10 Threats and Opportunities for P&C Insurers in 2013

1. Piggybacking on growth sectors

1. Piggybacking on growth sectors: The hardening market will persist, but at a modest rate. Therefore, insurers will not be able to sit back and rest on rising premiums. Looking for faster-growing markets and industry niches could make profitability easier to come by.

2. Improved M&A landscape

2. Improved M&A landscape: Capital markets seem "ripe" for an acceleration of insurer deals, according to the report. Bolt-on acquisitions will remain popular, as well as broker and agent deals, meaning the distribution landscape could shift in the coming year.

3. Making alternative investments

3. Making alternative investments: A priority for P&C insurers this year will be boosting investment yields to reach targeted return on equity rates. An attractive option will be a more sophisticated alternative investment portfolio—which may be run by a third-party asset managers if you're a smaller insurer, according to the report.

4. Expanding distribution options

4. Expanding distribution options: More insurers are likely to grow bolder in exploring alternative channels to capture greater market share, catering to the needs and preferences of different segments while cutting frictional costs.

5. Making innovation part of your DNA

5. Making innovation part of your DNA: As technology advances, insurers need to be agile enough in their operations to keep up with trends and demands. Using advanced technology and analytics, competitive advantages can be attained as abrubtly as they appear. The report also warns, however, that "innovation often whips up headwinds, from consumer acceptance to new regulations and limits."

6. IT system consolidation

6. IT system consolidation: Legacy systems will need to be modernized to meet stakeholder expectations. The report declares that "How effectively an insurer integrates technology within each function, and creates business process improvements as a result to enhance the customer experience, is likely to determine the industry's long-term winners." Also, as more and more carriers meet tech basic demands, disruptive technologies will become an even more attractive way to gain an edge.

7. Solving the talent paradox

7. Solving the talent paradox: Insurers won't be able to solve their talent problems by searching outside pools. According to the report, they'll need do a better job recruiting and molding talent both from within the industry and among the most promising graduates.

8. Adapting to climate change

8. Adapting to climate change: Increased emphasis on cat losses in the past couple years is putting the onus on insurers to adapt risk management practices. More advanced data analytics can enable carriers to make sounder judgments when it comes to pricing, risk concentration and ultimately in determining where to write business.

9. Keeping up with new regulations

9. Keeping up with new regulations: Don't expect the daunting regulations to stop coming as technology's importance in conducting business in the industry continues to ramp up. For example, the Federal Insurance Office is mandated to examine the effects of auto insurance availability and affordability on low-income and underserved communities, and the National Assocation of Insurance Commissioners is providing a task force to join in on the matter. However, Deloitte Chief Advisor Howard MIlls provides solace in the report, saying there are "win-wins on the horizon for innovative companies."

10. ERM becomes a differentiator

10. ERM becomes a differentiator: "An effective ERM function is an imperative for insurers," states the report. The reach that level of maturity, insurers are advised to recognize the holistic risk management approach as a strategic priority and upgrade technology and skill sets across the enterprise to handle such capabilities as predictive analytics.

P&C insurers face a number of financial, marketing, management and regulatory challenges in 2013. In a new report, Deloitte goes even deeper to break down the year's 10 biggest hurdles.

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