by Rich Flynn, ACORD
Towers Watson recently released the results of its 2015 Insurance Industry Outlook survey and accompanying panel discussion, focusing on the challenges and concerns facing insurance companies worldwide over the coming year... and it seems that the industry's proverbial glass may be half-empty at best.
"Will 2015 Be the Year of Sleepless Nights for Global Insurers?" is their headline, acknowledging the serious concerns held by the survey's participants. They do, however, point out that threats and opportunities are two sides of the same coin, and that companies must be prepared to make the most of what is projected to be a year of notable change in the insurance industry.
Most of the insurers polled expected market conditions to either remain flat (60% of respondents) or even worsen (17%) over the next three years. Both Life and P&C insurers cited similar top concerns, although Life insurers were more likely to see threats and opportunities in regulatory issues and changing customer demographics, while the pace of technological innovation was of more concern to the P&C side.
Insurers worldwide are keeping a nervous eye on changes in financial and business policy - while North American companies are more concerned about interest rates (85%), and their European and Asia Pacific counterparts find regulatory changes more potentially troubling (82% and 80%, respectively), the majority of participants in all regions found both issues to be challenges. "It's not a surprise," said Graham Fulcher, Towers Watson's EMEA P&C practice lead. "In Europe, for example, regulation is top of mind with Solvency II implementation just over a year away. However, excessive focus on regulation or interest rates is a cause for concern when there is big data and social media to think about. That's the danger with excessive regulation: You don't spend your time on other things that matter as much or more."
But while the aforementioned big data (30%) and social media (just 9%) were not among most insurers' top concerns, they did acknowledge significant resource challenges when it comes to keeping pace with a changing world: 78% of respondents were concerned about talent-related issues, and a whopping 88% expressed anxiety about the adequacy of their aging technological systems. "In Asia, some big companies are establishing internal innovation centers to become disruptors before they get disrupted," said Michael Freeman, Towers Watson's Risk Consulting and Software lead, Asia Pacific. "Their reasoning is: 'Let's think about how a disruptor might look at this industry and do the disruption internally before we get disrupted.'"
But lest we overlook the forest for the trees, the panel also pointed out that these collective near-term concerns reflect a deeper, fundamental worry among insurance executives about whether their business model itself can withstand changes on the horizon. "This is a whole different matter that lifts the discussion from mundane regulatory issues to the very question of running a successful business," said Elinor Friedman, Towers Watson's Life sales and practice leader for the Americas. "Several American respondents are clearly worried about their company's ability to move quickly and creatively to meet business challenges."
Serhat Guven, Towers Watson's North America P&C practice lead, agrees. "There are numerous emerging opportunities that insurers can capitalize on to grow their business," he said. "However, in many cases, companies react with incremental changes rather than taking more radical steps. Many insurers in our survey are now questioning whether this approach will enable them to keep pace with the market."