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Insurance: finding sustainable growth in stormy markets

Insurers are under the same pressure as the rest of the economy. But they know that to thrive when times are tough, focus fuels success.

By Steve Lewis

A recent Sigma research report from the Swiss Re Institute into insurance market growth predicts that in 2022, combined global life and non-life insurance premiums will exceed the $7trn mark for the first time. While a big number, it is not indicative of an infallible, complacent sector. On the contrary – insurers are facing significant internal and external challenges which is putting pressure on their bottom line.

At Pro Global, we focus on supporting insurers in the non-life insurance sector. As we work alongside a broad range of leading players across the market, we have a unique perspective on the trends, challenges and opportunities facing the sector.

From an economic perspective, non-life insurers and reinsurers are facing the same inflationary impacts on their business costs as other sectors. But unique to the insurance market is how inflation sees the costs of claims rise. The issue for any company in the field is how to navigate any new risks that may emerge within the sector, while protecting both the value of its insurance offering and maintaining competitive pricing. In an increasingly connected world, adapting to such seismic shifts within the sector – which are not always easily modelled or trackable – can pose great challenges.

The importance of the situation is brought into sharper focus when you consider the events of the past couple of years – including the impact of the pandemic and its ensuing supply chain disruption, inflation, as well as recently heightened geopolitical risks around the world. And that’s before the steps needed to counteract climate change are taken into account.

Then there is also the regulatory and compliance landscape to consider. There has been a continuous focus on regulatory change across the sector, from all parts of the world over recent years. Quite rightly, these regulations focus on customer outcomes and fairness – issues that go to the heart of any insurer’s proposition – but they take considerable resources and expertise to adhere to.

Insurance is very much a skills-based game. But at a time when the industry needs to be deploying ever-greater levels of creativity and ingenuity, insurers are battling a talent shortage. A survey from the research firm Attensi shows that 55 per cent of insurance executives see talent acquisition as a key barrier to growth. Once staff are onboard, talent retention provides a great challenge in such a competitive market; finding the right people is one thing, but encouraging them to stay is quite another.

Such obstacles certainly keep insurer board meetings talking late into the night. And yet, for the decision-makers trying to navigate such choppy waters, the answer is undeniably one of pragmatic and focused solutions. Focus fuels success.

In a complex, fast-paced and ever-changing world, no single organisation can excel at everything. The winners will ultimately focus on what makes them stand out, and partner with like-minded organisations that compliment and bolster their strengths, to create an ecosystem in which growth and excellence are commonplace – despite any potential challenges.

Take inflation, for example. It’s not just a real-time problem for insurers; it’s also about effective reserve management against long-tail, historic claims across all classes of insurance. For instance, the industry is expecting an increase in historic employers liability claims, such as those related to asbestos exposure in the UK. Claims such as these are hugely resource-intensive and involve complex negotiations with various stakeholders, and can prove incredibly costly.

Insurers are therefore under internal pressure to get an accurate grip on their overall claims exposure across all classes of claims, including complex specialty liability and legacy claims, rather than just policy-based analysis. The focus is then on managing new and historic claims efficiently and effectively, so as to mitigate any cost inflation, whether that be in respect of indemnity or operational costs.

Increasingly, these challenges are best answered through tech-enabled innovations. The challenges posed by the pandemic have accelerated the adoption of digital solutions in the insurance sector. Insurers we speak to are keen to explore the solutions that technology can provide in automating previously manual processes.

They are looking for these efficiencies across policy management, back-office operations and proactive claims management, with the application of innovative technology released in short, fast-paced deliveries where value is captured quickly and adoption builds swiftly. They are also looking for expert human support, in particular from what we call “knowledge-based practitioners” – for example, professionals with direct experience in the re/insurance industry – who are adept at diagnosing their particular situation and offering practical value-adding solutions.

Similarly re/insurers are seeking outsourcing support for not just vanilla back-office processes, but also complex tasks that, while still critical to their businesses, are not in themselves “core differentiators” to their offering. This growth in demand for expert outsourcing for teams and operational functions is also supporting the re/insurance sector in overcoming the talent shortage it has faced for some time. To get it right, recognising the issue and being proactive about the solution is essential.

We are also seeing strong interest in audit services across the board – from due diligence to ensure the pricing of a merger or acquisition is accurate amid near weekly changes in inflation and interest rates, to in-depth data-driven audits to ensure compliance with international regulatory standards.

Change also brings opportunity for re/insurers as they look to expand locally and globally. The Managing General Agents (MGA) sector, which carry out underwriting on behalf of insurers, has seen significant growth momentum over the past couple of years, with many viewing this as a structural shift in an insurance industry looking to secure the convergence of talent capture, innovation and greater speed to market.

While the MGA sector will not be immune to the changing economic fortunes that are swirling, there is still a widely held view that the MGA market is set fair for 2023, with MGAs offering insurers and reinsurers streamlined and cost-efficient access to new markets that will help fuel their growth next year.

However, to get off the ground the entrepreneurial teams behind new MGAs need help to establish themselves without fuss and to avoid the pitfalls as they develop, grow and partner with the world’s re/insurers. And we are seeing strong growth in demand for MGA incubation services and facilities that offer new entrepreneurial start-ups as well as established entities a platform for growth.

When all is said and done, the main function for the world’s re/insurers as a key pillar in the wider economy is to remain stable and to grow sustainably – as indeed we should all hope they would, even in times of crisis. However, identifying the challenges that do exist, and applying the correct focus to improve results and enhance operational efficiency in order to remain differentiated and relevant is key.

The sector has shown itself to be resilient and adaptable in the past but it’s certainly not a time for providers to rest on their laurels. A proactive process of continuous improvements is essential to keep the best re/insurers playing to their strengths, staying competitive and pushing creative thinking forward to bring relevant, innovative and affordable new insurance products to consumers and businesses.

[See also: The Policy Ask with Jon Danielsson: “The government should ditch financial regulation that protects big incumbents”]

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