Property/casualty insurers should be thinking about transforming how they do business and how they can better deploy technology if they want to pursue long-term growth, according to the Deloitte Center for Financial Services.

They must also deal with regulatory uncertainty, Deloitte consultants say in their outlook for insurers for 2014.

In the year ahead, the industry will increasingly turn to technology such as smartphone applications and aggregated data bureaus, while more smaller carriers will adopt telematics, the Deloitte consultants say in a property/casualty outlook report for 2014.

“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 favorable market conditions, insurers face a full host of challenges. We anticipate a growing number of organizations will re-evaluate their business models to more effectively compete in today’s marketplace.”

According to Deloitte, many property/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,” the report says. “Yet insurers face significant challenges to adapt to evolving consumer demands, incorporate new data sources and cope with an uncertain regulatory environment.”

According to Deloitte, the three biggest trends for insurers to weigh include:

1. Technology can level the playing field as carriers cope with data challenges.

Technology upgrades will be priorities for insurers in 2014, according to the report. Overall, organizations 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 said. “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.”

2.  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,” said Mills. “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.”

Looking ahead, key regulatory issues in 2014 for P/C insurers include the potential expiration of the Terrorism Risk Insurance Program and a court ruling on the challenge to U.S. Department of Housing and Urban Development regulation that would use “disparate impact” as a metric for evaluating insurance performance.

 3. Core transformations may be the rule rather than the exception.

Rather than tweak their internal processes to produce short-term boosts in efficiency, Deloitte expects more carriers to make transformational changes to improve enterprise-wide agility in their operating models and to better leverage customer, underwriting and pricing data for sustained competitive advantage over the long term.

Source: Deloitte Center for Financial Services