EY: Don’t Underestimate Impact of Tech

The success strategies outlined in Ernst & Young’s 2014 insurance outlook reports place heavy emphasis on technology in the insurance sphere, for initiatives ranging from streamlining internal operations to improving consumer relationships.

According to Dave Hollander, principal and global insurance advisory practice lead at Ernst & Young, the impact of technology on the insurance business is growing at an “exponential” pace. “Technology is the one thing that’s going to continue to accelerate every year,” he says. “That’s a good thing, that’s a very good thing for the world, but it’s going to change the nature of the insurance product.”

Doug French, principal of financial services and insurance and actuarial advisory services at Ernst & Young, agrees. “There are people who will tell you, ‘Insurance isn’t bought; it’s sold,’” he says. “But technology has displaced almost every industry in the world, and it’s going to displace insurance.”

2014 U.S. Property-Casualty Insurance Outlook

Heading into the 2014 p-c landscape, “capital adequacy is strong and stable,” Hollander says. “People have been building positive results. Interest rates are going up a little bit, but it’s not a serious problem.” And in the wake of what Hollander calls an “anomaly” year for catastrophes, he says insurers can expect plenty of “external capital looking at the industry” in 2014.

But despite an improving market, rising consumer expectations and stricter regulations will continue to place greater demands on p-c insurers. In order to take advantage of the improving economy while also defending against new risks, Ernst & Young urges insurance companies to adopt several strategies for success in 2014, starting with “doubling down on broad-based, transformative technology with high ROI impact.”

Granted, that starts at the top with efforts by carriers to reach a common platform and rebuild entire underwriting and policy systems—leaving independent agencies at the mercy of carriers for many of the most significant technological changes. “It should translate to good things,” Hollander says. “But I wouldn’t wait for all that from an agent or broker perspective.”

So what transformative technology strategies can independent agencies employ in the meantime? “One is having a very thoughtful consumer-centric strategy around social media and the ways agencies interact with customers,” explains Hollander.

Emphasizing the importance of analytics in responding to consumer needs, Hollander believes agency success will start with a clear understanding of the entire current customer base, as well as the behavior and motivations of certain customer segments. “Whether you’re a big carrier or you’re an agency, you want to understand persistency and profitability of customers,” he says.

The p-c outlook also urges agencies to “adopt a complete range of enterprise data excellence” by following a five-step process that involves optimizing the infrastructure of data storage and usage; enhancing data analytics cost-efficiently; employing a predictive analytics strategy; installing a robust data governance framework for clear ownership, standards and policies and investing in data security systems to protect against the increasing rise of cyber threats.

“There aren’t a lot of companies out there that have enough technology literacy and experience to take advantage of all that,” Hollander says. “I think having a plan and building competencies, and being very thoughtful about what it means for product development—that’s huge.”

Additional property-casualty industry strategies highlighted in Ernst & Young’s 2014 U.S. P-C Insurance Outlook include:

  • Invest in innovation of product development processes and delivery to meet rising demand for protection.
  • Exploit segment differences for targeted growth strategies.
  • Get out in front of emerging investment challenges.
  • Prepare for escalation of governance and accountability.

2014 U.S. Life Insurance-Annuity Outlook

As interest rates continue to creep upward and the economy slowly recovers, improving employment and housing markets have helped boost consumer confidence and personal wealth. For life insurance companies and organizations, that means greater sales opportunities and plenty of room for more aggressive expansion.

In 2014, Ernst & Young encourages life insurance companies to take advantage of last year’s changes by switching from defense to offense, taking on the challenges of an increasingly empowered consumer and advances in communications and information technologies. The outlook’s first piece of advice? “Become more customer-centric and adopt digital technologies”—a strategy that insurance agencies should also keep in mind.

Although the outlook acknowledges the importance insurance customers place on personal interaction in the insurance business, French points out that the definition of “personal interaction” is changing. Successfully deepening customer relationships will require expanded use of social connectivity and data analytics.

“The guy who manages my money, I don’t need to see him face to face,” French says. “Not everybody’s going to walk through the front door of the agency. A lot of people want to get basic advice through a social network or a phone or a video on the computer.”

Technology-related strategies like “streamline operations” and “invest in enterprise data excellence” also made Ernst & Young’s list for l-h success 2014. “Technology is the distribution model and the advice model and the sales transaction model, but it’s also the maintenance model and the risk management model,” French says. “It’s pervasive through the whole system of an insurance company.”

Additional life-health industry strategies highlighted in Ernst & Young’s 2014 U.S. Life Insurance-Annuity Outlook include:

  • Improve capital efficiency.
  • Anticipate and prepare for regulatory and accounting changes.

Jacquelyn Connelly is IA assistant editor.