Nolan's P&C Executive Survey:

A Close Look at Emerging Trends

There is no better way to learn about the trends in an industry than from the executives who live it every day. Most of the senior industry leaders who participated in Nolan's P&C Executive Survey told us they are cautiously optimistic about the near future. While they currently face a tumultuous business climate, the P&C industry tends to weather adverse economic times relatively well. The most successful companies are those who have harnessed the complex process of adaptation into a routine discipline that adjusts with the industry's inherent business cycles.

Our survey focused on key issues involving underwriting, claims, technology, contact centers, social media and organizational maturity. As we look deeper into each of these areas, the survey results reveal these critical trends and challenges:

• Economic growth is gradual with low interest rates putting focus on underwriting discipline, loss and expense management, retention and growth acceleration.
• Competitive market conditions coupled with favorable pricing trends are emphasizing the question of how much rate is sustainable in the marketplace.
• Managing balance sheet impact is becoming increasingly complex as leaders navigate the adverse effects of major catastrophes like "super-storm" Sandy.
• Technology is advancing rapidly, and with it demand for capital investment.
• Reduction in claims loss costs and LAE, as well as improvement in reserve management practices, are offsetting low investment returns.
• The complexity of "big data" and predictive modeling.
• Use of social media in claims, underwriting, marketing and servicing.
• Expected M&A activity to grow premium volume.
• Increasing industry regulatory oversight.
• Pursuit of "best in peer" organizational maturity.

Underwriting

The top three underwriting objectives were identified as increased profitability, renewal retention and organic growth. Those in turn put a priority on key underwriting initiatives such as analytics programs and new policy management systems. Of the respondents, 45% indicate market conditions will improve in the coming year, 54% indicate market conditions will remain the same, and 81% indicate premium growth will be under 10%.

Claims

Priority claims initiatives include claims analytics programs, litigation management and SIU effectiveness. The top three claims objectives are reducing loss costs, reducing LAE costs and improving claim reserve practices.

Given the industry's dwindling reserve redundancy due to releases over the last several years to improve results, it is not surprising to see improving claims reserve practices as an important claims objective going forward. As reserve redundancy is reduced, it will be critical for case reserves to be adequate to pay losses.

Technology

Technology initiatives such as expanding the use of data warehouses and data marts with reporting tools, replacing legacy policy management and replacing claim management systems are indicated as three top initiatives by most survey respondents. The three biggest technology challenges include staying current with technology in a rapidly changing IT environment, capital and expense budgetary constraints and the capacity of internal IT resources.

Contact Centers

The top two contact center-related responses raise a potential concern. Only about half the respondents indicate that policy service-specific and claims-specific contact centers are in place and functioning effectively. Many companies may therefore find themselves playing catch-up in terms of delivering competitive service. The good news is that the next highest-ranking response indicates that contact center usage will expand during the next twelve months.

Social Media

Most companies have embraced social media and are using it in marketing (53%), claims (20%), underwriting (14%), and customer service (13%). The benefits of social media vary in level of importance but monitoring reputation across the internet is the primary benefit indicated.

The survey responses reflect that social media has been a powerful tool for claims in fighting fraud. Providing fraud indicators to trigger additional research has proven to be one of social media's tangible values within the industry.

Organizational Maturity

52% of the respondents rate their company's organizational maturity as "best in class" or "strength" in regard to their staff applying knowledge of vision, mission and value propositions in their work.

Organizational maturity measures the degree and efficiency of methods of alignment. It determines the readiness of an organization to act as a cohesive and focused unit. Staff alignment, organizational positioning and effective communications all ranked as organizational maturity strengths for respondents.

Conclusions

Through this survey industry executives have told us they recognize that navigating the tumultuous business climate they face now and in the near future will require strong leadership and strategic discipline - stronger than has been typical for some carriers in the past. Implementing new technology in their organizations is a top priority for all.

As noted before, companies who have fine-tuned their ability to respond to industry cycles have been the most successful. The survey respondents are optimistic that they can maintain the underwriting discipline needed to compete in the marketplace with modest rate increases and organic premium growth, while achieving profitability.

I'd be happy to discuss more about our analysis and answer questions about the survey. Feel free to contact me at Michael_Murdock@renolan.com.

To read the full version of this article and access the summary report, click here.