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Insurers will need to be innovative in all areas of business during the coming year, which will continue a trend of disruptive change, according to Ernst & Young’s (EY, New York) newly published 2016 EY US property/casualty insurance outlook.
“Economic growth remains slow, regulatory pressures such as the Department of Labor fiduciary rule and systemically important financial institutions rules continue to intensify, competitive pressures from new entrants from other sectors and markets around the world abound, and technology has created refined distribution channels and risk-pricing approaches,” comments David Hollander, principal, Ernst & Young LLP, and EY Global Insurance Advisory leader. “A customer and digitally centric business model is essential to reduce costs and offer lifetime value for end customers and channel partners alike.”
EY recommends that US P&C insurance companies should focus on the following eight areas in 2016 to remain industry leaders:
- Position organizations for digital leadership. As digital service models become more common in retail and other industries, the property/casualty industry will need to further align with customers’ expectations. New technologies, such as mobility, social media, telematics and the Internet of Things, will continue to disrupt all parts of the industry, from client acquisition to claims to servicing. Insurers will need to lay the groundwork for digital transformation, build a back office to support digital platforms, and start new initiatives such as next-generation portals, customer experience and data access.
- Prepare for the next wave of M&A activity. The M&A surge from 2015 is expected to continue in 2016 as acquirers, particularly Asian buyers, seek access to US markets to build scale. Insurers will need to establish a well-defined process for post-merger integration to remove cost redundancies and inefficiencies. Those that refrain from M&A activity will need to focus on recruiting human capital and accessing distribution that provides high-retention, profitable business to compete against larger, better-capitalized companies.
- Create a culture of continuous innovation. Insurers will need to shed their conservative orientation and cultivate a culture of innovation to remain relevant in changing times. They should explore new technologies and models used by startups and make innovation a top strategic priority, changing metrics, celebrating controlled failure and rewarding collaboration in ways that do not exist today.
- Shift from a product to a service orientation. Insurers will want to enhance their service capabilities while developing products that can serve new customer needs and behaviors. Insurers should also take a more value-added, advisory approach, carefully analyzing their customers’ risks and developing risk-mitigation strategies and insurance coverage tailored to their needs, typically in more of lifetime value or even pay-as-you live-and-change model.
- Build a next-generation distribution platform. Consumers want the same flexibility to learn, compare, purchase and report a claim as they have become accustomed to in other industries. Insurers will need to streamline costly and duplicative infrastructure, consider acquiring captive distribution to add customers and boost business, and rethink compensation plans for distributors, including changing level-commission compensation standards in favor of greater upfront cash payments that reward access to new profitable customers.
- Improve performance through analytics. Harnessing large volumes of data from real-time sources can help insurers develop new products and refine pricing strategies. Insurers should apply proven analytics to the homeowners market to understand and price risks and use analytics to manage commercial market risks. Data scientists and actuarial skills are indeed complimentary when targeted at strategic business issues.
- Develop the right talent to lead change. Insurers need to be proactive in recruiting and retaining innovators and leaders, while providing existing teams with new skills required to succeed. In addition, insurers will need to develop expertise in health, wealth and risk advisory skills so they can bundle products and provide services to meet their customers’ changing risk needs and expectations.
- Make risk management a C-suite priority. With a more complex and volatile landscape for insurance firms, risk managers are being held accountable for improved financial performance and value creation. Insurers will need to stay current on changing regulatory frameworks, communicate the issues that will affect the industry and respond to changes as they emerge. They also will need to watch for emerging risks, such as cyber-attacks, and prepare for natural or man-made catastrophe losses. Even with another benign natural catastrophe year, cyber is emerging as both an opportunity and a very real threat to profitability and predictability.