US insurers should be thinking about the transformational steps and technology solutions they can deploy to raise their game for long-term growth, according to two insurance-focused 2014 outlook reports released by the Deloitte Center for Financial Services. An increasing focus on smartphone applications, aggregated data bureaus and the use of telematics by smaller carriers are all examples of technology innovation that will be increasingly used by the industry in the year ahead, according to the outlooks.
"Rather than wait for a rising economic tide to provide lift, insurers should consider transforming the ways they do business to compete more effectively," said Gary Shaw, vice chairman, Deloitte LLP, and the national sector leader of Deloitte's insurance group. "Regardless of the emerging favourable market conditions, insurers face a full host of challenges. We anticipate a growing number of organisations will re-evaluate their business models to more effectively compete in today's marketplace."
One of the two Deloitte reports focuses on the outlook for the property and casualty sector and the other highlights challenges for the life insurance and annuity space.
According to Deloitte, "many property and casualty insurers can look back at the past year and breathe a sigh of relief" as 2014 begins. "The economy continued its slow but steady growth, premium volume rose and catastrophe losses were relatively modest, leaving the industry's capital position at record levels. Yet insurers face significant challenges to adapt to evolving consumer demands, incorporate new data sources and cope with an uncertain regulatory environment." Similarly, life insurers and annuity writers "have begun to realize they must initiate more fundamental changes in their business models to generate sustainable growth."
Among the biggest trends:
Technology can level the playing field as carriers cope with data challenges
Technology upgrades will be priorities for insurers in 2014, according to the outlooks. Overall, organisations that have up until now made ad-hoc, shorter-term adjustments "should be considering how a bolder investment in more transformational upgrades might better position their companies to remain competitive not just in 2014, but for the remainder of the decade."
In particular, digital strategies that more closely engage policyholders and improve customer experience are no longer aspirations, but necessities in a mobile-driven culture and economy. The outlook also contends that more sophisticated smartphone apps and aggregated data bureaus will level the playing field for smaller-sized insurers and challenge bigger carriers to raise their game and differentiate their brands on usage-based insurance. Likewise, mobile technology may transform the sales process as well in terms of better educating the public about product features. Meanwhile, more carriers will likely be upgrading their straight-through underwriting and pricing capabilities to sell small-business coverage direct to consumers or protect their marketshare against those who do.
"There are usually tactical steps insurers could take to make a short-term course correction, and tweaks can often be implemented to adjust systems and processes," Shaw added. "But to capitalize on emerging opportunities instead of being undermined by the disruptive changes likely to alter the competitive landscape, top insurance executives should be more predisposed towards bigger-picture innovations."
Regulatory uncertainty leaves insurers in a holding pattern.
Regulatory uncertainty will continue to be the norm in 2014, with several key decisions looming and the recent release of the Federal Insurance Office's(FIO) report on how oversight of the industry could be modernized still reverberating around the sector. According to Howard Mills, chief advisor, insurance industry group, Deloitte LLP, the FIO report is a challenge to state regulation in some respects, but "it is not likely an immediate threat to state supremacy overall.
Most of FIO's recommendations require Congressional action, which is not expected anytime soon, or are a call to the states to make changes, which FIO cannot now compel. "The bottom line is that there is likely to be little immediate impact, but rather continued uncertainty over a slowly evolving regulatory landscape shaped by how the states and federal government interact."
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