The property and casualty insurance industry has been experiencing disruptive changes in the last decade. A number of digital technologies have also been transforming the landscapes of the industry, changing consumer expectations and opening new doors to client acquisition.
The annual growth forecast for the United States is expected to be below 2.5%, which means the P/C insurance industry is expected to keep premiums steady or reduce rates in some cases in 2016 and beyond.
You’ll find that many in this industry are positioning their organizations to be prepared for digital leadership. As digital service models expand, consumer spending is expected to increase to $626 billion per year on e-commerce or m-commerce platforms. The property and casualty insurance industry will need mobility, social media foundations, and telematics to embrace the disruptive changes that are expected.
Setting Priorities for 2016 and Beyond
- Insurance carriers will need to continue making investments into back-office systems so they can enable the digital enterprise platforms that will be needed for future expansion.
- Redefining the customer experience through the use of faster data access, navigation ease, and other UX improvements will help potential clients be able to better understand their policies.
- Real-time risk monitoring will continue to rise, allowing insurers to tap into new data sources that will provide more accurate insurance policies for their clients.
- New distribution channels will need to be created to help transition the industry from its existing partnerships to the new digital partnerships it is going to need.
- Consolidations within the P/C insurance industry will require providers to create a well-defined process that will help them integrate into a new post-merger market, even if their organization is not part of the consolidation process.
- Self-service customer portals on digital platforms will make it easier for clients around the world to contact their preferred P/C industry professional.
- Mergers and acquisitions will help organizations be able to reach out to a greater potential customer base.
- M&A will also cause organizations within the property and casualty insurance industry to bunker down on their own clientele, protecting them against the threats of lower rates or greater coverage that consolidations may bring to the industry in the coming years.
The P/C insurance industry is adapting to change at its own pace, but that pace is quickening as more consumers prefer mobile platforms for their interactions. This is creating a surge in M&A activity because those who have already embraced the digital changes expected in the industry look to build up their scale of services and access within mature insurance markets like the United States. The value of M&A in Q3 2015 exceeded the value of all consolidation within the industry since 2007, so the ripple effect of this will continue to be felt in the coming years, which is why these look to be the priorities set for the next 5-10 years.
Innovation Will be the Key to Unlock Everything
- The rise of digital distribution channels will continue to encourage the development of usage-based insurance. The widespread availability of data and analytics will help to make this type of P/C insurance more available.
- New technologies and experimental models will need to be funded for traditional insurance providers to remain competitive within the changing industry. This includes offering cyber risk insurance, drone exposure insurance, or ride-sharing insurance.
- Internal competition will help to streamline organizations, as a growing asset base in a fast-moving environment will require fewer layers of bureaucracy to continue emphasizing innovation.
- As clients have more access to their own risk data, the P/C insurance industry will need to be more accurate with their risk forecasting in order to achieve growth.
- Service capabilities must be enhanced as product offerings are improved so that the changing needs and/or behaviors of their clients can be met.
- Product enhancements may even include risk advice as many clients in the property and casualty insurance industry are seeking information instead of insurance products from their traditional partnerships.
The organizations that can adapt to the changing environment are the ones that will be able to survive on their own in the next decade. To do this, everything is going to have to change. Instead of thinking outside the box, the P/C insurance industry is going to need to turn that box inside out. Bureaucracies must be stripped away. New services must be offered. Insurance products for changing client needs must be available. If these changes do not happen or they happen slowly as has been the industry standard for the last 10 years, then many providers are going to find themselves left behind by those who are willing to innovate.
The Challenge of Worker’s Compensation
- Because of the Affordable Care Act, more people are covered by health insurance and this may allow them to receive a better deal than their Worker’s Compensation package is able to provide.
- Return to Work policies are going to need to expand so that injured workers have the opportunity to perform transitional work or part-time work while recovering until they can return to their original job.
- Insurance providers and employers will need to have strong policies and procedures implemented to protect themselves against fraud that may be increasing as more people try to take advantage of the better benefits provided by modern Worker’s Compensation.
- Clients may be asked to perform more health and safety inspections throughout their workplace to help keep their P/C insurance industry costs in check.
- Employers will also be encouraged by industry professionals to hire appropriate employees for labor intensive or physically demanding jobs.
- To encourage this process, watch for property and casualty insurance professionals to offer reward programs to employers who are able to keep their costs below specific thresholds.
There will always be employees who try to defraud the system because being injured feels like a free paycheck, but that is changing with the return to work practices that are being developed. As alternative jobs are offered during recoveries and better access to medical care is available, workers may even decide to use medical claims instead of Worker’s Compensation claims to deal with an injury. This won’t take away the costs, but it will shift them to a different niche of the insurance industry and that could be beneficial for the P/C industry. Either way, a focus on worker health and safety will continue to increase in order to limit costs for all parties involved.
How Analytics Will Change Everything
- As large volumes of data can be harnessed within the P/C insurance industry, operating strategies and client-specific products will encourage a growth in underwriting profitability.
- Pricing transparency will become necessary as clients will be offered different policy options and have the ability to shop multiple providers for the best price possible.
- Avoiding duplicating costs during the underwriting process will require the addition of managing general agents who can utilize analytics to acquire customers, providing a boost to business opportunities.
- Compensation plans to distributors will be looked at more closely, with changes to commission compensation standards having an emphasis on up-front payments so finding new profits can be emphasized.
- Key Performance Indicators from the automobile and homeowners markets will transition into the property and casualty insurance markets so that meaningful metrics can be developed and compared using the analytics gathered to look for hidden pockets of profit that may exist.
- Analytics will also be used within the industry to help refine risk forecasting, allowing for more accuracy in the products offered, which will ultimately create more potential profits as each customer receives a customized insurance plan.
- A focus on analytics may also help to close the talent gap being experienced in the P/C insurance industry, as 3 out of 4 employed persons within the industry are age 35 or above.
- Analytics can also help industry professionals be able to identify new potential insurance markets that customers may need, much like what is happening with the cyber risk coverage options that have been developing over the past few years.
- Multiple channels of distribution will be developed based on the analytics provided, transitioning the industry away from the single trusted advisor who recommends insurance products.
The overall goal of the property and casualty insurance industry must be to reward innovation. There is no greater industry trend to focus upon. Innovation will bring fresh perspectives to the data that has already been collected. These perspectives, combined with a certain level of entrepreneurial talent, will help to develop new analytics and metrics that, in turn, will create meaningful KPIs. When this happens, new strategies to embrace customer needs will develop, new products will be developed, and the traditional product approaches will begin to fade away. These transitions started in 2015, will continue on through 2016 and beyond, and will create an exciting, if uncertain, time for the property and casualty insurance industry.