At KPMG's insurance conference held in late September, attendeeswere surveyed on various issues facing the industry, includingtheir views on underwriting profitability. The lack of confidencein their ability to underwrite profitably was striking (seeaccompanying chart).

“I think it reflects the fact the soft cycle that people areexperiencing is being driven by factors that aren't in mostpeople's experience,” says Scott Marcello, the leader of KPMG'sinsurance practice in the U.S.

Among the factors insurers dealt with this year are depletedcapital because of high catastrophe losses in 2008; higher 2009reinsurance renewal rates; investment portfolios losses; anddeclining prices in recent years.

“You add all that up and you would think the market would beturning,” says Marcello. “All the fundamentals we've seen in thepast would suggest there would be a shift to more favorablepricing, but then you add the macro-economic issues that havecontributed to holding prices down and are affecting theprofitability of companies.”

So, Marcello believes, insurers have had to come to grips withthe fact there are broader economic issues in play and companiesare concerned about their financial well-being to the point theyare not willing to chase higher prices.

“If we were not in the economic environment we've been in forthis long period of time, people would say the market is going toturn and underwriting profitability will shoot back up. But I think[insurers] in this marketplace are wondering how fast the economywill recover,” says Marcello. “What are they going to do to makesure they are [achieving] growth, and will [growth] be conducivewith increasing underwriting profits?”

The KPMG survey also showed there is a mixed bag of areasinsurers see as being important to future growth. The carriers wereasked to consider factors such as underwriting, technology,customer focus, product innovation, distribution, mergers andacquisitions, international expansion, and redeploying capital–yetnone of those options garnered more than 17 percent (productinnovation) nor less than 7.5 percent (M&A) among the insurerssurveyed.

“It does reflect there are a lot of different opinions as towhat is important for growth,” says Marcello. “But even moreimportant, based on what I know about some of the players in theindustry, I think this links up with both their strategicimperative and what they view their current position to be.”

Some companies, according to Marcello, would say they've grosslyunderinvested in technology over the last several years. If a bigpart of their growth strategy is to get closer to their customersand the biggest barrier to that goal is technology, they have tofix that issue.

Other companies have made those technology leaps and feel closerto their customer from a technology standpoint but are saying theystill haven't figured out all their customer habits and need abetter read on those habits, adds Marcello.

“What you are seeing is companies are in a lot of differentplaces today in terms of their maturity in [various] areas of thebusiness, and I think you are going to see a differentiation ofstrategies as people come out of this market,” he says.“[Companies] have had to scale down people and get back to the coreof their business. They are going to have to make some importantdecisions about what they want to focus on. What you are seeing isa different view, depending on where they view themselvespositioned and what they think will be the most important things inthe marketplace going forward.”

From his conversations with insurers, Marcello contends theindustry recognizes there are a number of places where itunderinvested in technology for an extended period of time. As aresult, insurers have multiple disparate system capabilities, notall of which are linked together.

“Insurers have a difficulty in seeing the world, in many cases,through a customer lens as opposed to their different products andcapabilities,” says Marcello. “You could have a company that[communicates] to the same customer from different parts of theenterprise but may not have a clear vision of how that all comestogether and how profitable that is.”

Marcello is seeing a significant desire among insurers toachieve future growth and profitability through a betterunderstanding of their customers, streamlining their financecapabilities so they can analyze their performance faster, andoperating with fewer manual interventions to the extent they can domore with less.

“I am seeing a growing recognition among the companies I talk tothat there is a need for significant [technology] investment,” hesums up.