Protracted slow growth in the insurance industry is causing executives to concentrate on improving their organization's operational processes, prepare for regulatory changes and enhance their technological capabilities, according to the “2012 KPMG Insurance Industry Outlook.”
For more than a fifth of execs surveyed, the top initiatives are improving operational processes and related technology (22%); 21% said navigating significant changes in the regulatory environment was their main priority, compared to 12% last year. The portion focused on investing in organic growth dropped to 15% from 20%.
"Executives more clearly understand what a tough environment they are in and what it demands in terms of attention," said Laura Hay, national leader of KPMG LLP's insurance practice. "It isn't that they aren't also focused on growth, but in an environment of slow growth and tough pricing, insurers must focus on value creation through efficiency, innovation and client centricity."
The most significant growth barriers, according to respondents, are pricing pressures (47%, down from 59% in 2011); and regulatory and legislative pressures (47%, up from 41% last year).
"Insurance execs have been concerned about increased Federal oversight," said David Sherwood, head of KPMG's U.S. insurance regulatory group. "But in the past year, consumer protection and risk management have taken center stage, and it has the potential to significantly change the landscape for insurers going forward."
Cash on the balance sheet is not an issue for 70% of those surveyed, and 55% say they will increase capital spending; 64% said they will focus on technology, compared with 49% last year.
"In this environment, insurers need to work smarter and maximize value," Hay said. "Technology can play a tremendous role in driving operational efficiency and the improvement of data usage in making strategic business decisions."
The areas to be funded are IT infrastructure, customer growth or service, and data warehouses. Digital/social/mobile technologies will be used for external brand promotion, recruiting and customer insight.
More execs are increasing spending on new products/services at 41%, up from 34%, and 32% said they would acquire a business. Almost half (48%) said their companies likely would participate in a merger/acquisition as a buyer within two years.
"What we're seeing are firms focusing on their core strengths, divesting of certain assets or markets that don't fit those strengths and more aggressive M&A strategies," Hay said.
Most execs (59%) forecast modest economic growth, only two percent anticipate significant improvement; asked when the general economy will recover, 70% said by the end of 2014 or later. More than a quarter (28%) do not anticipate a return to pre-recession headcount levels, and 16% said the lack of a qualified workforce is a significant barrier to growth.
"These factors have made insurance companies focus more intently on their talent management initiatives, and they must focus on doing more with fewer resources," Hay said. "In this environment, talent can be a key differentiator in determining success."
The numbers back up that assertion. In terms of talent management, performance management (40%) barely edged out succession planning (39%), closely followed by development/training (35%), retention (32%), and reward/compensation (25%) and acquisition/recruiting (25%).
"There is no doubt that alignment of goals and incentives will be critical to achieving a company's talent management objectives" said Hay.
Chris McMahon is the senior editor of Insurance Networking News, a SourceMedia publication.
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