Insurance executives are concerned about negative effect pricing as well as regulatory and legislative pressures impacting their businesses’ growth, according to a recent
The audit, tax and advisory firm questioned 100 senior executives in the insurance industry (a number of lines of business) about challenges they currently face and expect to face in the coming year.
Executives most frequently cited pricing pressures (59 percent) and regulatory and legislative pressures (41 percent). In addition, 76 percent said they are concerned about the impact external factors, such as regulatory changes and the economy, will have on their companies' future.
And to address these challenges, insurers are focusing on merger and acquisition strategies. Nearly two-thirds (63 percent) of insurance executives say their companies will be involved in a merger or acquisition as a buyer or seller in the next two years – including 54 percent who say they'll be buyers. In addition, 70 percent of insurance executives indicate that their companies have significant cash on their balance sheets, with 30 percent saying the highest-priority use for that capital will be a strategic acquisition for their company, followed by 20 percent who say they will invest in technology.
Insurers were asked to name the highest-priority technology investment areas over the next two years:
IT infrastructure—49 percent
Administrative systems—37 percent
Data warehouses—25 percent
E-commerce—25 percent
Risk modeling—23 percent
Accounting systems—16 percent
Forecasting capabilities—15 percent
Cloud computing—12 percent
Other—3%
Grid computing—2%
When asked to identify the single initiative that company management will be spending its time and energy on in the next two years, 20 percent of executives in the KPMG survey cited "investing in organic growth," followed by "cost reduction initiatives" at 15 percent, and "navigating changes in the regulatory environment" at 12 percent. The respondents said increased federal oversight will have the biggest impact on their business, followed by convergence of insurance contract standards, accounting valuation and disclosure and shifting capital requirements.
"Regulatory reform is clearly at the top of the insurance agenda," said David Sherwood, head of KPMG's U.S. insurance regulatory group. "It is undoubtedly having a significant impact on the strategic decisions insurers are making, how they manage capital and their enterprise risk management processes. Increased federal oversight is a reality and a significant challenge for those insurers impacted."
