Technology is the top challenge to successfully executing capital utilization plans in the next one to two years, according to a survey of chief financial officers recently conducted by Towers Watson, a professional services company.
The “Towers Watson’s North American P&C Insurance CFO Survey Program” concentrated on capital use and reserving in the P&C insurance market. Financial strength ranked as the primary driver of capital utilization decisions, according to 61 percent; taking advantage of opportunistic ventures placed a distant second with 30 percent, followed by market demand for products and channels, with 26 percent.
Top 5 Major challenges:
- Technology: 44 percent
- Data: 30 percent
- Resources: 30 percent
- Know how: 30 percent
- Timing 30 percent
Half of the CFOs said they plan to deploy capital in analytics, data or technology-related areas over the next year or two. Many also intend to invest in enhancing core systems and infrastructure in operational areas such as pricing, underwriting and product development.
“Companies are banking on operational excellence and competitiveness as worthy investments that will drive the bottom line,” said Alejandra Nolibos, director in Towers Watson’s P&C business. “The biggest hurdle? Technology. The focus on financial strength, however, seems to be supported by CFOs’ concerns about the risks inherent in loss reserves. They see reserve releases that may dry up soon and fear a turn in the relatively benign claim environment we’ve experienced in the last decade.”
Highlights from the survey:
- 70 percent of respondents expect the industry to exhaust any reserve redundancies within one to three years
- 40 percent said cautious initial reserving has been the top driver of industry reserve development over the past five years
- Almost 80 percent had favorable developments in their company’s carried reserves in the past five years
- Respondents said unexpected cost trends as the top driver in reserve development in the past five years, followed by conservative initial reserving
- Three quarters monitor runoff of reserves on a quarterly basis
- The work of internal actuaries is highly leveraged in informing management’s best estimate of liabilities
- Change in social/legislative/judicial environment and unexpected cost trends are the two major reserve risk factors respondents are most concerned with.
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