Navigating Government Regulations and Achieving Post-Recession Growth Top Priorities for Insurers in 2011, Says PwC US

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Apr 13, 2011, 10:03 ET

NEW YORK, April 13, 2011 /PRNewswire/ -- Insurers today are facing more and greater changes to the way they do business than at any time in recent memory. Regulatory, standards setting and legislative challenges are creating uncertainty at the same time insurers are seeking new ways to compete in a world of changing consumer behavior. To help insurance industry stakeholders better understand and address these challenges, PwC US has released "Top Insurance Industry Issues in 2011," an annual report that identifies existing and forecasted industry challenges.

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Regulation and Legislation

Real and proposed changes to federal regulation and taxation will have a significant impact on many aspects of business operations in the insurance industry. The implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and the potential sun-downing of Bush-era tax cuts remain in question as Congress is divided between a Republican-led House of Representatives and a Democratic-led Senate.

In its current form, the Dodd-Frank Act will have a limited effect on most insurers, but it could have a profound impact on some depending on the nature and structure of their business, as well as the development and application of future regulation. Throughout 2011 and beyond, the insurance industry will need to very closely monitor how regulators formulate provisions and how those provisions are practically applied and enforced.

Subsequent to the current administration's late 2010/early 2011 tax cut extension, discussions about federal taxation remain muted for the moment. It is possible that the sector will be subject to higher taxation in the coming year as the federal government pushes to preserve and expand the tax base.

In an initiative that is concurrent with the European Union's Solvency II framework (which is likely to affect several U.S.-based insurers), the National Association of Insurance Commissioners is focused on enhancing the U.S. regulatory environment in several key areas.

2010 saw unprecedented activity from the FASB and IASB, which resulted in a number of important proposals that will significantly impact the accounting models for insurance contracts, financial instruments and revenue recognition. Given the fundamental impact of these proposed standards on the measurement of an insurer's financial performance and position, many companies are making substantial investments to understand and anticipate how their business should react.

"Regulatory, standards setting, and legislative developments will present considerable challenges to insurers' entire organizations. Everything from compliance, financial reporting, and actuarial to systems and HR will feel their impact," said Tom Sullivan, principal, PwC US.

Strategic Business Decisions

There has been a significant decline in the number of captive agents, independent agents and brokers. The number of registered representatives selling life insurance dropped by 5.6 percent between 2006 and 2010, and, as a result of increasing direct sales of auto insurance, including a 28 percent increase in sales over the web, the number of agents and brokers selling personal lines insurance has also declined.

"Customers are used to real-time, multi-media interaction in all aspects of their daily business and personal lives, and they expect the same convenience and accessibility from their insurance providers," said Jamie Yoder, co-leader, PwC's Insurance Advisory. "As a result, the role of the insurance advisor is being permanently altered, and insurance providers are focused on meeting customer demands across all channels."

In 2011, insurers will increase their investments in the following:

Operations and platforms: Insurers will make investments to transform claims, policy administration and billing operations and platforms to improve pricing sophistication, operating leverage and responsiveness to customer and agent demands across multiple channels.
Align human talent: Insurers will automate processes that do not necessarily require the human touch, and refocus key human resources in organization, risk and underwriting, with the goal of shifting the mindset away from silos to create a more dynamic, multifaceted and innovative organization.
Enterprise-wide intelligence: Insurers will invest in technology to make better decisions about the future of risk. New analytics techniques, such as non-linear dynamic modeling, will help insurers account for the interactivity between market variables. At the same time, insurers will integrate new and non-traditional external sources of data not only to price risks and minimize losses but also to better understand and serve customers.

To more quickly gain market share and increase profitability, insurers are looking for new ways to bundle products and services and to add new features and benefits. They are actively seeking ways to gather, interpret and utilize data to increase operational efficiencies, segment marketing initiatives, improve pricing and reduce potential losses. They also are developing new and creative ways to sell products through smart phone applications, telematics and other cutting edge technology. In order to market these new products and services more effectively, insurers are increasing their investments in information analytics, marketing infrastructure and talent recruitment.

Yoder added, "Insurance companies are following the lead of other industries like credit card services and packaged goods. Today, they are focused on listening to and understanding customers and customer segments in order to create deeper and longer lasting relationships and develop more distinctive service and product bundles. "

The Top Insurance Industry Issues in 2011 report also explores the following subjects:

Risk Management
Mergers and Acquisitions
Process and Core System Improvements

Download the Top Insurance Industry Issues in 2011 report at: http://www.pwc.com/us/insuranceissues2011

About the PwC Network

PwC firms provide industry-focused assurance, tax and advisory services to enhance value for their clients. More than 161,000 people in 154 countries in firms across the PwC network share their thinking, experience and solutions to develop fresh perspectives and practical advice. See www.pwc.com for more information.

© 2011 PwC. All rights reserved. "PwC" and "PwC US" refer to PricewaterhouseCoopers LLP, a Delaware limited liability partnership, which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity. This document is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

SOURCE PwC