Faced with continued economic, competitive and regulatory challenges, P&C insurers are taking advantage of opportunities to improve underwriting discipline, drive operating efficiencies and leverage data and enhanced analytics to sustain growth and gain a performance advantage, according to Ernst & Young LLP’s recently released “2014 US Property-Casualty Insurance Outlook.”
Shifting external forces and stronger international operating fundamentals will characterize the 2014 P&C insurance market in the United States, according to Ernst & Young, a global provider of assurance, tax, transaction and advisory services. These evolving forces include the economic environment, interest rate conditions, the industry’s capital position and its effect on competition, and the pace of technological change.
Other pressures include the increasing empowerment and marketplace expectations of the consumer, the stricter regulatory environment and the increasing frequency and volatility of catastrophes. These forces are expected to have an even greater impact in 2014 on the performance opportunities for U.S. P&C insurers and on their strategic decisions, according to the report.
"Successful companies are in various stages of implementing a customer-centric business model that integrates internal technology to reach consumers," says David Hollander, principal at Ernst & Young and a global insurance advisory leader at the firm.
"As closer alignment of technology with commercial objectives becomes a strategic imperative, insurers have an opportunity to invest in cost-effective systems for distribution, underwriting, product development and claims,” Hollander says. “Such investments can improve profitability in an increasingly price-competitive environment."
The consulting firm said U.S. P&C insurers need to focus on several important areas to protect their margins and improve operating efficiencies in the coming year.
Ernst & Young’s recommended technology initiatives:
- Broadly transform technology, including the replacement of core systems with integrated, cost-effective cloud-based systems, and improving operating capabilities. Improvement in the industry's core financial performance is being driven by a re-emergence of pricing and underwriting discipline, the firm says.
- Adopt a complete range of “enterprise data excellence.” Insurers that improve data management and embrace the concept of enterprise data excellence will outperform their competitors in 2014 and beyond, the report says. This requires investing in common enterprise intelligence standards and policies, and enhanced predictive analytics to optimize risk and capital analysis.
- Invest in innovative product development processes and delivery to meet the rising demand for protection. As new risks and insurance needs emerge for consumers and the commercial marketplace, insurers need to deploy technology to enhance product offerings and customer-centric processes.
- Prepare for escalation of governance and accountability. Regulatory pressures such as solvency-focused initiatives, accounting changes and federal oversight continue to add layers of complexity and uncertainty. The burdens of regulatory change will affect how companies organize data, choose technologies and implement processes, the report says.
“Best performing companies are taking steps beyond pricing and underwriting discipline, leveraging data and enhanced analytics to refine their market segmentation strategies across all lines,” E&Y said in the report. “Such insurers have seized regional and sector growth opportunities domestically and globally. They are also leveraging technology to improve distribution and operating efficiencies and to achieve greater access to consumers and the commercial marketplace.”
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