The insurance industry has remained much the same for more than 100 years, but the status quo cannot endure nor lead to growth of an organization.
Commercial insurers face tough times ahead with underwriting margins that are pressured by softening prices and a potentially volatile interest rate environment. What are the keys to success? Better capabilities, service, customer-focus and products — all of which require on-going investment in capabilities.
As we look to 2017, it's important to consider the biggest drivers of change to ensure a boost in your bottom line:
- Customer expectations: Customers expect convenience and transparency and have greater ability to find it than ever before.
- Pace of innovation: Customers have a need for new insurance solutions, but incumbents are struggling to provide appropriate products and services.
- Startups: New players that have the ability to innovate quickly are taking advantage of the opportunity to fill the gaps that incumbents have not.
Although the industry has seen generally strong underwriting results in recent years, this could change — potentially very soon.
The following top seven insurance industry issues should be closely monitored as you head into planning for 2017, creating an environment that is adaptive to change and positioned for growth:
(Photo: iStock)
|1. The rise of insurance technology
There are several business challenges that established insurers are facing as they try to meet new customer needs while improving core insurance functions. A specific focus on insurance technology, or "InsurTech," has emerged to help insurers solve these challenges.
Explore ways to leverage and incorporate technology into your growth strategy to discover emerging coverage needs and risks that require new insurance products and services.
(Photo: iStock)
|2. Artificial intelligence
The initial impact of artificial intelligence (AI) primarily relates to improving efficiencies and automating existing customer-facing, underwriting and claims processes. Over time, its impact will be more profound; it will identify, assess and underwrite emerging risks and identify new revenue sources.
Organizations should consider taking specific steps to incorporate AI techniques within a broader data science group, such as building a pilot of your AI process using existing vendor tools or open source tools.
(Photo: Shutterstock)
3. Cyber insurance
Cyber is a potentially huge but still largely untapped opportunity for insurers and reinsurers. It's estimated that annual gross written premiums will increase from around $2.5 billion today to $7.5 billion by the end of the decade. However, wariness of cyber risk is widespread. Many insurers don't want to cover it at all, others have set limits below the levels their clients seek, and some have imposed restrictive exclusions and conditions.
There are several ways insurers, reinsurers and brokers could put cyber insurance on a more sustainable footing and take advantage of the opportunities for profitable growth, such as sharing data more effectively.
(Photo: iStock)
|4. Aging workforce
The insurance industry is facing a looming crisis with a rapidly aging workforce. According to the U.S. Bureau of Labor Statistics, the number of insurance professionals aged 55 years and older has increased 74 percent in the last 10 years; by 2018, a quarter of insurance industry employees will be within five to 10 years of retirement.
Most U.S. employers are woefully unprepared for the business realities of an aging workforce. Companies that effectively recruit, train and develop dedicated future staff and leaders will differentiate themselves and set themselves up for success into the future.
(Photo: iStock)
|5. Industry M&A activity
Inbound foreign investment — especially from Japan and China — is expected to continue fueling U.S. merger and acquisition (M&A) activity. Private equity will remain an important player in the deals market, not least because it has expanded its targets beyond brokers to the industry as a whole. The need to eliminate costs in order to grow the bottom line will remain a primary economic driver of consolidation.
(Photo: iStock)
|6. Model risk management
One of the fastest growing concerns on insurers' enterprise risk agenda is model risk management, which has become a major focus of regulators and the subject of intense activity and debate at insurers. Generating measurable business value is model risk management's next developmental stage.
Models are among insurers' greatest assets. Putting models and the data that feeds them at the center of value creation can provide new perspectives that better address customer expectations.
(Photo: iStock)
|7. Insurance taxation
There are several proposed legislative changes that could significantly impact the insurance industry as the U.S. leadership endures change. Election-year politics are dominating legislative action this year as both parties lay down policy agendas for 2017 and beyond. At the same time, President-elect Donald Trump and the Republican-controlled Congress are expected to generate controversy with their tax proposals.
All companies — regardless of scale — need to ensure that their capital and operating spend aligns with their strategy and capabilities and the ways they choose to differentiate themselves in the market. Keeping a close eye on these evolving industry issues will aid to your organization's competitive edge. In this transformative time, the ones that can't or won't do these will fall increasingly behind the market leaders.
Jamie Yoder is the global insurance advisory leader for PricewaterhouseCoopers, and has more than 20 years of consulting experience for leading U.S. and international companies in the insurance and financial services sectors. He can be reached at [email protected].
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