Financial and Housing Crises, Soft Market to Challenge Insurers in 2009

December 4, 2008

The financial and housing crises, along with a prolonged soft market, are converging to create a highly challenging environment for the U.S. insurance industry in 2009, says an industry think tank.

These factors will force insurance carriers to adopt new skills and business discipline in order to survive, according to research by the advisory firm TowerGroup that identifies key insurance trends for the coming year.

TowerGroup said it expects “four R’s” – risk, revenue, regulation, and retirement – to shape the insurance industry in 2009.

Risk and regulation will be at the forefront as insurance carriers pump money and resources into initiatives designed to optimize risk management and meet new regulatory mandates.

The researchers said they expect to see increased merger activity and asset redistribution among insurers in 2009 due to increased costs and decreased revenues.

As a large number of experienced insurance workers reach retirement, the strain on insurers will increase as decades of knowledge walk out the door. However, in regard to the life and annuity insurance business, the retirement demographic of consumers presents a great opportunity to offer new products and services.

“The convergence of several negative economic influences has resulted in unprecedented financial pressure on insurance carriers,” said Karen Pauli, a research director in the TowerGroup Insurance practice. “Although these challenges are clearly daunting, it is critical that carriers maintain a long-term vision despite the short-term economic imperatives. Carriers that focus 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.”

Other findings from the TowerGroup report:

TowerGroup believes that data management and predictive analytics are no longer merely “nice-to-have” technology initiatives. Carriers that fail to recognize this fact will see significant deterioration in their results as well as plummeting loss of competitive position.

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 will be a top priority for insurers in 2009, but customer-facing initiatives to improve customer service and the ease of doing business will continue to enjoy funding and support, the researchers contend.

“Insurers must continue to focus on customer-facing initiatives even in the face of cost-containment pressure, given that these initiatives will be key to rebuilding confidence among policyholders and shareholders,” said Rachel Alt-Simmons, a research director in the TowerGroup Insurance practice. “Customer-focused insurers that concentrate on solutions rather than products will emerge as the top competitors in the market.”

Source: The TowerGroup

Topics Carriers Legislation Market Pricing Trends

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