The global financial and housing crises, along with a sagging soft market for insurance products, are addinf up to create a highly challenging environment for the U.S. insurance industry in 2009. These factors will force insurance providers to adopt new skills and business discipline in order to survive the economic turmoil, according to new research from TowerGroup, a firm that identifies key insurance trends.
TowerGroup expects “four Rs”— risk, revenue, regulation and retirement—to shape the insurance industry in 2009. Risk and regulation will be the topmost priority as insurance companies pump money and resources into initiatives designed to improve risk management and meet new regulatory mandates. Increasing costs and decreasing revenues will lead to further industry consolidation and redistribution of assets. As a large number of experienced insurance workers reach retirement, the financial strain on insurers will increase as experience and expertise walk out with the retirees.
Karen Pauli, a research director said: “The convergence of several negative economic influences has resulted in unprecedented financial pressure on insurance carriers”. Pauli also believes that the challenges are daunting and it is critical that carriers maintain a long-term vision despite the short-term economic imperatives. Carriers that focus on both financial and human resources at the enterprise level, incorporating both operational efficiency and risk management, will come out of the current crisis ahead of the pack.
TowerGroup believes that data management and predictive analytics and technology initiatives have become corporate necessities. Carriers that fail to recognize this fact will see significant deterioration in their results as well as plummeting loss of competitive position.
The research suggests that Insurance carriers must implement effective risk governance initiatives that span both the organization and its distribution partner network, where integrating information is imperative.
A drop in investors’ and policyholders’ confidence resulting from the current economic crisis will lead to increased instability in the industry and heightened merger and acquisition activity in 2009.
Cost containment must be a top priority for insurers in 2009, as well ast customer-facing initiatives to improve customer service and the ease of doing business. Focus on customer needs will be key to rebuilding confidence among policyholders and shareholders,” says Rachel Alt-Simmons, a research director in the TowerGroup insurance practice.
Customer-focused insurers that emphasize solutions rather than products will emerge as the top competitors in the market. Product innovation and superior service will prevail in times of economic turmoil.