NU Online News Service, Feb. 12, 9:40 a.m. – Insurance industry executives should refocus their efforts on their core business to return to higher profitability, says a new report by the national insurance practice of Deloitte & Touche L.L.P. in New York.
Deloitte & Touche suggests that the keys to success for insurance companies over the next several months are in their use of extended enterprises, improved underwriting techniques and strategic cost reduction.
When markets were booming in the late 1990s, “insurance firms were more intent on generating returns from managing assets than earning premiums from assuming risk,” says Owen Ryan, national managing partner of Deloitte & Touche’s insurance practice. “The economic changes of the last two years have called this strategy into question.”
The Deloitte firm also suggests that insurers divest lines of business that don’t support their core strategy, reduce their underwriting losses through the use of predictive modeling techniques and implement long-term and sustainable cost reduction beyond quick, one-time savings.
“Data mining and predictive modeling can dramatically improve underwriting performance compared to traditional methods,” Ryan says. “By analyzing customer data, together with both internal and external databases, firms can move underwriting from the existing class-based risk selection to an assessment of the risks presented by each individual policyholder. These underwriting techniques identify risk exposures more specifically, which is the basis for more accurate pricing.”
Other issues identified by Deloitte & Touche that senior insurance executives should be focusing on during the next several months include allocating risk-adjusted capital.
Whether organizations are streamlining their business interests or simply redeploying existing capital, management must take steps to ensure that each individual business line generates competitive returns against the amount of capital allocated there, the company says. Employing methodologies that measure both the amount of and return on the capital allocated to each business line on a risk-adjusted basis is an essential step in this process, it says.
Winning and keeping customers should also be a focal point. Key to any back-to-basics approach will be a fresh focus on customers and securing a greater “share of wallet,” the report says.
Organizations have invested in a wide range of customer relationship management systems to help track activity. However, often the valuable customer data is fragmented across the different systems employed by each line of business, the report says. Management needs to leverage its investment by aggregating this customer relationship management data from the whole organization before they can begin to identify the most profitable customers and understand where future growth opportunities exist, Deloitte says.