Emerging trends in the insurance industry, combined with an expectation of relatively flat market conditions, are spurring executives to embrace new initiatives to maintain their market share and create new means of growth in trying times.

In Nolan’s most recent survey of P&C executives, 54% of the respondents indicate market conditions will remain as they are today.  And 81% said that while there may be improvement overall, premium growth will be less than 10%.

The top three underwriting objectives were identified as increased profitability, renewal retention, and organic growth. Those obvious major issues put a priority on the key underwriting initiatives that were identified: analytics programs, new policy management systems, and improved staff expertise.

The companies responding to the survey are planning a variety of underwriting initiatives to address these objectives. Over 78% of the respondents indicated investing in analytics was a high priority, followed closely by new policy management systems, which accounted for 60% of the responses. It’s not surprising to see analytics as a high priority—companies using analytics will have a competitive edge in evaluating structured and unstructured data essential to profitable underwriting and risk selection. One size-driven difference was that larger companies are more focused on usage-based insurance (UBI) pricing, with UBI trending upward with personal lines companies but less so for commercial lines.

A similar gap exists with social media programs because large companies are focusing more aggressive and broad-based efforts into this area. Social media is exploding in the market, affecting underwriting and other functional departments. As a result, social media is being leveraged more and more by larger companies that have ample available resources. These initiatives require considerable investments and resources to implement, giving larger companies an advantage over smaller carriers, especially during times of low returns.

Another high-ranking initiative identified in the results is increasing or improving staff expertise, which more than half of the respondents rated as a priority. As new tools become available, more information is added to the decision process, and as risk profiles evolve, keeping decision-making resources up-to-date is increasingly complex. What will be the role of the underwriter in the future, as predictive modeling deepens its impact?  Some would argue it is only a matter of time before predictive modeling outperforms even the most experienced underwriter.  Others contend that the future of underwriting is portfolio management.  If this is the direction, then should portfolio management skills be the emphasis of skills development, rather than “advanced underwriting judgment?”  These are among the core capabilities conundrums with which underwriting executives are grappling.

Interestingly, one-third of the respondents are planning an operations consolidation or a restructuring effort. This pairs well with an increase expected in mergers and acquisitions. Merger and acquisition activity—including consolidations—is certain to accelerate as some carriers seek to increase premium volume without relying on organic growth. Even with increased rates, companies are still barely outpacing claim costs.

Industry analysts expect the hard market to continue. Moody’s predicts favorable pricing momentum and a gradually improving economy, along with minimal adjustment to loss costs trends, accident year-loss ratios, and underwriting margins (excluding catastrophes). Moody’s also expects broad-based rate increases across the industry and stable retention ratios.

Survey respondents overwhelmingly agree there will be a hardening of the market, with 82% planning rate increases. The challenge will be maintaining competitiveness as increased rates stimulate competition, bringing a sharp focus on balancing these increases against the potential loss of customers to competitors with lower rates.

The survey results are in line with Nolan’s observations that the industry continues to see price increases, particularly in commercial lines, along with a slow decline in reserve releases, compared to prior years. As a direct result, carriers may be faced with claims costs that outpace rate increases. This, combined with low interest rates and minimal investment yields, places more pressure on underwriting profit. Even with the market continuing to harden, rate increases may not be sufficient to sustain acceptable margins.

We also observed that customer satisfaction and service will be sources of differentiation and a foundation for growth in the coming years. Many of the underwriting initiatives being planned indicate that carriers are aware of the importance of service excellence and are taking actions to strengthen their capabilities.

The complete summary report is available for complimentary download at www.renolan.com/pcsurvey.  We’d be happy to discuss these and other findings in more detail, just contact us at george_krempley@renolan.com and eugene_reagan@renolan.com.

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