4 Market Forces that will Dictate 2013 for P&C Insurers
Ernst & Youngs 2013 outlook offers insights on the business and technology landscape for the P&C industry and proposes responses to stimulate growth.
Insurance Networking News, December 18, 2012
Successful P&C insurers are responding to changing economic, demographic and technological environments in their pursuit of organic growth, and are expanding via acquisitions, global expansion and products that target new insurable risks and coverage, finds Ernst & Young in “Global Insurance Center U.S. Property-Casualty Outlook.”
The forces acting on the P&C market are several, the report finds. Household expenditures on insurance have declined 50 percent over the past decade, for example, especially amongst younger people; and protracted low interest rates and upheavals in the equity markets have weakened investment returns. These forces and others, including regulatory uncertainty and raised expectations for multichannel communications, have induced many insurers to invest in and leverage technology solutions to improve their business models, products and services and customer communications.
To respond to these market forces during the coming year, senior management needs to:
• Rethink business strategy for sustainable competitive advantage
• Respond to consumer needs and changing distribution to grow
• Transform products to adapt to economic challenges by:
o Preparing for a scenario of long-term, low interest rates
o De-risking and redesigning products
• Harness big data for sustainable advantage
• Position the business for tax, regulatory and accounting change by:
o Staying attentive to tax changes in this time of governmental need for revenue
o Increasing focus on risk management and consumer protection to prepare for regulatory change
o Organizing and planning for accounting change
"Insurance carriers can seize growth opportunities by improving analytical and decision-making capabilities, cross-selling products and using marketing data to increase customer retention and encourage business expansion,” said David Hollander, Global Insurance Advisory Leader at Ernst & Young LLP. “Growth and profitability strategies need to be developed across the enterprise and balanced against the risks they may produce."
According to Ernst & Young, the following market forces will influence the P&C insurers’ priorities in the coming year:
Increasingly sophisticated customer expectations. Consumers want technology-enabled solutions to improve the insurance service experience, E&Y found, including real-time solutions through mobile communication and other channels. Delivering on those expectations requires substantial technology upgrades, which also can enhance operational efficiencies, increase underwriting productivity and improve oversight of the claims process. Early detection of potentially fraudulent claims through analytical capabilities could give an insurer a competitive edge and cut costs, for example.
Regulatory changes: Insurers will endure increased activity from state and regulatory authorities focusing on strengthening solvency protection systems through: Solvency II, the National Association of Insurance Commissioners' Solvency Modernization Initiative to view the U.S. insurance capital adequacy system, and the NAIC's Own Risk Solvency Assessment. Insurers must increase resources for data management, reporting and analysis, and their ability to integrate risk data across disciplines, which may require investment in education and other strategies. Much of the solvency framework is still in progress, so insurers must stay on top of emerging regulatory trends while preparing for escalating data, reporting and governance demands.
Emergence of big data: Explosive growth in the abundance and types and data, and the speed with which it is delivered, demand a new company operating structure and enhanced governance systems to address data security. The first step consists of getting existing data management capabilities in order to extract meaningful information and integrate data from multiple sources typically housed in various functional areas. Insurers will need to invest in talent with the skill sets necessary to collect, analyze, disseminate and manage massive volumes of data.
Recognize and seize opportunities: Acquisitions offer an opportunity to diversify and expand by location, product or distribution source. New premium growth opportunities may come from insuring new or emerging exposures in cyber liability, nanotechnology and energy, for example. And by using marketing data to target consumers most likely to buy multiple insurance policies, insurers can increase their businesses and retention. Insurers also can benefit by turning to emerging markets in Asia-Pacific and Latin America that offer lower insurance penetration rates and potential for economic growth.
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