Celent Says

Time Is Passing, Uncertainty Remains

Nicolas Michellod
Insurance Experts' Forum, November 9, 2011

The insurance industry is not immune from changes occurring at the marcroeconomic level. Based on our frequent and periodic discussions with European CIOs, we have noticed that the level of uncertainty prevailing in the economy right now has contributed to reduced IT budgets (for more about this, read Celent's report: Insurance in France 2011: The CIO Perspective and Insurance in the United Kingdom 2011: The CIO Perspective).

Much has been said and much has been proposed to solve the current Euro-zone crisis initially triggered by the Greek sovereign debt issue during the first quarter of last year. But nothing, even the decisions made in the frame of multiple political meetings (G7, G20, etc.), prevented the issue from spreading over to Ireland and Portugal later that same year. Nowadays, the Euro zone is still in danger of disappearing—at least under its existing form—despite its member state political leaders’ latest decisions last week in the G20 in Cannes. Italy is the new country in the line of fire, and it seems that as time passes, the problem is getting worse. I personally think there are three interesting lessons we can learn from this crisis:

1. Nations are here to stay: it is impossible to create a successful monetary union if the participating countries do not tend to form a single nation. On the first hand, the single Euro-currency decision makers have neglected this political aspect and on the other hand they have based the single currency construction almost solely on economic principles.

2. Democracy always wins: solidarity among countries part of the same currency zone works as long as there is the outlook of stable prices and sound future economic conditions. Manifestly this is not the case in these turbulent times. Directly or indirectly populations of France and Germany will let their politicians know that they do not agree to sacrifice their already decreasing well-being for other populations especially when some of them have been cheating to get funding from other members of the single currency area. According to me we might expect French citizens to express their anger before the next presidential elections through demonstrations against new public spending reduction plans to be announced in the coming weeks.

3. It is not recommended to solve a credit problem with more credit: it is Euro-zone member states who contribute to the European Financial Stability Facility (EFSF). In other words, Greece, Portugal and Ireland contribute to this fund at respectively 2.82 percent, 2.51 percent and 1.59 percent . Italy and Spain represent together almost 30 percent of the EFSF contribution. In other words, some countries are wrecked and rescuers in the same time!

In conclusion, I think that we have reached a point where the magnitude of the Euro-zone problem is too big for policymakers' ability to find a successful plan. To me the time has come to plan the end of the Euro-currency under its current form, and the more we wait, the more difficult it will be. For insurers, there is more uncertainty ahead. We are currently reaching out to UK and French CIOs to update our CIO survey reports. These two reports will be published in Q1 next year and I invite our subscribers to stay tuned.

This blog has been reprinted with permission from Celent. Nicolas Michellod is a senior analyst in Celent's insurance practice, and can be reached at nmichellod@celent.com.

The opinions posted in this blog do not necessarily reflect those of Insurance Networking News or SourceMedia.

Comments (0)

Be the first to comment on this post using the section below.

Add Your Comments...

Already Registered?

If you have already registered to Insurance Networking News, please use the form below to login. When completed you will immeditely be directed to post a comment.

Forgot your password?

Not Registered?

You must be registered to post a comment. Click here to register.

Blog Archive

It’s Okay to Take a Breather from the Technology Maelstrom

Even in technology, good things may take time.

Customers for Life

Insurers once had a monopoly on lifetime customers, but technology has changed the game.

Smarter Tablet Use Could Transform Insurance

By reducing administrative tasks and automating paperwork, tablets can increase agentsí selling time and help them respond to customers in seconds, not hours.

Insurance Wake-Up Call: Embrace the Shared Economy Opportunities

SMA believes that insurers must embrace a "shared economy," crowdsourcing and open innovation to get ahead in the new marketplace.

The Lion and the Mouse: Start-ups Pitch to Top Insurer

Insurers should be on the lookout for innovative partnership arrangements that produce unique and valuable solutions.

Silicon Valley Ventures

A trip to area hotbed of technological innovation calls into question the potential viability of insurers' legacy systems, operations and processes.