Marsh took a long look at the shape of the U.S. casualty insurance market and gave its thoughts on how 2016 will shape up. Ten trends emerged. Ernst & Young did the same thing and it — too — had 10 thoughts about how 2016 will ultimately look.
Marsh’s US Casualty Practice Leader Stephen Kempsey said 10 things are going to drive the market this year. They are risks faced by business and — he says — how claims will ultimately be managed.
His top concern is the continuing soft market. Independent agents can expect decreases in just about every line in 2016. As proof, you might remember Willis projects a 5% to 10% drop in all lines but umbrella and excess casualty. They’ll stay flat.
Insurance agents selling auto are going to see increases in rates in 2016. Widespread losses are to blame. Kempsey said, “Detailed information about your loss control programs, including telematics and driver training can help you to differentiate your unique risk profile.”
Look for more mergers and acquisitions. Consolidation is the key word this year in insurance. Mergers from firms like ACE and Chubb and XL and Catlin last year weren’t an anomaly. They demonstrate a changing marketplace. Kempsey says we also will see more foreign insurance companies becoming active in the U.S.
That, too, is going to drive more insurers to merge or sell, or both.
Big data is becoming more of a big deal. Profits are driving insurers to use more of it. Telematics will be pushed as insurers target risk and pricing decisions. “Using client-specific data and explaining favorable exposure nuances can best position you to outperform your peers at your next renewal,” Kempsey said.
That same big data will also impact underwriting and hope is better underwriting will offer more favorable pricing to clients with primary, excess and international casualty.
Look for new, dynamic policies Kempsey said. Many are coming from innovative business types like Uber. And the question of whether these companies have employees or freelance contractors will continue to be explored in courts.
Those court decisions could impact how the insurance policies are constructed.
Kempsey also sees an increase in auto insurance and labor law litigation since it is — and always has been — a cash cow for attorneys and their clients. A jump in the number of suits over police brutality, post-traumatic stress disorder and traumatic brain injuries will likely cause insurers to revisit underwriting and policy terms.
Look for safer workplaces and lower work comp costs as employees wear devices that are able to track their movements. Marsh’s report notes an increase in firms using this type of technology. It applies, too, to the medical industry and could reduce claims outcomes and medical expenses.
Insurers will get better at claims investigation especially when it comes to workers’ compensation fraud. Social media access and more consumer info will assist as policyholders these days seem to not be able to resist posting personal info, photos, videos and other content on media sites like Facebook.
Not to drone on, but Kempsey’s last prediction is an increase in the use of drones. And insurers will soon have to come to terms with whether a drone caused injury is insured and if so should it be insured under general liability, aviation or what?
The Ernst & Young report is titled the 2016 U.S. Property-Casualty Insurance Outlook. Like the Marsh report, it sees 2016 as a year of ongoing “disruptive change.”
And this is going to cause the industry to rethink everything.
“Digital technologies, such as social media, analytics and telematics, will continue to transform the market landscape, recalibrating customer expectations and opening new ways to reach and acquire clients. The rise of the ‘Sharing Economy,’ under which assets like cars and homes can be shared, is requiring carriers to rethink traditional insurance models,” the report states.
So with the industry in flux, and with slower economic growth, an increase in mergers and acquisitions and uncertainty in insurance regulations and other regulations, those insurers who are more innovative will thrive. They will stay ahead of the shifting sands and will reap the benefits of doing so.
Laggards — the report notes — will fall behind or even drop out of the race.
“Competitive pressures in the insurance industry have been building as cost-effective solutions in digital communication, distribution and infrastructure become widely available. Digital technology is eroding the advantages of scale enjoyed by established insurers and empowering smaller players to compete for market share through more flexible pricing models and new distribution channels,” the report concludes.
The report also talks about Google Compare and how it “enables customers to comparison shop.” It calls the launch the beginning of a larger wave of insurance technology activity for 2016.
“At the same time, customer expectations and behaviors are evolving at a rapid pace, often faster than traditional mechanisms can react. Driven by their interactions in other digitally enabled industries, such as retail and banking, property-casualty customers are increasingly demanding a more sophisticated and personalized experience — including digital distribution, anytime access, premiums accurately reflecting usage and individual risk, and higher levels of product customization and advice,” the report stated.
The conclusion of the report’s introduction says, “Policyholders are also seeking coverage of broader risks, such as cybersecurity risk and under-protected property exposure.”
And with that the 2016 U.S. Property-Casualty Insurance Outlook looks at what insurers see as the external forces we’ll see at work in 2016. They are rated with zero as the lowest impact and 10 as the highest. Here are the five top concerns:
• Technology: It rated a 10. Digital technologies, such as social media, telematics and analytics, are redefining the insurance market. The impact will affect most business areas, from marketing and distribution to customer service and pricing models.
• Pricing: Picked up an average of 9. Greater competition and pricing transparency will hold down fees in both personal and commercial sectors. Insurers will need to reconsider pricing models as pay-as-you-go gathers appeal and analytics provide deeper customer insights.
• Customer Expectations: Also ranked a 9. Services in other digitally enabled industries are causing consumers to demand more personalized experiences from insurers. With the greater opportunity for comparison shopping on the web, the impact will likely be significant.
• Regulations: Always a worry and it rates an 8. Heightened regulatory creep is starting to become a bigger concern. In 2016, insurers will need to assess the potential implications of changing regulations, and start planning for greater impact in 2017 after the US elections.
• Catastrophes: Also always a worry. It ranked 5. Continuation of moderate activity keeps downward pressure on pricing. Only a very large and unexpected event (or events) has the potential to be market-changing. After years of relative calm, a big loss event could be more likely.
Then the report gives advice on how insurers can deal with the future. “In such a fluid, fast-changing environment, insurance firms need to build a road map for strategic transformation aligned to new customer imperatives. Refining legacy products and approaches is not enough — what is required is a fresh outside-in approach that starts with the customer and carries through to digital trends and market shifts, both inside and outside the insurance industry.”
And here’s what Ernst & Young thinks insurers need to do:
1. Position your organization for digital leadership
2. Prepare for the next wave of M&A activity.
3. Create a culture of continuous innovation.
4. Shift from a product to a service orientation.
5. Build a next-generation distribution platform.
6. Drive performance through analytics.
7. Develop and attract the right talent to lead change.
8. Make risk management a C-suite priority.
Source links Insurance Business America, Ernst & Young