NEW YORK -- Insurance executives expect to focus much of their time and energy during the next two years on improving their organization's operational processes, navigating through regulatory changes, and enhancing technological capabilities in response to continued slow growth in the insurance sector, according to a recent survey by KPMG LLP, the audit, tax, and advisory firm.
When asked about the top initiatives, 22 percent of executives in the 2012 KPMG Insurance Industry Outlook survey cited the improvement of operations processes and related technology and 21 percent said navigating significant changes in the regulatory environment. In comparing this response with last year's, the regulatory response jumped from 12 percent to 21 percent, while their focus on investment in organic growth dropped from 20 percent to 15 percent.
"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."
In responding to a question on identifying the most significant growth barriers in the next year, 47 percent said pricing pressures, down from 59 percent in 2011, and 47 percent said regulatory and legislative pressures, up from 41 percent 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."
Capital Spending Up, Technology Priority #1
Seventy percent of insurance executives say their companies have significant cash on the balance sheet, and that they plan to put it in play. Furthermore, 55 percent say they will be driving up their capital spending. The lion's share of the investment will be devoted to information technology, with 64 percent signaling that IT would be the focus, up from 49 percent a year ago.
"In this environment, insurers need to work smarter and maximize value," added Hay. "Technology can play a tremendous role in driving operational efficiency and the improvement of data usage in making strategic business decisions."
The three biggest technology areas to be funded were IT infrastructure, by far the largest, followed by customer growth or service, and data warehouses. In terms of their plans to use digital/social/mobile technologies, the emphasis for now is on external brand promotion, for recruiting and for customer insight. However, executives have identified strong opportunity to implement mobile technology, the thrust of which would be used for customer-facing mobile applications.
Other notable areas for investment include increased spending in new products/services at 41 percent, up from 34 percent, and 32 percent say the acquisition of a business. Supporting the investment in acquisition findings, nearly half of the executives (48 percent) say their companies will likely be involved in a merger/acquisition as a buyer in the next two years.
KPMG's Hay added "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."
Modest Outlook on Economy, Hiring
Executives expect modest economic growth ahead and aren't counting on any real turnaround in the economy in the near-term. While 59 percent expect moderate improvement in the year, only two percent foresee significant improvement. Furthermore, when asked when the economy as a whole will recover, 70 percent said by the end of 2014 or later.
Hiring projections are also muted, as many executives expect headcount to remain flat. More than a quarter (28 percent) doesn't expect their companies to ever return to pre-recession headcount levels, and 16 percent of executives indicate that a lack of a qualified workforce is a significant growth barrier.
"These factors have made insurance companies focus more intently on their talent management initiatives, and they must focus on doing more with fewer resources," said Hay. "In this environment, talent can be a key differentiator in determining success."
In fact, insurance executives point to several key talent management focus areas over the next two years, including: performance management (40 percent), succession planning (39 percent), development/training (35 percent), retention (32 percent), and reward/compensation (25 percent) and acquisition/recruiting (25 percent). "There is no doubt that alignment of goals and incentives will be critical to achieving a company's talent management objectives" said Hay.
THE KPMG INSURANCE INDUSTRY OUTLOOK SURVEY
The KPMG survey was conducted in May 2012 and reflects the responses of 102 senior executives in the insurance industry. Based on revenue in the most recent fiscal year, 27 percent of respondents work for institutions with annual revenues exceeding $10 billion, 41 percent with annual revenues in the $1 billion to $10 billion range, and 31 percent with revenues in the $100 million to $1 billion range.
About KPMG LLP
KPMG LLP, the audit, tax and advisory firm (www.kpmg.com/us), is the U.S. member firm of KPMG International Cooperative ("KPMG International.") KPMG International's member firms have 145,000 people, including more than 8,000 partners, in 152 countries.