Insurance industry participants are more pessimistic about the outlook for their companies and for the industry as a whole compared with last year as a result of challenges such as growing regulation and low interest rates, according to research presented during a panel discussion at KPMG LLP’s annual insurance conference in Toronto on Wednesday.
Speakers presented preliminary results of KPMG’s annual Opportunities and Risks survey of Canadian insurance industry participants at the conference. The survey, which had participants ranging from senior executives and board members to intermediaries, revealed that individuals who work in both life insurance and property and casualty insurance are nervous about the risks facing the industry.
Specifically, 39% of survey participants said their outlook for their organization is more pessimistic compared with a year ago while 21% their outlook for the industry, as a whole, is more pessimistic compared with last year. In the company’s 2015 survey, only 16% of survey participants said they were more pessimistic about their organization and about the industry compared with the previous year.
“Last year the mood was, in general, optimistic,” said Amit Chalam, a senior manger in the financial services department at KPMG. “This year, we were a little surprised to see that … in general, more respondents felt a little pessimistic.”
The change in mood may be because insurance industry players feel unprepared for the challenges the industry is facing, Chalam added.
When asked about the biggest risks facing insurance companies in the current environment, the regulatory and compliance burden was the top risk among survey participants. Other key risks include low interest rates, cybersecurity, costs associated with technological investments and cost reduction pressures.
In terms of opportunities, survey participants said the biggest opportunity for companies is to enhance operational processes through the use of technology, which has many different applications in the insurance industry, Chalam said. These include improving efficiency and enhancing client engagement.
“As insurance companies,” he said, “you can [use technology to] operate and deal with your customers better, you can make your internal processes better.”
Other key opportunities named by survey participants include offering better customer service, improving risk management and embracing data analytics to enhance product design, marketing and pricing.
Industry executives who spoke at the conference acknowledged that the current environment is challenging for insurance companies.
“It’s not a rosy outlook,” said Robert Lempertseder, senior vice president and chief financial officer with Munich Reinsurance Co. in Canada, adding that sustained low interest rates, in particular, are presenting significant challenges for insurers.
“We are under stress,” he said. “We need to innovate and we need to prepare ourselves for a future in which we might not see interest rates levels that we’ve seen in the past.”
However, Canadian insurers are better positioned to cope with this challenge compared with those in some other countries as many Canadian insurers have taken steps to adjust their product offerings to limit their risk exposure in this area, Lempertseder said.
Insurers have also been diligent about cutting costs to cope with the low interest rate environment, which helps them become more agile, added Veronica Scotti, president and CEO of Swiss Re Canada.
“The industry is taking a very clear stance towards cost and productivity measures,” she said. “When interest rates do go up, we will all benefit.”
Photo copyright: sborisov/123RF