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11th January 2012

Ernst & Young outlines five success strategies for US p&c insurers

Ongoing uncertainty over volatile economic conditions continues to plague buyers of insurance products and services, with less than favourable implications for US the property-casualty insurance industry, according to Ernst & Young's new Property-Casualty Insurance Industry Outlook. A low premium growth environment is expected to persist through 2012, adversely affecting insurer profitability and resulting in the fifth consecutive year of negative performance. Furthermore, increased regulation will force insurance companies to measure risk in new ways, impacting their capital and risk management strategies.
E&Y suggests five strategies that US P&C companies need to explore in 2012 to improve their chances for success:
-Execute flexible approaches to manage uncertain conditions. To implement fluid strategies in an environment of multiple uncertainties, an insurer's operational capabilities, infrastructure and corporate culture must support flexible, rapid and well-governed decision-making, thereby assuring agile performance with accountability. Diligent monitoring of changes in loss exposures and loss development drivers will guide flexible adjustments to risk management and risk pricing.
-Anticipate, understand and address the impact of prospective regulations. Insurers must assess the impact of new regulations and accounting changes prior to implementation. They should consider enhancing the sophistication, articulation and deployment of their risk management standards and related systems, as compared to their current regulatory and reporting environments. Those insurers who fail to understand the full impact of regulations and new accounting standards may lose competitive advantage.
-Comprehend and act upon changing insurance buying behaviours. Gaining a clear understanding of the customer will improve the chances of marketing success. The buying behaviours and risk profiles of tomorrow's customers will likely bear little resemblance to those today. Identifying, assessing and capitalizing on the characteristics of tomorrow's customers underscores the need to tailor products, services and distribution channels to their specialized needs.
-Increase investments in core systems to bolster growth and profitability. Insurers face mounting pressures to modernize core insurance systems such as claims, policy administration, underwriting and billing. Competitors have set the stage for this need for improvement, along with heightened customer expectations and, above all, increasing costs to maintain and upgrade systems. Faced with limited investment alternatives yielding an attractive return, insurers are investing in themselves to position their operations for growth and improved profitability.
-Apply business analytics to address difficult top-line growth conditions. An uncertain economic environment will force insurers to apply business analytics across the value chain can glean deeper information on customer markets, underwriting segment profitability and claims management. Insights gained from analytics can then guide both strategy development and improved decision making.
"As the US property-casualty industry continues to confront a difficult climate, it is also challenged by regulation, and an uncertain governance and compliance agenda," said Shaun Crawford, Ernst & Young's Global Insurance sector leader.
In this environment, insurers should consider strategic approaches that are flexible-capable of responding to economic pressures as they emerge, intensify or weaken. In 2012, companies that invest in core systems, information resources and employ skillful management processes, stand the best chance of succeeding in these challenging times."