Although the sector is performing strongly in Luxembourg the persistence of low interest rates emerged as the overall top concern. Luxembourg respondents remain cautious about the outlook for growth as low interest rates have depressed investment yields and made savings products more difficult to manage and sell, reducing their attractiveness and/or increase the cost of providing these products.

Typical responses from insurance companies included: “Guaranteed products will start being a real issue for the vast majority of insurance companies.” Given the current market conditions, with high competition, low margins, low interest rates and increasing regulatory constraints, companies have to innovate and adapt. They need to offer attractive new products as policyholders are sensitive to a transparent value proposition, security and return. These companies are actively considering alternative investments to meet their product commitments. Alternatively, they are offering less guaranteed structured products or developing new ones without guarantees.

Matt Moran, partner and Insurance Leader at PwC Luxembourg, commented:

“All players of the Luxembourg insurance sector should adapt how they market their products, by offering new solutions and different distribution channels. This needs the active collaboration of the authorities and industry associations, who will be critical to promoting the benefits of Luxembourg’s innovative solutions and their ability to meet future policyholders’ needs.”

There was however a common feeling, that the Luxembourg insurance sector, in particular with respect to investment and savings products, needs to continue to reinvent itself to bring more value to the planning value chain.  A further challenge is to address changing consumer needs and life styles. Companies should embrace E-Distribution and develop relationships with new partners, therefore communicating differently with policyholders using current technology.

The continuously increasing regulatory requirements at a European level (e.g. Solvency II, PRIPS and MIFID) and at a country level (e.g. country premium taxes and tax representative requirements) also threaten practitioners. These are proving challenging for insurance and reinsurance companies where the costs of implementation eat into margins in an already competitive cross-border market. Some regulations, including EU distribution rules and elements of policyholder protection requirements provide barriers to international cross-border business.

Notable differences between the Luxembourg and the global responses included political interference, guaranteed products, Market conditions as higher concerns while human talent, reputation and change management being lower.

The ‘Insurance Banana Skins 2015’ survey is available on PwC Luxembourg website.