Innovation is not something that is naturally associated with a sector which, after all, is run by actuaries. No surprise then that taking the entire financial services industry into consideration, insurance is the area that has seen least product innovation over the past decade. However, changing demographics, the increased levels of threat in some areas, the potential for using new technologies, and the desire to bundle some aspects of financial services provision is forcing some insurers to review their product types and the way they are delivered, and most importantly quoted. In addition changes in legislation around the world including the relaxing of pension regulations in the UK, will undoubtedly result in opportunities for more innovative pensions and insurance products. Moreover, as the developed world gradually becomes older and fatter, the savings and investment sectors as well as the core insurance sector need to produce products and services that match the needs of this changing demographic.

Similarly another major threat to the insurance sector- that of climate change and associated natural catastrophes - has resulted in a number of initiatives. In 2005 natural disasters killed 97,000 people and cost the insurance industry $83 billion. This has spurred the sector to launch initiatives such as Lloyd’s 360 risk project to assess these risks. Swiss Re has introduced its Climate Adaptation Development Programme, which is designed to provide financial protection against weather risks in emerging countries, and the Climate Wise initiative backed by global leaders in the insurance sector aims to reduce risk associated with climate change. Linked to this, insuring risk from investments in Clean Development Mechanism approved projects that fail to deliver could add 4 to 5% of growth to insurance markets. However the focus in the insurance sector is clearly about better understanding risk rather than, just yet, offering any ‘green’ products.

Finally the effects of the global credit crunch and the associated economic slowdown will slowly work its way through the insurance sector and surely impact the way such companies innovate. We are already seeing some major players stopping withdrawals from some funds and it remains to be seen the extent to which this will increase, or decrease, innovative activity.