Anticipating, quickly adapting to change critical to insurers’ future success

“Expect the unexpected” should be the mantra for insurance CEOs facing a new era of “stable instability,” note findings from a survey and report released this week by PwC.

“Risks that once seemed improbable and even remote have become the norm and for CEOs across the world, ‘expect the unexpected,’” recommends Coming to grips with market transformation, key findings in the insurance industry based on PwC’s 16^th annual global CEO survey.

PwC polled 1,330 CEOs in 68 countries and spoke face-to-face with another 33 CEOs; the insurance report is a summary of key findings, based on interviews with 92 insurance CEOs in 39 countries.

The report suggests the key to strength in the future will be to build organizations that are agile, adaptable and capable of coping with disruption. “The speed at which insurers are able to anticipate and adapt to change, rather than simply reacting to events, will be a key differentiator in the transformation ahead,” PwC notes.

“Insurers that can realize their potential will be able to offer more responsive policies for less and increase market share while maintaining profitability. Businesses that fail to respond could find themselves priced out of the market, falling short of customer expectations and under threat from aggressive new entrants,” the report adds.

The industry is facing significant challenges and opportunities, notes the report. “The insurers that come out on top will focus keenly on the customer and have a superior capacity for innovation and reinvention.”

PwC points to evidence of the beginnings of a transformation in customer expectations of products and service – how insurers design, underwrite and sell them. In all, 86% of respondents plan to increase investment in technology over the next 12 months, more than any other commercial sector in the survey.

Despite some positives, findings raise questions about whether or not insurers are moving quickly enough to keep pace, with only 16% anticipating the fundamental strategic shifts they may need to make.

Other survey findings include the following:

• 58% of industry leaders report being concerned about the shift in consumer spending on insurance products and related behaviour, a significantly higher proportion than in banking (50%) and asset management (44%);
• more than 80% of insurance CEOs believe that risk should be factored into performance evaluation and pay;
• more than 60% of survey respondents are looking at how to strengthen their culture of ethical behaviour; and
• more than 80% of industry leaders targeting for expansion all regions of Asia, other than Central Asia.

With growth slowing in mature markets, “many CEOs see greater potential in the still largely under-penetrated emerging markets of South America, Asia, Africa and the Middle East [SAAME],” notes the report. Still, “as more and more trade goes between the SAAME economies and misses the West altogether, there is also a risk that some Western insurers will find themselves left out of the loop.”

Add to this the fact that moving to “new and unfamiliar markets is opening up insurers to risks about which they have virtually not data.” As an example, the report cites the $12 billion losses from the Thai floods two years ago, prominently from supply chain and business interruption claims from other countries.

There is optimism, with almost 90% of industry leaders at least reasonably confident about revenue growth over both the next 12 months and the next three years. However, “commercial potential is also attracting more competition, both from within and without the financial services sector,” the report adds.

The 92 insurance CEOs surveyed were asked about their top three investment priorities over the next 12 months. Among the responses were the following: 71 noted growing your customer base; 59 mentioned enhancing customer service; 52 cited improving operational effectiveness; 32 pointed to implementing new technology; 28 noted filling talent gaps; 26 cited new M&A/joint ventures/strategic alliances; and 14 mentioned research and development, and innovation.