2017 EY Canadian property and casualty insurance outlook
The Canadian property and casualty (P&C) sector will continue to evolve at a rapid pace in 2017 as the convergence of economic, political, technological, customer and regulatory forces shape the playing field in profound ways. These multiple disruptive forces will continue to put pressure on insurers from the growth, profitability, compliance and risk management perspectives.
Advances in technology are raising customer expectations for innovative insurance offerings and digitally enabled business models. Growing demands for technology-driven solutions and threats from new, digitally enabled players will push insurers to enhance their digital capabilities in 2017. P&C insurers will increasingly use digital technology to reach new clients, upsell insurance services and products, and enhance interfaces between sales agents/brokers and customers.
InsurTech will lead to further disruption in 2017, as innovative startups take a customer-centric approach to fill gaps in the current insurance offering. This represents both an opportunity and a threat for insurers. Additionally, insurers will take further steps to enhance the online customer experience and use technology to deliver simpler, faster and more affordable insurance products, processes and new business models.
Technology advances have brought with them a variety of new risks that will impact the P&C insurance landscape. These include smart homes, the sharing economy, self-driving cars, drones, cybersecurity and sensor-based insurance. In this context, improving data analytics, including customer data analytics, will be a priority for most insurers in 2017 as advanced analytics can help insurers address many of these risks and deliver to their customers’ changing expectations.
Despite these advances in technology, many insurers are saddled with dated technology platforms and inefficient operations, which hinder their efforts to achieve their strategic objectives and meet their customers’ evolving needs.
Global economic weakness and volatility, coupled with political uncertainty on numerous fronts, are having an impact on the Canadian economy, and insurers are not immune. From slow growth and low interest rates to volatility in the energy sector and potential protectionism in the US, the economic and political contexts will affect insurers in 2017. To add to this backdrop, P&C insurers are dealing with low investment yields, soft pricing and increasing claims costs, including catastrophic loss claims stemming from increased natural disasters. This is straining returns and necessitating fundamental structural change to the enterprise cost base and driving the need for insurers to focus on profitable growth and to do more with less by finding cost efficiencies.
Add to this an evolving regulatory context, and it is clear that for many insurers 2017 will be a year of continued change and strategic reassessment of core businesses and business models. On the regulatory front, changes in response to new risks affecting consumer protection, capital, cybersecurity and the sharing economy will only become more onerous for insurers.
In all, 2017 will be a year of disruption and change. The insurers that will be well positioned to succeed in the years ahead are those that are able to understand how changes in the external environment impact them and formulate a strategic response to seize the opportunities that this dynamic market offers.
Impact of external factors on the Canadian P&C market in 2017
(1 = low impact, 10 = high impact)
Constant innovations such as blockchain, digital technologies, InsurTech, the sharing economy, drones, robotic process automation, sensors and analytics are having a profound effect on the insurance sector. The impacts can be felt throughout the insurance value chain and insurers need to be aware of opportunities and threats related to these innovations. Advances in technology are enabling proactive insurers to improve efficiencies across their operations, from underwriting and policy administration to claims and risk management. New smart technologies, such as artificial intelligence, telematics, driverless cars and blockchain, will be game changers.
Economic and political uncertainty
Low interest rates and stagnant Canadian growth will put continued pressure on insurers, and the economic policies of the new US administration may have impacts on the broader economy.
The convergence of demographic, regulatory and technological change will raise expectations for a more digital, personalized and seamless customer experience. Simpler products and a holistic financial orientation will become prerequisites as insurers strive for true customer centricity.
Natural and human-made disasters are a constant threat for P&C insurers, who are already dealing with low investment yields, economic uncertainty and soft pricing.
With digital attacks on the rise, cyber risk insurance will see significant growth as a commercial line of business in 2017. To maintain their leadership role, insurers themselves will be under pressure to create robust cybersecurity systems in their own organizations.
With many insurance professionals retiring in the coming years, insurers will need to attract millennials to fill the gaps. Insurers will need to attract data scientists, cyber risk specialists, digital marketers and others to secure their future.
Strategic priorities for 2017
For Canadian P&C insurers, the interplay of economic, regulatory, technology and market shifts will bring new strategic challenges. These disruptive forces are having a profound impact on customer expectations and creating demand for new products and services. In a fast-evolving digital environment, agility is key. This poses challenges for an industry that in the past has been slow to change. Additionally, the investment required to drive future innovation is competing with the need to find efficiencies and comply with growing regulations.
Against this backdrop, the fiscal realities of compressed margins and declining investment revenues in the sector are making investment choices increasingly difficult. Insurers will need to use technology to optimize costs to free up funds for strategic investments.
In today’s context, organizational transformation is essential if the insurance sector is to weather the unprecedented forces that it faces.
A strategic roadmap to drive profitable growth:
- 1 Focus on customer-centricity
- 2 Focus on customer-driven innovation
- 3 Use technology to improve top- and bottom-line performance
- 4 Put the perils of CAT and cyber high on the corporate agenda
- 5 Rethink strategies to attract, develop and retain talent