When it comes to the performance of insurance companies, you might be surprised to find out that insurance equity analysts have not lowered their profitability targets or expectations for growth. In fact, for 2012 and beyond, according to Accenture research, analysts expect the highest-rated life insurance companies to achieve an annual mean growth of 9.6 percent and a return on equity (RoE) of 15.1 percent. The respective figures for P&C carriers are 6.4 percent growth and 14.2 percent RoE.
These numbers come from Accenture’s most recent Insurance Equity Analyst Survey. While at first glance they seem startlingly high, it’s worth noting that between 2007 and 2011 the largest insurance companies (those with gross written premiums of more than $50 billion) grew at an average rate of 6.5 percent a year and achieved a RoE that averaged 12.5 percent since 2008.
The analysts concede that reaching these targets won’t be easy. Insurers face a slew of challenges in these uncertain times, the most demanding of which are tighter regulations, a difficult investment environment and climate change.
Predicting customer behavior key to organic growth
To achieve organic growth over the next three years, analysts believe insurers must get better at understanding and predicting the behavior and needs of their customers. They will need a multi-channel distribution capability, and must be able to rapidly introduce new, relevant products. Expanding the business in new markets will be an important opportunity, as will the improvement of their asset management capabilities. P&C insurers will gain much by enhancing their pricing strategies and combatting claims fraud.
Effective use of technology critical for profitability
The effective use of technology will be a key differentiator for the top-rated insurers, with many analysts saying it will be critical to profitability over the next three years. The areas where they believe investment in technology will generate the greatest return are risk management (including underwriting), investment risk management, pricing and (for P&C carriers) claims management. While just over 50 percent regard insurers’ technology performance as “good” and a handful rate it “excellent”, almost all believe improvement is needed.
What are the priorities?
So what are the priorities analysts believe insurers should be focusing on to gain the superior ratings they give the industry’s high performers? There are three: risk control, sustainable growth and cost reduction. Over the next few weeks, we’ll be taking a closer look at each of these, and how insurers can meet these expectations.