Canadian property and casualty insurance outlook 2014
Product development and innovation
The rapid pace of technological improvement and innovation globally is changing the insurance industry. With new technologies and changing products, new risks and insurance needs continue to emerge.
Insurers need the ability to quickly and efficiently design and develop successful new insurance products, acting now to capitalize on this low-interest-rate environment. Those insurers that best leverage technology and enhanced customer-centric processes will put themselves ahead.
Risks that require broader, cost-effective insurance industry solutions
- Cyber insurance. With the evolution of the internet and continued focus on social media, the risk of cyber-hacking has greatly increased. Cyber-hacking incidents and data privacy breaches occur frequently now as companies are unable to keep ahead by appropriately protecting themselves. In this regard, insurance companies can provide increased coverage and loss mitigation services, applying data analytics and other technologies to assist customers.
- Catastrophe insurance. Natural disasters hit Canadian insurers hard in 2013. With the increased uncertainty and volatility of catastrophes, demand for insurance protection has increased. The recent focus on flood insurance has sparked many customers to assess their coverage and determine whether they are adequately protected, including for business interruption. Insurers need to take a hard look at policy coverage to make it clear so as not to confuse policyholders, as happened with the Alberta floods in 2013.
Insurers also need to use technological advancements in satellite mapping to assess flood-vulnerable areas so that insurers and policyholders understand the risks of certain areas. Reinsurers will also need to focus on contract conditions and coverage limitations with the upcoming renewals in 2014. Furthermore, as mentioned above, the insurance industry needs to do a better job of educating policyholders about the cost of the 2013 floods and how adequate premiums need to be calculated for the right risk profile.
- Nanotechnology. The emerging applications of nanotechnology in the manufacturing of medicine, cosmetics, drug delivery, robotics, materials science, and other products and systems creates potential liability exposures. Examples include bodily injury (analogous to asbestos exposure) and environmental damage from nanoparticles escaping uncontrolled into the air or water supply. The lack of any meaningful history with this technology, as well as with the materials involved, indicates the potential risks cannot be easily assessed.
- Sensor technology. With the increased use of sensors in telematics, the auto insurance industry will be faced with different insurance problems. While this will provide more cost-effective and targeted risk protection of customers, it will create integrated exposure information for insurers. Underwriting guidelines and applications will need to be looked at closely to align all the information gathered and price a product that is appealing to customers.
As many insurers begin to pilot their telematics programs, the question remains whether an insurance per-use model is the way of the future. Many drivers will be frustrated by the acceleration and braking thresholds set with telematics technology and could turn them away. But there is the promise that the model would bring about long-term behavioral change in driving, which would benefit society at large.
The integration of telematics and the driverless cars of the future will be an interesting dynamic for insurers to watch. The entire underwriting assessment will have to be revisited as the chances of human error are reduced. This, however, is still a few years away.
Research and development departments in insurance and reinsurance companies need to explore new approaches to risk measurement and mitigation with regard to emerging products and technologies. Insurance companies will increasingly look outside their organizations for top talent to drive these new initiatives and technologies.
Insurance companies will need to understand their portfolio of products to effectively compete in this environment. Customers will be looking for insurers to employ technology to simplify delivery and processing of their policies and to improve service response times.
All of these issues need to be tackled with a close eye on costs. Internal operations and corporate costs have seen an elevated level of scrutiny as the big insurance players get even bigger, driving their expense ratios down due to the economies of scale they can achieve. The examination of core and non-core assets could lead to strategic refocusing and divestiture of non-core assets and operations.