Industry Attractiveness

The Swedish economy is one of the most robust in Europe. Its economy grew more speedily than several euro zone nations, and is also marked by stable public finances and strong private consumption. The country’s insurance industry is also mature. However, opportunities exist for insurers with niche products contemplating entry into the industry. Internet penetration measured around 85% of the population above the age of 18, leading to an increasing number of consumers comparing prices and products online. However, a positive attribute associated with the country’s insurance industry is that despite pricing being a critical factor, previous insurance relationships and reliability assume an important part in the Swedish consumers arriving at their insurance company choices.
The EU is at an advanced stage in implementing regulations aimed at providing consumers with greater transparency with regards to fees, product costs and risks. These regulations include the Markets in Financial Instruments Directive (MIFID II), Packaged Retail Investment Products (PRIPs) and the Insurance Mediation Directive. PRIPs, for instance, make it mandatory for firms to issue a key information document (KID) to customers before they purchase a policy. While this will be beneficial for consumers, it is likely to adversely impact insurer profitability.
According to the Swedish Financial Supervisory Authority, there were 416 insurance companies operating in Sweden in 2012. Intense competition and the prospect of consolidation encouraged insurers considering entry into the segment to take an inorganic route by acquiring existing insurers. Sweden’s status as a hub for the development of telematic technologies means public awareness of usage-based insurance products is high. This could act as a point of entry into the motor insurance category.
Driven by an increase in the demand for pension products, the life segment grew at a CAGR of 2.3% between 2008 and 2012. A key growth area will continue to be pension products featuring unit-linked policies, due to a shift in demand for investment savings products.
The non-life segment registered a CAGR of 1.9% in the same period. Insurers contemplating entry into the Swedish segment must keep in mind that Sweden’s economy is primarily export driven so any downturn would have an adverse impact on profits.
The personal accident and health segment accounted for the smallest market share of 5.3% in 2012, due the presence of public healthcare and social insurance systems in the country. The value of the segment declined from SEK27.1 billion (US$4.1 billion) in 2008 to SEK13.1 billion (US$1.9 billion) in 2012, at a CAGR of -16.6%.
The life segment is expected to post a CAGR of 3.4% to value SEK217.4 billion (US$32.8 billion) in 2017, while the non-life segment is projected to reach SEK62.8 billion (US$9.5 billion), following a CAGR of 3.8%. The personal accident and health segment is expected to record a CAGR of 4.3% to reach a projected value of GBP16.2 billion (US$2.4 billion) in 2017. Growth in all segments is expected to be driven by a robust economy, rising per capita annual disposable incomes and an aging population.

Segment Outlook

The Swedish life insurance segment was the largest in the country’s insurance industry in 2012. It recorded a CAGR of 2.3% between 2008 and 2012 and its penetration declined from 5.2% in 2008 to 5.1% in 2012.
With economic improvements anticipated, the life segment’s gross written premium is expected to increase from SEK183.5 billion (US$27.1 billion) in 2012 to SEK217.4 billion (US$32.8 billion) in 2017, at a CAGR of 3.4%. Challenges facing Swedish life insurers include: augmenting capital to meet Solvency II stipulations, prevailing low interest rates that result in less than adequate investment returns to meet the long-term commitments to policyholders, considerable investments in equities which call for increased capital allocations under Solvency II and the increasing emphasis on transparency in pricing and other terms and conditions.
Private pension plans are expected to achieve considerable growth over the coming years. According to Insurance Sweden, in 2011, around 2 million people held private pension savings policies, of which 45% were in the 35-59 years age group. Demand for investment products is expected to lead to an increase in the number of unit-linked products (ULPs) offered, primarily in the form of pension schemes.
Occupational pension and endowment insurance accounted for the majority of premiums generated in the segment between 2008 and 2012, and are expected to continue to grow, driven by economic recovery and a fall in the unemployment rate. The reduction in investment returns, due to low interest rates and limited growth potential, will force life insurers to curb their expenses in order to be more competitive. A number of Nordic insurers already have among the lowest expense ratios in Europe.
The life segment is a concentrated one. According to Insurance Sweden, the top ten companies accounted for 89.3% of premium income in 2012. Skandia and Folksam each accounted for shares of 15%, followed by Alecta with a share of 14%.
Growth in the Swedish life insurance segment will be driven by the FSA’s prudent approach towards the stipulation of the money to be held by the life insurers to meet their commitments to the insured, increases in life expectancy and annual disposable income, and the emphasis placed on greater clarity on information provided to consumers.

Distribution Channels

The distribution network for life insurance products in Sweden primarily comprises insurance brokers, e-commerce, direct marketing and bancassurance.
Brokers are the key distribution channel for the Swedish life insurance segment. The value of new business gross written premium generated through the channel decreased from SEK10.8 billion (US$1.63 billion) in 2008 to SEK10.6 billion (US$1.56 billion) in 2012. This value is projected to reach SEK13.9 billion (US$2.1 billion) by 2017. Brokers accounted for 31.8% of new business gross written premium in 2012, which is expected to increase marginally to 32% by 2017.
E-commerce followed brokers in terms of the amount of new written premium generated in the life insurance segment in 2012. The channel’s success was primarily due to the high internet penetration in the country, with around 85% of the population over the age of 18 accessing the internet in 2012. Sales through e-commerce were mainly generated on insurer websites, while online aggregators such as price comparison websites accounted for a relatively smaller share. E-commerce registered a CAGR of -19.3% between 2008 and 2012. The value of the new business gross written premium collected through the channel fell from SEK22 billion (US$3.3 billion) in 2008 to SEK9.3 billion (US$1.4 billion) in 2012, accounting for a market share of 28.0%. Its share is expected to reach 30.7% by 2017, equal to a new business gross written premium value of SEK13.4 billion (US$2 billion).
Swedes value the trust placed in specific life insurers and their existing relationships with them when purchasing life insurance products. This is reflected in the 17% market share accounted for by direct marketing channels employed by insurers. The value of new business gross written premium generated through the channel increased from SEK5.3 billion (US$810.3 million) in 2008 to SEK5.7 billion (US$835.8 million) in 2012. This value is projected to reach SEK6.2 billion (US$930.9 million) by 2017, equal to a market share of 14.1%.
The market share of other distribution channels was 12.2% in 2012. The new business gross written premium registered collected through the channels increased from SEK3.9 billion (US$586.4 million) in 2008 to SEK4.1 billion (US$601.8 million). The new business gross written premium generated through other distribution channels is expected to record a CAGR of 4% to reach SEK4.9 billion (US$747.5 million) in 2017, equivalent to an 11.4% share.
The new business gross written premium collected through bancassurance decreased from SEK4.1 billion (US$0.6 billion) in 2008 to SEK3.3 billion (US$0.5 billion) in 2012. Its market share was 10% in 2012. Written premium through bancassurance is expected to record a CAGR of 7.5% to reach SEK4.8 billion (US$0.7 billion), pushing its market share up to 10.9% in 2017. According to the IMF, as of 2010, three out of the four large Swedish banks were tied intermediaries (those operating solely for a single insurer) of their connected life insurance subsidiaries.

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Porter’s Five Forces Analysis – Swedish Life Insurance

The life insurance segment has a medium level of concentration with the top four companies accounting for 55% of premium income in 2012 and another six insurers accounting for 35%. Skandia and Folksam each accounted for a share of 15%, followed by Alecta with a share of 14%.
Bargaining powers of suppliers: Medium
The bargaining power of suppliers is medium. Despite a medium level of concentration, Swedes have the opportunity to choose from the products and services of 42 life insurers, and also have access to the country’s robust social insurance system.
Bargaining powers of buyers: High
The bargaining power of buyers is high. Swedes are covered under the country’s social insurance system, thus making life insurance not indispensable for them, and can choose between the products of 42 life insurers. The relatively large number of insurers results in supply exceeding demand and hence raising the bargaining power for the buyers.
Barriers to entry: Low to medium
There are no restrictions on the entry of foreign insurers and demand for private pension and endowment insurance has increasing. However, the limited opportunity for expansion in the segment can be perceived as a barrier.
Intensity of rivalry: Medium
The intensity of rivalry is medium. Despite the presence of 42 life insurers in the country, 55% of the market share is held by the top four companies.
Threat of substitutes: Medium to high
The threat of substitutes is medium to high due to the presence of the country’s state-run social insurance system. However, this threat is moderated by the system’s limited ability to act as a substitute for occupation and private pension.