Amid a changing landscape for insurers, carrier executives demonstrate an awareness of what’s to come from changing consumer demands and the progression of technology. But they seem content to slowly evolve to meet these challenges, rather than making drastic and immediate changes to their businesses.
KPMG revealed the results of its 2014 Insurance Industry Outlook Survey this week, explaining that insurers seem to prefer “evolution” over “revolution.” Laura J. Hay, national sector leader, insurance, however, says in the current environment, “evolution” is just too slow. “We firmly believe that those companies that defy the collective opinion of the industry will give themselves a clear competitive advantage. It all comes down to the pace of change.”
Hay says in the survey’s foreword, “Over and over — in their views on growth drivers, planned investment, M&A, talent, operations, enterprise risk management (ERM), and data analytics — respondents revealed their awareness that a next-generation insurance industry is coming, with customer centricity, new products, and new distribution channels, all enabled by new technology and tech-savvy talent, but they also revealed their unwillingness or inability to implement that change now.”
She adds carrier executives appear to be more focused on taking care of the business they currently have and preparing for “a flood of new regulations.”
On the following pages, see the results of KPMG’s wide-ranging survey, which polled 95 senior U.S. executives (39 percent P&C, 24 percent reinsurance and 23 percent life).
All charts and graphics are from KPMG.
Insurers remain concerned about what’s going on in Washington. While the format of the question changed in 2014 to 2013, regulations and politics remained the top choice for potential threats to insurers’ business models.
However, concerns are spread around a bit more in 2014. Last year, “Political/regulatory uncertainty” received a whopping 58 percent of the responses, well ahead of any other response (“losing share to lower-cost producers” placed second at 32 percent). This year, with slightly different wording, respondents chose “Impact of new regulations/legislation” as their chief concern, but only 34 percent said so.
Aside from the top-three concerns listed above, “lack of job growth” (18 percent), “cyber threats” (17 percent) and “disruptive technologies” (11 percent) also received double-digit responses.
Interestingly, carriers seem more at peace with employees and consumers on the go, as those mentioning “customer/employee mobility” as a top concern shrank from 14 percent last year to 7 percent this year.
Even more than last year, insurers want a bigger slice of the pie within their existing footprint, according to their responses to how they plan to drive revenue growth. This may seem to be a cause for worry among carriers on the pricing front, as rate increases are already moderating (and evaporating altogether in some lines).
But carriers may be able to breathe at least a small sigh of relief as the number of respondents planning to drive revenue growth over the next three years through “stricter underwriting guidelines” also increased — from 16 percent in 2013 to 21 percent this year — and those citing “price increases” grew to 25 percent compared to 21 percent last year.
Interestingly, in a separate question about the top drivers of transformation for the insurance business over the next three years, 52 percent said “changes in customer focus, buying patterns and preferences,” the top response. Yet, for this question about revenue-growth drivers, just 18 percent chose “introduction of new products” to meet these changing preferences. This is down from 39 percent last year.
In recognition of shifting consumer demands, though, “new distribution channels” placed third for expected revenue drivers (29 percent, up from 27 percent in 2013). KPMG, though, says third is not high enough. The showing for new distribution channels and introduction of new products, KPMG says, means the “evolutionaries” rather than the revolutionaries “are firmly in charge.”
The number of respondents indicating a likelihood of executing a merger or acquisition jumped from 34% last year to 54% this year. Those saying they have no plans for M&A plummeting to 21 percent this year from 41 percent in 2013.