Transforming Insurance Carriers

Insurers will need to make “transformational” changes to their business models and systems in order to stay ahead of the competition and boost their long-term growth.

Gary Shaw, U.S. insurance leader at the Deloitte Center for Financial Services, told Risk and Insurance® that a growing number of companies were already making wholesale changes to their claims, underwriting and pricing systems, rather than short-term tweaks.

Firms were also shaking up their marketing, distribution and finance functions – a trend he expects to gather pace in the future, said Shaw, who contributed to Deloitte’s 2014 Property & Casualty Insurance Industry Outlook.

“Insurers will be hard pressed to achieve more consistent and higher rates of growth if they count on external conditions, usually outside of their control, to increase their top and bottom lines,” he said.

“Rather than making superficial changes in their systems and business models, carriers should instead be thinking about taking more transformational steps to raise their game above the performance of competitors and the industry as a whole.”

Gary Shaw, U.S. insurance leader, Deloitte Center for Financial Services

Shaw also expects to see an emphasis on simplifying and reducing the length of the insurance cycle in order to improve customer satisfaction and to establish more direct access to the customer.

He added that greater integration of capital allocation, business processes, technology infrastructure and personnel management strategies were required across the board.

“To win the information arms race,” he said, “carriers are being challenged to upgrade their data management and predictive modeling capabilities in underwriting, pricing, and claims, while grappling with a host of related technological and liability challenges along the way.”

Insurance Information Institute President Robert Hartwig told R&I that many of the core transformations that need to be made by insurers will be driven by technology, for both sales and distribution, and advanced analytics.

“At the individual carrier level, many insurers are still grappling with legacy systems and need to make additional investments to integrate and upgrade those systems before they can take full advantage of the latest in sales, underwriting and analytics technologies,” he said.

A Host of Challenges

Deloitte’s outlook report said that, despite the insurance industry finishing 2013 in a record capital position, insurers face a host of challenges to meet evolving consumer demands and to incorporate new data sources, all within an increasingly uncertain regulatory environment.

Furthermore, the report found that digital strategies need to more closely engage with policyholders and improve customer experience, while mobile technology can be used to increasingly transform the sales process through improved education around product features.

Shaw said: “To capitalize on emerging opportunities instead of being undermined by the disruptive changes likely to alter the competitive landscape, top insurance executives should be more predisposed towards bigger-picture innovations.”

Meanwhile, the report also stated that the Federal Insurance Office had direct authority to enter into “covered agreements” with major reinsurance trading partner countries.

The Reinsurance Association of America’s President Frank Nutter told R&I that this represented a “significant opportunity” to align a system of cross-border reinsurance in order to produce efficiencies and enhance capacity both for the United States and its trading partners.

Howard Mills, Deloitte’s insurance industry group director and chief adviser, said: “The overriding goal is for insurers to integrate risk management into decision-making at all levels of the enterprise, and for regulators to be able to confirm that there are no regulatory gaps that could threaten a company, a group, or the entire financial system.”

Sam Friedman, Deloitte’s insurance research leader and primary author of the outlook report, said one of the key challenges for insurers was maintaining positive growth in a sluggish economy.

“Carriers will be looking to differentiate themselves by developing new products for underserved markets (such as cyber liability), testing new distribution systems (such as selling small-business insurance direct to consumers), and making themselves more relevant in the everyday lives of their policyholders (perhaps through the creative use of mobile apps),” he said.

Shaw concluded: “Rather than wait for a rising economic tide to provide lift, insurers should consider transforming the ways they do business to compete more effectively. Regardless of the emerging favorable market conditions, insurers face a full host of challenges. We anticipate a growing number of organizations will re-evaluate their business models to more effectively compete in today’s marketplace.”