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Practice Management > Building Your Business

What do insurance executives expect from the market in 2015?

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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.

Perhaps a byproduct of insurers signaling they mostly do not plan to drive revenue growth through new products, “product synergies” fell as an M&A driver to 15 percent compared to 29 percent last year. In line with insurers’ concerns about adapting to regulations, “regulatory changes/pressures” shot to the top of the list of M&A drivers for 2014.


Much of the M&A growth, KPMG says, has occurred on the life side. “On the life side, most M&A is being used to acquire investment management capabilities to meet the needs of baby boomer retirees,” KPMG says.

Sticking with its theme of evolution vs. revolution, KPMG adds, “The evolutionary theme rings true in M&A, given its current dominant drivers. Overall, companies are using M&A to bring traditional products — or at least, a traditional way of doing business — to new markets and geographies and to respond to new regulations. New and better use of technology, which promises to be the underpinning of a new way of doing business, is, for the moment, a secondary driver.”

This is not true among reinsurers, though, KPMG notes, where technology was a key driver.


Tech-investment strategies have changed in 2014 compared to last year’s survey. Perhaps in recognition of a changing consumer landscape, investment in “customer growth/service” takes over the top spot, up from third last year, while “IT infrastructure” was seen as less critical.

However, even for customer growth, the actual percentage of respondents citing this as highest priority dropped compared to last year, as did the percentage of respondents mentioning “data/predictive analytics,” “risk modeling and analysis,” “cloud computing” and “forecasting capabilities.”


Insurers’ talent-management strategies are diverse in 2014, but with some shifting priorities compared to 2013. For example, “development/training” grew in importance this year, to 52 percent compared to 31 percent, while rewards/compensation fell from 32 percent to 19 percent. 

Executives appear to feel they have a good handle on what employees want, as the percentage of respondents citing “engagement/communication” as a key area of focus dropped to 4 percent from 25 percent last year.

Noting the diversity among insurers’ priorities in this area, Hay says, “There is no single pattern for reinvention right now. Companies are all over the place. But you have to start somewhere.”

KPMG notes that while recruiting talent is a key challenge in the industry, executives are not necessarily prioritizing it. “Among our survey respondents, talent is an issue, but it is clearly not the most pressing issue,” KPMG says. The firm adds, “Of all the segments, only reinsurance appears to be putting talent on the top of its lists of concerns.”


Management teams appear more willing to shift from cutting costs to investing in their businesses. “Significant investment in organic growth” overtook “staying ahead of or navigating significant changes in the regulatory environment” in 2014 as the top priority.

Furthermore, the number of respondents citing “significant cost reduction initiatives” fell to 2 percent compared to 13 percent last year.


Carriers appear to be keeping their attention on improving underwriting, pricing and distribution, with 43 percent citing this as a key area of focus, the highest response. It was the highest response in 2013 as well.

Says KPMG: “Respondents’ attitudes about operational improvements and ERM — prioritizing business-as-usual initiatives for organic growth, regulatory compliance, underwriting, and cost reduction — capture the disparity between where the industry is now and where it ultimately needs to go. That is because legacy systems, along with “legacy thinking,” represent that largest roadblock to next-generation business models.”

As noted throughout its analysis, KPMG would prefer to see faster adaptation and change within the industry. As such, the firm included its thoughts on how insurers should begin a “revolution,” rather than “evolution”:



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