Boston — Mired in a soft market and unable to differentiate themselves by further slashing prices, carriers have no choice but to invest. That was the message delivered by David West, research area director, insurance, for Needham, Mass.-based TowerGroup Inc. at the company’s 2008 Financial Services Business & Technology conference. West said that in lieu of cutting rates, increasing the ease of interactions with customers and agents was now the primary way to improve one’s competitive position in the market.
“Price competition is not sustainable,” he said. “Therefore, insurers should improve the ease of doing business.”
The only way to do this, West said, was to modernize core systems and to invest in analytics to optimize performance. “The use of analytics by marketing departments to develop greater customers intelligence will rise,” he said. “Improved customer intelligence is a mutual value asset.”
West also identified underwriting as an area where carriers can make wise investments. He said use of next-generation, collaborative underwriting systems can improve agency carrier relationships, and their adoption rate is expected to rise over the next three to five years.
Underwriting also was discussed, as West addressed the credit crisis, noting that the insurance industry’s immunity from the crisis was beginning to disappear. “The credit crisis is real and it will affect carriers,” he said. “Its source was a moral hazard that needs to be underwritten against.”
West said consumers became indifferent to loss, partially because of the existence of insurance. Likewise, lenders armed with the knowledge that their loans were backed by mortgage insurance didn’t care about underwriting.
“Mortgage brokers are focused on loans, not underwriting,” he said. “The problem still persists.”
West also claimed other macroeconomic effects will touch insurers. Higher fuel costs will reduce the number of miles people drive, therefore reducing accident rates. However, tough economic times tend to give rise to incidents of fraud. Insurance companies need to be to ready for everything from the mundane, such as the padding of claims, to rising instances of self-inflicted arson, where vehicle or homeowners behind on payments burn their possessions in order to escape future payments and pocket insurance money.
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