Thanks to a combination of improved pricing in motor and health in North America, weak economic growth in Latin America, and falling profitability for P&C insurers in the region overall, the non-life insurance market in the Americas is facing a low-growth, low-profitability conundrum, according to EY‘s US and Americas insurance outlook for 2019. To manage through these challenges, insurers are under pressure to innovate and remain competitive for the coming year and beyond.
“The industry around the globe is more active at reinventing itself than it has ever been. There is no complacency right now at all,” said David Hollander, EY’s global insurance leader. “The industry is absolutely pushing as hard as it can push, and the pace of work has never been greater.”
One of the goals of insurers is to improve near-term operating results, especially as the economic road ahead looks rocky with experts warning of recessionary times on the horizon, along with other serious risks.
“Clearly, profitability is not getting better, catastrophes aren’t magically going away – in fact, the opposite – [and] underwriting and pricing is not changing dramatically, so everything you can do to improve near-term results is vital, which includes core platform replacements and streamlining costs,” said Hollander.
Insurers need to also consider how to position themselves for success in terms of customers and products – do they need to deliver new solutions, which customer segments should they be targeting next, and how should they service those customers? In other words, at the same time as they’re trying to improve their current business, insurers are taking a hard look at where they need to be strategically to remain relevant with customers going forward, explained Hollander. This, alongside the need to reposition capital to ensure they’re prepared for the next economic downturn and long-term growth.
Innovation and staying ahead of the curve are critical as insurers batten down the hatches and equip themselves for the future. There’s no longer a question of whether an insurer should look at digital solutions or not.
“Digital is just a way of life – it’s a way of doing business,” said Hollander. “How each of these companies unlocks innovation in their particular company and how they tap into untapped resources, like the younger employees they have working in their company, is a huge priority.”
Meanwhile, the customer should be at the center of this evolution, which many insurance companies recognize as they focus more intensely on understanding the true intentions and needs of their clientele, and how a particular insurance carrier fits into that need.
In the midst of single-digit growth (at 2.6% in the Americas between 2012 and 2017, compared to 2.3% globally, according to EY’s report), and increased customer-centricity, insurers are looking over their shoulder at the competition. Any player that has trust from a customer is a competitor, and that includes technology companies that are going down the path of insurance-related offerings, Hollander told Insurance Business.
“While the industry is doing a lot, we still are not at the place where consumers say, I look for my bank or my insurance company first and that’s the organization I trust, as opposed to a technology provider,” he said, adding that insurance groups from overseas, like Anbang, bring their own threats to insurers on the other side of the pond. “As they begin to move throughout ASEAN countries, can they begin to export that? They have more data and more AI experience than any firm in the world. With their behavioral insight, can they take advantage of that and offer greater customer experience, offer greater insights into profitability and cross-selling and claims handling?”
When thinking about their transformation programs, IoT, artificial intelligence, and blockchain should be at the top of the list of buzzworthy technology, but so should new and improve platforms that help insurers do business better.
“Non-life carriers have to keep advancing the ball on modernization and getting rid of their technology debt. It’s going to be impossible to get out of your own way at some point if you don’t modernize and sunset these old legacy platforms. They’re clunky and they’re not what your current customers want,” said Ed Majkowski, EY’s Americas insurance advisory leader. “The companies that do go through the journey and get through a full modernization of the platforms they have, they are finding themselves in a competitive advantage. They’re positioned to move faster and can deal with all the things that we’ve just highlighted that they have to keep pushing themselves to do.”