The opening session at Philly I-Day featured an Executive Panel discussing a wide variety of insurance industry concerns. The panel consisted of:
- Dr. Robert Hartwig, CPCU, President, Insurance Information Institute
- Patricia Henry, Executive Vice President, Global Government Affairs Officer, ACE Group
- Michael L. Liebowitz, Senior Director of Enterprise Risk Management and Insurance, New York University
- Robert S. Schimek, Vice President and Chief Executive Officer of the Americas, AIG
- Moderator: Roger C. Fell, ARM, CPCU, Managing Director, Marsh USA
The session started with Dr. Hartwig discussing property/casualty insurance market challenges, opportunities and disruptors. The highlights of his presentation included:
- 2014 was the best year from a profitability standpoint for the P/C industry since the recession.
- The profitability of the industry fluctuates significantly over time, mostly due to large catastrophic losses such as hurricanes.
- One enduring challenge the insurance industry faces is continued low investment returns.
- Premium growth the last few years has been relatively flat.
- Yield on industry investment assets has declined steadily due to those poor investment returns.
- More alternative capital is entering the reinsurance space, which has increased capacity. Approximately 11.5% of the capital in reinsurance is from this alternative collateral.
- There seems to be no correlation between party affiliation of the President of the United States and insurance industry profitability.
- Insurance is a highly-regulated market with regulation at the federal, state, and international level. This presents a significant challenge to the industry.
The session then moved to a Q/A discussion with the panel.
Question: What is the biggest challenge that your company faces?
- Advances in technology. As technology advances the insurance industry must keep up. Self-driving cars are the biggest example of this as this will be a game changer for the P/C industry. We still haven’t determined who is liable if a self-driving car gets into an accident. There is no driver, so is the company providing the self-driving technology liable? There is also concern about self-driving cars being hacked.
- As an employer, how do we go about educating our organization on the issues surrounding risk management and insurance? Your board has a false sense of security thinking they are completely protected from any potential risk, when the truth is, there could always be risks that are unknown or uninsurable.
- Risks associated with traveling employees are also very challenging when you have staff that travels around the globe. It is essential to keep track of where your employees are so you are aware of potential political risks in certain areas of the world.
Question: There is so much going on in the regulatory environment with the insurance industry. What are your concerns around this?
- Many insurance carriers’ biggest concerns are on the regulatory side. This is constantly evolving with 50 different state regulators monitoring carriers in addition to the federal government. For carriers who do business internationally, each country has its own set of regulations. There are many opportunities for more efficient regulation of the insurance industry, but there is little coordination between the regulators in different states and countries.
- One of the biggest concerns regulators have is whether carriers have sufficient capital. Different countries want carriers to have collateral held in their country. This is very difficult for carriers because it would require them to be over-collateralized on a global basis, which their pricing structure would not support.
- No regulator wants an insurance company to fail under his or her watch. Thus, they all want to make sure carriers have sufficient capital. However, different states and countries have different views of what constitutes sufficient capital. Once again, this creates a situation where carriers can be required to over-collateralize. Carriers make decisions on which countries they will expand into based on these collateral requirements. Ultimately, the costs of collateral are passed on to consumers so if over-collateralization is required this leads to higher prices for buyers.
Question: The technology in our industry sometimes lags behind other industries. How can we use technology to operate more efficiently?
- All insurance companies have technology worries, as this transcends everything they do. Some auto insurance companies install monitoring devices in vehicles and provide lower rates to “safe” drivers. Now a life/health carrier is offering potential discounts to policyholders who use a wearable device to track their activity level so that they can determine if the person has a “healthy” lifestyle.
- There can be disadvantages to having too much technology and information. This can result in information overload and cloud decision making. From a regulatory standpoint, there are concerns about how carriers will use data and analytics to set premium levels. Regulators are paying close attention to this to make sure it does not result in discriminatory underwriting practices.
- Data should not be solely used for internal purposes such as underwriting decisions. The information can also be used to help reduced accidents in the future by identifying loss trends and developing strategies to address these issues.
- Analytics can be used to protect your reputation. This is something that the insurance industry can not protect for you.