Chicago — Like a dismasted ship emerging from a storm battered but still afloat, the insurance industry is looking ahead to 2009, but not free from the ill effects of the preceding year.

In a Webinar unveiling the top 10 trends for 2009, subtitled “Adventures in Survival,” Rachel Alt-Simmons and Karen Pauli, research directors in the insurance practice at Needham, Mass.-based TowerGroup Inc. said while the industry as a whole is sound, the challenges are large.

“The global impact of this crisis will continue to impact profitability, rating and the future business models of insurance companies in 2009 and the years to come,” Alt-Simmons said.

Pauli, who covers the property/casualty sector, said last year’s primary objectives for insurers, attaining profitable growth and competitive advantage have been supplanted.

“2009 will really put pressure on insurers to do things in a different way—to let go of traditional thinking and bring on new thinking,” she said, noting that P&C premium growth in the United States has dropped significantly. “We’re looking at severe deficiency in premium growth.”

The blame for this lay in a “perfect storm” of macroeconomic factors, including high oil prices, increasing bankruptcies, rising foreclosure rates and dropping house values, Pauli said.

Recent drops in crude oil prices and government intervention will do little to lessen the sting, she said. “The damage is done. It has impacted personal lines in terms of new business, and has impacted commercial lines in terms of housing trades no longer needing insurance.”

Accordingly, Pauli said carriers must take immediate measures to shore up risk management. “Enterprise risk management and governance are absolutely critical in this environment,” she said. “Predictive analytics and data management are no longer nice to have—they are a corporate imperative.”

Pauli went on to say that there are signs the soft market may be beginning to abate, and that carriers need to alter their investment strategies and prepare to capitalize.

“We’re expecting that carriers that want to succeed in the market will adjust their products and pricing using predictive analytics,” she said. 

Likewise, on the life and annuities side, Alt-Simmons expects to see better ERM practices and governance as a result of the well-chronicled travails of the past year.

“Insurance companies such as AIG took on risks that they did not fully understand,” she said. “It’s going to be about getting a better handle on the data needed to better risk management within the organization, enabling better and smarter analytics and more transparent and compliant processes.”

Yet, Alt-Simmons acknowledged this is no mean feat, especially for large insurers, where silos can frustrate the most earnest attempts at enterprise risk management.

“Increased complexity in the insurance company business model, product lines and expanding geographic scope creates new challenges in identifying risk interdependencies across an insurance organization,” she said, noting that European insurers are tending outshine their American counterparts in ERM because of their preparatory work for coming Solvency II regulations.  

Pauli, too, stressed the need for insurers to take an enterprisewide view when assessing the risks facing them.

“I don’t know that any insurance executive alive today has had to manage such a complex set of business issues,” she said. “They are interrelated, and must be dealt with holistically.”

Source: TowerGroup Inc.

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