To achieve growth in what is shaping up to be a challenging 2013, insurers must recognize obstacles in the coming year and identify both the threats and opportunities they present, a recent Deloitte report says.
Deloitte says while the economy will continue to challenge insurers, companies should identify growth sectors and “piggyback” off of them. The report, “2013 Property and Casualty Industry Outlook,” says insurers can take advantage of opportunities from rebounding auto sales, greater construction, and millions of new insureds brought into the healthcare market due to the Patient Protection and Affordable Care Act. Overseas as well, a growing middle class in China, India and Brazil are creating new market opportunities, Deloitte says.
The firm says it also sees an improving mergers and acquisitions landscape in 2013, although Deloitte notes that it's hard to say where the capital markets — “a noteworthy predictor of M&A activity” — will go over the next 6-12 months. Still Deloitte says the environment seems “ripe for an acceleration of insurer deals.”
“It's time for insurers to proactively rebuild strategic internal M&A capabilities abandoned since the financial crisis,” Deloitte states. “Insurers should create enriched M&A playbooks, rigorous targeting and screening strategies, and readiness studies to position themselves for when deal activity accelerates and targets are identified.”
Regarding investment strategies in 2013, Deloitte says, “There is no respite in the near future for insurance carriers suffering the effects of falling investment yields, as the Federal Reserve has indicated plans to try to hold interest rates at low levels through mid-2015.”
The firm expects insurers to become more aggressive, increasing investments in alternative asset classes such as real estate, private equity, developing-country stocks and bonds, hedge funds, commodities, and oil and gas assets.
“In addition to higher yields, some alternative investments can provide an additional hedge to insurers against low interest rates, due to their negative correlation with traditional investments,” Deloitte says.
Deloitte also expects insurers to “grow bolder” in looking at their distribution channels.
“More carriers may be challenged to effectively manage multiple platforms and resolve channel conflict while maintaining the customer experience. This trend is likely to grow beyond personal lines, as more commercial insurers consider direct-to-consumer sales initiatives targeting small-business consumers,” the report says.
Despite the alternative distribution channels, Deloitte expects agents to remain the “major source of business for the foreseeable future,” and the firm says companies take steps to fortify their distribution team, even suggesting that companies selling direct consider adding an independent-agency component to their sales force.
However, agents are likely to remain a major source of business for the foreseeable future, especially among those consumers requiring advice and service to navigate more complex personal and commercial exposures. That means those carriers doing business through independent agents should take steps to fortify their distribution team, while some of those selling direct might consider adding an independent agency component to their sales force to reach customers with a different set of needs and service expectations.
Keeping up with product design and predictive modeling technology as well as fluency in mobile and online capabilities will also allow insurers to identify the needs of their customers and work with them in real time, with the positive side effect of helping companies innovate for growth and protection against evolving risks like cyber, political unrest and emerging market penetration, Deloitte says.
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