In the face of continued economic, competitive and regulatory challenges, US property-casualty insurers are seizing opportunities to improve underwriting discipline, drive operating efficiencies and leverage data and enhanced analytics to sustain growth and widen their performance advantage, according to EY's 2014 US Property-Casualty Insurance Outlook.
"Successful companies are in various stages of implementing a customer-centric business model that integrates internal technology to reach consumers," said David Hollander, principal, Ernst & Young, and EY Global Insurance Advisory leader. "As closer alignment of technology with commercial objectives becomes a strategic imperative, insurers have an opportunity to invest in cost-effective systems for distribution, underwriting, product development and claims. Such investments can improve profitability in an increasingly price-competitive environment."
EY believes that US property-casualty insurance companies must focus on these key areas to protect their margins and improve operating efficiencies in 2014:
Double down on broad-based, transformative technology with high ROI impact. In pursuing sustainable growth, insurers have a rare opportunity to broadly transform technology, replace core engines with integrated, cost-effective cloud-based systems, and improve operating capabilities. Improvement in the industry's core financial performance is being driven by a re-emergence of pricing and underwriting discipline.
Adopt a complete range of enterprise data excellence. Insurers that improve data management and embrace the concept of enterprise data excellence will outperform competitors in 2014 and beyond. This requires investing in common enterprise intelligence standards and policies, and enhanced predictive analytics to optimize risk and capital analysis.
Invest in innovation of product development processes and delivery to meet rising demand for protection. As new risks and insurance needs emerge for consumers and the commercial marketplace, many companies are employing technology to enhance product offerings and customer-centric processes. They are also exploring approaches to risk management and mitigation that will necessitate new talent to drive changes in thinking.
Exploit segment differences for targeted growth strategies. Companies that exploit global, geographic, product and demographic pockets of opportunity will be ahead of the curve in growth and bottom-line performance. Nevertheless, fragility in economic recovery and the competitive environment is affecting these market segments: specialty markets and excess/surplus lines, workers' compensation, regional variances in growth and underwriting, alternative market structures and merger and acquisition activity.
Get out in front of emerging investment challenges. Insurers are seeking to diversify investment exposure and increase yields by incrementally expanding equity positions and lowering correlated alternative investment vehicles. Volatile investment performance is pressuring effective balance sheet management, driving a greater need to manage risk and capital.
Prepare for escalation of governance and accountability. Regulatory pressures like solvency-focused initiatives, accounting changes and federal oversight continue to add layers of complexity and uncertainty. The burdens of regulatory change will affect how companies organize data, choose technologies and implement processes.
The complete Property-Casualty Insurance Industry 2014 Outlook report is at www.ey.com/insurance
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