross written premium terms despite low interest rates, and the financial crisis. The segment managed to post positive growth on account of robust growth registered in the individual and group life categories. The growth was further supported by the positive economic development following the financial crisis, a situation which is expected to fuel the demand for life insurance policies in Norway. As such, the written premium of the life insurance segment is expected to increase from NOK82.6 billion (US$11.0 billion) in 2012 to NOK112.7 billion (US$14.0 billion) in 2017, representative of a 6.4% CAGR.
The Norwegian life insurance segment’s penetration stood at 2.8% in 2012, significantly lower than Denmark with 6.4%, Finland with 7.7%, and Sweden with 6.0%. In addition, the Norwegian pension market is very small and is mostly dominated by private insurers. As of 2012, over 75% of the private pension market is funded by insurance policies. This suggests ample scope for further growth in the pension insurance category.
Fierce competition in the segment forced some insurers to re-examine their strategies in order to survive and gain market share through geographical expansion. However, the current low interest rate and fierce competition is projected to affect the overall earnings of life insurance segment over the next few years.
Despite concerns over low interest rate, the IMF projected stable economic growth for Norway up to 2017. Norwegian GDP at constant prices (base year 2005) is expected to grow at respective annual rates of 2.4%, 2.5%, 2.2%, 2.3% and 2.3% over 2013-2017. This is expected to fuel demand for life insurance products and encourage global insurers to open branches in Norway. The positive economic trend is also expected to propel corporate spending on insurance.
Life insurance providers have benefited from low combined ratios, resulting in underwriting profits. The combined ratio in the life insurance segment was below 100%, and is expected to remain between 60% and 70% up to 2017, indicating that life insurance providers in Norway will remain profitable.
Favorable demographic factors such as an increased in life expectancy and a rise in the elderly population (65 and above) are likely to accelerate demand for life insurance products. Life expectancy in Norway reached 81.4 years in 2013, while the elderly population reached 700,000 in 2012 and is expected to reach 1.22 million in 2050. Favorable demographic factors will create an important demand for elderly care, which will generate demand for life and health products.
Despite the segment’s small size in terms of gross premium, Norwegian life insurers employed a number of distribution channels including brokers, direct selling, bancassurance, agencies and e-commerce to reach potential customers between 2008 and 2012. To cater to the large online population and provide services to semi-urban and rural customers, life insurers strengthened their positions in regards to both online and offline communications.
Bancassurance emerged as the most popular and trusted distribution channel, and is playing a key role in the growth of the insurance industry as a whole. However, the number of policies sold through bancassurance fell from 259,164 in 2008 to 258,368 in 2012, accounting for a 56.9% share of the total revenue generated through distribution channels in 2012. The decline was due to the growing popularity of other channels such as agencies and e-commerce. The agencies channel grew from 109,374 in 2008 to 116,018 in 2012 in terms of number of policies sold. The number is expected to reach 175,249 in 2017.
E-commerce was the fastest-growing distribution channel, when the number of policies sold online rose from 11,667 in 2008 to 23,043 in 2012, at a CAGR of 18.5%. The high degree of internet penetration and high levels of internet connectivity among the elderly population in Norway made this possible. Over 86% of Norway’s population is active online, and around 65% of the population aged 60 and above regularly uses the internet. Moreover, over 95% of the population owns a mobile phone, indicating that Norwegians are generally well connected. This enables insurers to reach potential consumers and grow through e-commerce. The number of policies sold online is expected to reach 33,081 in 2017.
The insurance broking business in Norway is highly competitive, as insurance brokers from the European Economic Area (EEA) are allowed to operate in Norway without any regulatory requirements or registration. Consequently, a number of insurance brokers, especially from the UK, entered and are selling policies in Norway. Leading international brokers including Willis, Aon and Mercer have a presence in the market. However, the Norwegian brokers market remains small, accounting for only 4.7% of the total commission paid in 2012. These brokers primarily focus on the corporate sector, including workmen’s compensation and mandatory insurance cover for employers. The number of policies sold through brokers rose from 11,667 in 2008 to 21,171 in 2012. Brokers cover around 38% of the pension and 62% of the personal insurance business in Norway.
Direct marketing is used as a traditional channel, and most insurance companies use it as a means of saving costs. Direct marketing channels include sales forces, telemarketing and mail distribution. The number of policies directly sold to customers increased from 18,750 in 2008 to 28,341 in 2012. Meanwhile, the number of policies sold through other distribution channels, including shopping malls and government agencies, increased from 6,042 in 2008 to 7,242 in 2012.
These distribution channels including insurance brokers and bancassurance are expected to drive growth in the life segment as domestic insurers focus on expanding their distribution channels to access rural and semi-urban customers. This is likely to increase insurance penetration.
Porter’s Five Forces Analysis
Bargaining power of suppliers: Medium
The bargaining power of suppliers to the life insurance segment is medium. The key suppliers are credit institutions such as banks and reinsurance providers; however, banks are the key capital arrangers. Norway has a relatively strong banking system, which enables insurers to access capital from the banks. However, the implementation of Solvency II in 2016 will increase the capital burdens of insurers, which may look for additional funds from banks and other credit institutions, increasing supplier bargaining power.
Bargaining power of buyers: Medium
The bargaining power of buyers differs significantly depending on the category. Buyer bargaining power for individual insurance is low due to the low transaction values, while for higher-value corporate transactions, buyer bargaining power increases to medium. Corporate buyers often purchase group pension, group annuity and retirement benefit insurance in bulk, giving them high negotiating power. As a result, insurers prefer to retain high-margin corporate buyers, forcing them to provide discounts and reduce their negotiating power.
Barriers to entry: Medium
The entry barriers to the life insurance segment are medium. The segment is highly concentrated, with four insurers accounting for 84.0% leaving little scope for new entrants. Entry barriers are expected to increase due to proposed regulatory changes such as the introduction of Solvency II. However, Norway provides equal opportunities for both domestic and foreign insurers through its liberal foreign direct investment and economic policies. In addition, the country is a preferred trading partner for many EU member states, and has commercial relationships with numerous countries, reducing the barriers to entry for new companies.
Intensity of rivalry: Medium
The intensity of rivalry among life insurers could be considered to be low, as there were only 12 insurers operating in the country at the end of 2012. Of these, the four leading companies accounted for a significant proportion of the segment, meaning rivalry is assessed as medium. A process of regulatory change is expected in the segment over the forecast period, encouraging consolidation with smaller companies likely to merge with or acquired by larger firms due to a rise in capital requirements.
Threat of substitution: Low
The threat of substitutes for life insurance products in Norway is low. Some products, such as health and pension insurance, face threats from government social security programs which offer similar services. However, most Norwegians tend to buy guaranteed insurance products, which have no direct substitutes.