Insurers Can Prosper Despite Tough Economy, Soft Market

And insurers don't necessarily need a broad recovery to boost sales and profits, as there are opportunities to grow even in a weak economy.

While many sectors are still in the doldrums, some areas—including healthcare, technology and environmental sustainability—are seeing more rapid expansion, presenting greater opportunities for carriers willing and able to move into additional niche markets.

There are also regions and specific states that have not been hit as hard as others by the recession and are likely to recover faster. Indeed, while the latest census indicates that some areas of the country lost population (and insurable exposures along with them), other regions are gaining on both counts.

Last but not least, if a carrier is struggling to grow organically, a merger or acquisition could present an opportunity to enter new markets or customer segments, as well as achieve economies of scale and make strategic use of excess capital.

Virtual consumers have arrived: Clients and prospects are increasingly living their lives and doing business online and will expect their insurers to follow suit. Proactive carriers are more routinely communicating and providing client services in the virtual world, including social-media outlets.

Personal-lines carriers have led the field with web-based sales and service. Many allow consumers to get price quotes via aggregation sites and offer claims-filing options via mobile applications. Some are selling small-commercial policies direct via the web, with more likely to follow suit as such products are increasingly commoditized.

Meanwhile, social media offers insurers the chance to bolster awareness of the industry's role, value and solutions. Carriers can use virtual platforms to spread the word about the exposures faced by consumers, as well as the products they offer to make people more financially secure.

Insurers are still struggling to come to grips with how to integrate their traditional and online operations, in terms of marketing, distribution and service. There is much upside potential for those that can pioneer useful interfaces with prospects and customers over the web.

Carriers reassess distribution options: Agents and brokers will remain a primary sales outlet in personal and commercial lines, but a growing number of carriers are at least considering alternative channels. To remain relevant both insurers and producers need to distinguish their value propositions—for one another as well as for buyers.

As mentioned earlier, more carriers are considering going direct to consumers either via the web, aggregator sites or affinity groups. Some are bypassing agents entirely, while others are employing or at least considering multiple distribution platforms that include an agent component.

However, even those carriers committed to traditional agency distribution are reviewing the profitability and growth potential of their current (including their top) producers. Proactive carriers are using advanced analytics to identify and invest more resources with those agencies positioned to grow not just in the market overall, but with their company.

Insurers should treat data as a strategic asset: Data is the lifeblood of insurance, and many carriers are seeking a transfusion of additional information to better control their costs, meet new oversight demands from internal and external stakeholders, and establish more effective enterprise-risk-management systems.

While more insurers are starting to recognize that data is a strategic asset that can give them a competitive edge, there appears to be much room for improvement in how information is handled. Deloitte's 2010 "Global Risk Management" survey of chief risk officers at global financial-services firms found that only small percentages of respondents characterize their organization's risk-data strategy and infrastructure as "extremely effective."

Whether it comes to data controls or checks (8 percent), data management and maintenance (7 percent), data standards (6 percent), data governance (5 percent), data-process architecture and workflow logic (5 percent), or data-sourcing strategy (3 percent), very few respondents see their company's systems as "extremely effective." Indeed, in each category, less than one-third of respondents even rated their carrier's performance as "very effective."

Thus, proactive insurers are putting more transparent, accountable and productive data-management systems in place, while some are appointing chief analytics officers to monetize the information generated.

Tech to the rescue: Beyond data management, technology is destined to play a far more prominent role within the insurance industry. The effective implementation of new and emerging tech tools could even make the difference between success and failure for many insurers.

Using the web and its various permutations to attract and retain business is just one major tech-driven initiative.

Predictive modeling and advanced analytics are also critical to improve decision-making and cut costs, whether in underwriting, claims, product development, marketing or distribution.

Cloud computing is another potential game-changer, lowering operational barriers and entry costs considerably for new insurers, while offering more established carriers currently bogged down by legacy systems the opportunity to add functionality without replacing existing infrastructure or expanding in-house IT departments.

Meanwhile, auto insurers are already capitalizing on driver-monitoring systems to make pricing more precise, using a technology that could have applications for industrial risks as well.

Looking ahead, the likely rise in telemedicine for standard health care could have benefits for workers' compensation and auto insurers. Similar remote assessment and monitoring technology could also be applied by underwriters and adjusters.

Rules of the road uncertain: With regulatory reform a work in progress, both in the United States and globally, carriers face an extended period in which they won't know what compliance demands and costs they'll face.

The Dodd-Frank Wall Street Reform and Consumer Protection Act may have major implications for those carriers deemed systemically risky. Those with thrifts will have to cope with a change in regulators. The new Federal Insurance Office will be poking its nose into how insurers do business in underserved areas, as well as the efficacy of state regulation. The new system for overseeing excess and surplus lines under one national standard is still being assembled.

In the meantime, the United States is not operating in a vacuum. Work continues on Solvency II in the European Union, which will impact U.S. insurers with European subsidiaries as well as those with European parents, and is likely to influence regulatory standards for all U.S. carriers at some point. In addition, the International Accounting Standards Board is fine-tuning its International Financial Reporting Standards for insurers.

Healthcare reform will also impact property and casualty insurers, as workers' comp and auto carriers may see higher costs and longer waits for service for their medical-liability claimants.

In addition, commercial-insurance agencies that depend on group health for a large portion of their commissions are seeing that vital revenue stream restricted by medical-loss-ratio limits, a development that could drive some into a sale or merger, or prompt demands for higher payments on P&C sales.

Carriers need to be proactive, staying on top of developments and working through various worst-case scenarios to determine how they might be affected and respond as regulatory reforms play out.

In conclusion, by placing these six fundamental developments prominently on their agendas and tackling them creatively, innovative insurers can position themselves not just to endure in the short term, but to succeed over the long haul.

Those insurers that consistently strive to stay ahead of the curve, regularly reassess the status quo, are prepared to experiment, achieve total command over their data, and are open to investments in new systems, technologies and people are more likely to overcome the challenges they face, whatever they may be.