More Related Content Similar to 2015 Insurance Industry Outlook (20) More from Deloitte United States (20) 2015 Insurance Industry Outlook2. 2 Copyright © 2014 Deloitte Development LLC. All rights reserved.Deloitte Center for Financial Services | 2015 Insurance industry outlooks | @DeloitteFinSvcs
Contents
Big Picture Trends 3
Cross industry trends 4
P&C challenges 12
L&A challenges 14
Next steps 16
Download 17
Contacts 21
3. 3 Copyright © 2014 Deloitte Development LLC. All rights reserved.Deloitte Center for Financial Services | 2015 Insurance industry outlooks | @DeloitteFinSvcs
Despite continued micro- and macroeconomic fluctuations, huge opportunities
exist to grow business, and make it more profitable and sustainable
• Achieving information
fluency
• Overcoming regulatory
challenges
• Upgrading capital
management
• Getting ahead of
climate change
• Alternative capital
• Transforming for
growth
• Tackling longevity
risks
Cross
industry
Trends Trends
Big Picture Trends
Property & Casualty
Insurance
Life Insurance
& Annuity
Trends
4. 4 Copyright © 2014 Deloitte Development LLC. All rights reserved.Deloitte Center for Financial Services | 2015 Insurance industry outlooks | @DeloitteFinSvcs
An Integrated Capital
Management
Framework
A risk-adjusted capital
adequacy framework capable
of responding to the capital
management requirements of
varied external and internal
stakeholders
Regulatory
Framework
Enhancements
Stricter Rating
Agency Capital
Models
More Predictive
Internal Economic
Capital Models
An integrated risk-adjusted capital
adequacy framework will allow
carriers
Conduct a thorough bottom-up analysis
of their risks by product line and risk
type
Enhance transparency and consistency
in pricing and underwriting
Meet the demands for more robust
stress testing and scenario planning
Cleary articulate how capital is viewed
and optimized, enabling better
collaboration between various functions
Make more accurate and informed
executive and business decisions
Insurers look to integrate internal, external capital frameworks for more
effective decision-making
Implementation would require a multi-pronged effort, involving technology and advanced
analytics, holistic capital management processes, talent management, and an enabling
governance mechanism
Cross industry: Upgrading capital management
5. 5 Copyright © 2014 Deloitte Development LLC. All rights reserved.Deloitte Center for Financial Services | 2015 Insurance industry outlooks | @DeloitteFinSvcs
• ORSA integrates capital, governance, strategy and risk-based decision making
• Captives are receiving closer scrutiny
• Corporate governance standards are being enhanced
• Group supervision, primarily through supervisory colleges, now supplementing traditional
legal entity supervision
• Holding companies being examined in more detail, including non-insurance segments
• Group capital standards are emerging
• Increased focus on consumer protection, such as with ULSG illustrations
• New focus on cybersecurity practices
Governance
Strategy
Capital Risk Management
US state regulators are enhancing their regulatory regimes
Cross industry: Evolving regulatory standards
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Evaluation and feedback loop
Section 1 Section 2 Group risk capital and
prospective solvency
assessment
Assessment of
Risk Exposures
Risk management
framework
Evaluation and feedback loop
Section 1 Section 2 Section 3
Capital forecasting
and prospective
solvency assessment
Risk reporting and
communication
Risk culture and
governance
structures
Risk monitoring
methods
and controls
Risk identification
and categorization
Group risk capital
adequacy
determination,
approaches and
assessment
Stress testing
methodologies and
documentation
Qualitative
risk assessment
Quantitative
risk assessment/
economic capital
modelling
Scenario development
and analysis
Model validation and
calibration
Risk prioritization
and assessment
tools
Risk appetite,
tolerances and
limits
Risk policies,
procedures, and
programs
Board of Directors
oversight
Integrating capital
management into
decision-making“(Use
Test”)
11
Now in effect, ORSA might be a filing but it is ultimately a risk and capital
decision making process
Cross industry: Own Risk and Solvency
Assessment
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• Focus has been on life insurer use of affiliated captives, but
broadening to captive use in general, especially offshore
captives, with concerns about opacity cited
• NAIC engaged consultant to provide report on way forward
• Revised Rector Report presented at NAIC summer meeting
• NAIC adopted recommendations over New York and
California objections
• Expected increase in transparency and focus on capital
quality
• Despite NAIC moves, concerns have been raised by the FIO,
Federal Reserve
• Federal Office of Financial Research (OFR) highlighted
captive use as a systemic risk in year-end 2014 report to
Congress
Insurers using some types of captives for reinsurance should prepare for
increased scrutiny, transparency, and possible changes in the cost of capital
Cross industry: Captives
8. 8 Copyright © 2014 Deloitte Development LLC. All rights reserved.Deloitte Center for Financial Services | 2015 Insurance industry outlooks | @DeloitteFinSvcs
Planned
effective
date is
2016
Model Act and
supporting
Model
Regulation
adopted at
NAIC 2014
summer
meeting
Provides a
structure to
promote
regulatory
oversight of
insurer
corporate
governance
Act should help
satisfy one
requirement of
the IMF in its
current FSAP of
the US
regulatory
system
Insurers
must report
annually to
regulators
Industry has
agreed to support
the Act if state
legislatures
ensure
confidentiality
protections are
maintained
Regulators add another qualitative measure to their toolbox
Cross industry: Corporate governance
9. 9 Copyright © 2014 Deloitte Development LLC. All rights reserved.Deloitte Center for Financial Services | 2015 Insurance industry outlooks | @DeloitteFinSvcs
18
Corporate Governance Model Act
The processes by
which the board of
directors, its
committees and senior
management provides
an appropriate level of
oversight to the critical
risk areas impacting
theinsurer’sbusiness
activities
The policies and
practices
directing senior
management
The policies
and practices
of its board of
directors and
significant
committees
Theinsurer’s
corporate
governance
framework and
structure
What insurers will need to tell
Cross industry: Corporate governance (cont.)
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First ORSA filing
Captive
oversight
Enhanced
consumer
protection
US Group Capital
Standards
Increased
Federal
involvement
Given continued
regulatory change, it
may be time for insurers
to consider the process
of compliance
transformation.
= In effect
= Moving forward
Cross industry: Current state of regulatory changes
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The potential payoff: Improved market competitiveness, enhanced customer relations, more
responsive and reliable compliance reporting, more insightful enterprise risk management and
decision-making, as well as enhanced business growth and a better bottom line.
Data
?
? ?
?
Knowledge RichInformation Rich
Data
Best Practices
Develop a blueprint
Assess process maturity
Identify data champions
Get executive buy-in
Identify pilot function –
align with strategic
priorities
Build and socialize data
governance
Ensure compliance
Insurer intelligence should be enhanced by an increasingly interconnected
world, but data barriers persist
Cross industry: Achieving information fluency
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Rising weather exposures offer opportunities for innovative new products
and risk management
39%
74%
65%
69%
0% 10% 20% 30% 40% 50% 60% 70% 80%
Have a climate change policy with respect to risk and
investment management
Have a process for identifying climate change-related
risks and assessing the degree to which it could affect its
business, including financial implications
Taken steps to encourage policyholders to reduce loses
inflicted by climate change-influenced events
Engaging consultants on climate change
NAIC Climate Risk Disclosure Survey Results
Insurers surveyed
0Source: California Department of Insurance, based on 2013 risk disclosure data on climate change collected in five states for National Association of
Insurance Commissioners (California, Connecticut, Minnesota, New York, and Washington).
0
US carrier involvement will likely grow: carriers can respond to mounting pressures by
launching their own initiatives, as well as contributing to industry-wide efforts already underway
or yet to come
P&C sector: Getting ahead of climate change
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An influx of funds from alternative investors expands P&C capacity and
undermines pricing leverage and profitably
The impact of alternative capital flowing into the p/c sector must be considered as part of an
insurer’soverallstrategic,operational,andcapitalmanagementplanning.Trendcouldspread
into casualty lines.
An influx of alternative capital
pressures insurers efforts to
generate higher RoE
Capital from sources like hedge funds launching
reinsurers and institutional and individual investors buying
catastrophe bonds in droves are increasing overall p/c
sector capacity
P&C sector: Alternative capital impact
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Insurers should rethink consumer approaches for more effective
marketing and sales
Insurers should reassess their products, distribution platforms, communication options, and
consumer outreach campaigns with the goal of connecting with and educating prospects more
effectively, particularly in reaching niche markets.
Multi-media effort to educate consumers
L&A sector: Transforming for growth
15. 15 Copyright © 2014 Deloitte Development LLC. All rights reserved.Deloitte Center for Financial Services | 2015 Insurance industry outlooks | @DeloitteFinSvcs
Half of respondents surveyed have
not saved enough to cover them
through retirement2
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
Survey
Respondents
40% say no matter how much they
save,itwon’tbeenoughtoprovide
sufficient retirement income2
10,000 Baby Boomers
will turn 65 every day
between now and 20301
10,000
Insurers explore designing, modeling, and distributing products and policies to benefit from a
potential uptick in demand for longevity coverage. However, potential downside risks over the
long term must be carefully considered.
Aging population, new regulations expand opportunities for guaranteed
lifetime income coverage
1Source: Pew Research Center
2Source:Deloitte’s“RetirementChallenge”survey
L&A: Tackling longevity risk
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Focus on what is in an insurer’s control, and that which will likely impact the
competitive position over the long haul, regardless of market conditions
Achieving information fluency: Calls for a comprehensive effort to widen access to data across an
organization and put the analytical tools and talent in place to make sense of it
Overcoming regulatory challenges: Better position to adapt more quickly and be more innovative to turn
threats into an opportunities
Upgrading capital management: Consider a cohesive game plan and operating model to better integrate
finance with risk management and business planning
Adapting to alternative capital influx: Brace for falling property-catastrophe rates; consider merger or
acquisition to cut excess capacity and grow market share; explore getting into securitization market.
Getting ahead of climate change: Launch individual initiatives, and contribute to industry-wide efforts already
underway or yet to come
Transforming for growth: Reassess products, distribution platforms, communication options, and consumer
outreach campaigns to connect and educate prospects more effectively
Tackling longevity risks: Explore design, models, and distribution of products and policies to benefit from a
likely uptick in demand for coverage, but carefully consider potential long-term downside risks
Insurers should reexamine the way they do business internally and externally through a
transformative lens-onethat’swideenoughtoallowthemtosynchronizeandcoordinatetheir
efforts across the organization.
Next steps
17. 17 Copyright © 2014 Deloitte Development LLC. All rights reserved.Deloitte Center for Financial Services | 2015 Insurance industry outlooks | @DeloitteFinSvcs
Our outlooks discuss big picture issues likely to have a significant effect
on consumer behavior and insurer operations in 2015 and beyond
Share your thoughts with us by tagging and following @DeloitteFinSvcs
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Download now: 2015 Insurance Industry Outlooks
18. 18 Copyright © 2014 Deloitte Development LLC. All rights reserved.Deloitte Center for Financial Services | 2015 Insurance industry outlooks | @DeloitteFinSvcs
Gary Shaw
Partner
National Insurance Leader
Deloitte LLP
gashaw@deloitte.com
Neal Baumann
National Insurance Consulting Leader
Deloitte Consulting LLP
nealbaumann@deloitte.com
Howard Mills
National Insurance Senior Advisor
Deloitte Services LP
howmills@deloitte.com
Sam Friedman
National Insurance Research Leader
Deloitte Center for Financial Services
Deloitte Services LP
samfriedman@deloitte.com
Contact info
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Editor's Notes --L&A insurers should think more creatively about how they market, design, and distribute their products, while becoming more customer-centric to excel in an increasingly technology-enabled, self-directed environment.
--A key component is to develop both precision around who the consumer is, and specificity with regard to their needs, while developing tailored, simplified, and perhaps more flexible niche products that correspond to those individual requirements.
--At the same time, customized delivery and service options should be offered that widen consumer choice while aligning with profitability expectations.
--To lay the groundwork, carriers should rethink how they communicate with potential prospects. Too often, those outside the business, such as media financial pundits, are defining the industry’s image and value, often to the detriment of insurers.
--Establishing more flexible and cost-effective business and operating models is table stakes for carriers not just to grow, but to survive in such a dynamic environment.
--For example, more life carriers are likely to explore direct-to-consumer options, particularly to target younger, lower-income, and other underserved segments.
--L&A carriers may also look to refocus marketing and advertising strategies to rebrand the business. Insurers should be portrayed not just as product sellers, but as a long-term partner on whom consumers can count to help them meet evolving financial needs over time.
--Life spans are increasing, while relatively few are covered by defined benefit pension plans, making long-term retirement income a prime consideration for consumers these days.
--These trends could make longevity risks one of the biggest growth opportunities for life and annuity writers, but being able to deliver such long-term guaranteed income products in an uncertain investment environment make this perhaps one of the industry’s most challenging markets as well.
--Some carriers have entered the market for longevity risk on a mass scale via pension risk -transfer deals, in which insurers take over defined benefit plans being run off by employers. This trend should continue for the next few years as more employers look to offload retirement obligations from their balance sheets.
--Recent federal advisories should help facilitate the use of annuities for 401k and Individual Retirement Accounts.
--However, others in the individual market have scrambled to make changes in their policy benefits and offer buyouts to consumers after underestimating their potential long-term liability.
--Carriers going after this market segment should carefully consider how they design, model, and distribute such products to meet economic targets and reduce downside risk over the long term. They should also stay engaged with the customer to manage their expectations and product features as mortality trends play out, rather than just treat longevity policies as a one-time product sale and hope their assumptions turn out to be profitable.
--Insurers could perhaps craft more hybrid products that account for a wider variety of consumer needs, such as combining life insurance, retirement income, and long-term care coverage in a single policy, while limiting longevity exposure by capping lifetime income benefits.