1. www.alexanderproudfoot.com
Insurance Trends
Property and Casualty Q1 2016
Rebounding premiums and interest rates
will improve industry revenue
While the insurance industry has enjoyed a rising trend in pricing over the past 12
months, it is beginning to lose momentum. Some of the main challenges insurers
face in today’s marketplace include rising competition, competitive pricing and tight
profit margins. However, slow premium growth – inhibited by rising competition, an
overabundance of capital and inexpensive reinsurance (partially due to low insured
catastrophe losses over the last two years) – could be the most daunting of them
all. Soft pricing conditions are responsible for recent profit margin constraints, as
well as insurers placing a greater emphasis on expense management; operational
efficiency; cost reduction through technology upgrades; process optimization; selective
offshoring; and enhanced risk management.
Property and casualty insurers are generally pleased with the last payouts. However,
the lower catastrophe results over the past two years have pressured reinsurance
rates to the point they have driven down pricing in primary lines. This pressure will only
increase if alternative capital providers, such as hedge funds and private equity funds,
further their expansion into the casualty insurance business. Several years of profitable
property catastrophe reinsurance risk assumptions have accelerated the expansion
plans of alternative providers. Market-leading performance in the property/casualty
sector is being driven by investments in technology, distribution and risk management
systems. As mission-critical information becomes more accessible, more assured data-
driven business decisions are being made by insurance leaders.
In response to the many challenges, insurers are investing in digital solutions
designed to improve front-end sales, distribution, customer service, back-end
operational efficiency and expense management. Companies must invest in
new markets and products, and try new approaches with existing customers.
Growing the top line will require organizational realignment and a commitment
to innovation.
Successful property/casualty insurance companies will need to proactively address the
industry’s current challenges in the following ways:
Respond appropriately to increased competition
In order to improve efficiencies and become more competitive, insurers must address
redundant operations, processes and data resources. Cost reduction is no longer just
an operational issue – it is now a competitive necessity. Forward-thinking companies
will aggressively manage their costs.
Recently, we helped a major insurer reduce their overtime by 60% and further improve
their cost per transaction by 11% through process realignment, waste reduction,
eliminating redundancies and removing silo barriers.
Improve customer engagement
Competitive pressures have created the need for insurers to evaluate the effectiveness
of their traditional customer connection points. The successful integration of digital
Slow premium
growth, a
daunting
challenge
Other
challenges
lurking
Solutions
being
implemented
What we are
currently
doing with our
clients

2. solutions will enhance the ability to track financial performance, customer
satisfaction and the operational efficiencies of multiple distribution channels.
A recent survey cited that 62% of global consumers would stop using a company’s
products based on a poor customer service experience. This underscores the
importance of a solid foundation of operations to sustain a high level of customer
satisfaction. The combination of a customer-centric view over the end-to-end
process with insightful tools and resources has the potential to pay long-term
dividends in an otherwise extremely competitive industry.
Revised processes
Insurers need to optimize their traditional business processes to stay competitive.
Overhauling outdated and inconsistent underwriting processes is critical, as new
product time-to-market accelerates in response to shortened product life cycles.
An optimized end-to-end approach, one that addresses the entire process
instead of treating fragmented symptoms, will help eliminate silos and instill
a team-oriented, customer-focused approach. Simplifying the process by
eliminating unnecessary steps, lowering the number of relays between functional
areas and reducing rework are proven ways to increase the level of efficiency in
the workplace.
Address regulatory requirements
In 2015, insurers with more than $500 million in direct premium ($1 billion for
insurance groups) are required to comply with the NAIC’s requirement to submit
annual reports of their Own Risk and Solvency Assessment (ORSA). They must also
submit a description of the company’s processes for model validation.
We recently helped an insurer avoid millions of dollars in fines by building
alignment for managing regulatory requirements.
Focus on investment performance and capital management
Although the property/casualty industry’s investment income is improving,
weakened reinvestment yields generating new cash flows and invested asset
growth are the primary cause. Our disciplined execution engagement approach
is compatible with leading insurers’ capital management strategy of providing an
appropriate balance of deploying and returning excess capital.
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What we are
currently
doing with our
clients
(continued)
How far and how quickly are your current initiatives progressing?
Alexander Proudfoot not only identifies opportunities for improvement
or potential paths to improved operating results, we also implement the
changes. We distinguish ourselves from competitors by working side-by-side
with client personnel and management at all levels to implement changes
that deliver sustainable improved performance.
Larry Keeley has more than 25 years of leadership experience in the areas of
general management, sales, marketing and manufacturing. His impressive track
record with Proudfoot includes working with C-level executives from several top
quartile insurers to develop efficient operations in the following ways: enhancing
the consumer experience, reducing rework, improving service levels (internal
and external), promoting department effectiveness, organizational design and
decreasing cycle time.
Lawrence Keeley
Executive Vice President