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While the past couple of years have been profitable ones generally for the global commercial insurance industry, a continued softening of the property/casualty insurance market is going to create challenges for many companies, as well as opportunities for those companies facile enough to grasp them, according to a new report.

Deloitte's "Global Insurance Industry Outlook Midyear Update: 2008" outlines numerous ways that commercial insurers can not only stay afloat but thrive during this softening insurance market and what is generally perceived to be a global economic pause.

"With the balance of power shifting from employer to employee, insurance companies will need a greater emphasis on flexibility, learning and career-life fit to remain attractive places to work," the Deloitte study authors said.

And with the investment losses that either created a drag on commercial insurers' profits in early 2008 or erased them entirely, leading to substantial losses in some cases, insurance companies will also have to become more aggressive about implementing the same enterprise risk management in their own operations that they have been so willing to suggest that their clients undertake.

"While many insurance companies have ERM programs, most are still far from achieving this vision. Achieving a holistic view of risk management will require most insurance companies to make significant changes in their organizational structures, risk models and IT systems," the Deloitte authors wrote.

That means that more insurance companies should create the role of chief risk officer and that management and the board should give that person the resources and support to do their jobs properly.

With the U.S. insurance business being what the Deloitte authors characterized as a "mature" industry, companies in this softening market will be competing not only for talent but also on price. And as prices head downward, companies that want to stay profitable will have to continue to focus on cost-cutting.

That's where the advanced analytics and predictive modeling that insurance companies pride themselves on will continue to play a strong role. One area that the Deloitte authors took pains to highlight was medical claims.

"Within a claim population, 20 percent of medical claims typically represent 60 percent of total claim costs. Advanced analytics can identify these high-exposure claims very early in the adjustment process and then route them to staff with the appropriate level of skill and experience needed to effectively drive better claim outcomes. These tools can also provide decision support, accelerating the recognition of issues and improving the judgments of claim resources. Through successful implementation of predictive analytics, companies typically can achieve claim cost savings of 3 percent to 5 percent or more."

September 1, 2008

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