Home Breadcrumb caret News Breadcrumb caret Risk Mega issues with Megatrends Will the insurance industry be ready to effectively respond to the rise of social media, big data and other megatrends? Results of a recent global survey from Towers Watson indicate that while new challenges are emerging, the insurance industry is lagging behind. July 31, 2013 | Last updated on October 1, 2024 4 min read Hlne Pouliot, Canadian Risk Consulting and Software Leader, Towers Watson The insurance industry has faced major changes throughout its history, but the risks posed by emerging technology and other megatrends pose challenges of a different kind. One example relates to a new generation of buyers raised on Facebook, Twitter and other social media who have an entirely new approach to how they make buying decisions. What then are the implications for insurance product development and distribution channels? Unfortunately, many insurance companies believe they are ill-prepared to face the challenges of looming “megatrends” like social media, advanced technology (big data) and changing demographics. That is the main finding of a recent study conducted at Towers Watson. As part of the company’s 2013 Insurance Megatrends Survey – conducted in co-operation with New York City-based International Insurance Society – more than 500 industry executives from around the world were asked to identify issues they felt would be of greatest concern in the next two and five years, and how prepared they were to deal with them. SOME RESULTS PREDICTABLE, SOME NOT Predictably, the three top megatrends that they identified for the short term were capital management challenges resulting from sustained low interest rates and a volatile investment environment (66%); increased regulatory and legislative constraints (61%); and volatile economic conditions (50%). The survey also found most respondents felt they were well-positioned to deal with these concerns (75%, 63% and 76%, respectively). However, the same executives admitted to being much less prepared to face evolving issues, such as the impact of social media, the role of advanced technology and recruiting/retaining talent. The fact that insurers are well-prepared to focus on capital management and regulatory constraints is not surprising. A lot of work has been done in the last few years to improve risk management framework, identify and quantify risks, and complete ongoing stress testing. The survey results, however, also revealed that there is not sufficient attention being paid to emerging trends that are predicted to have a tremendous effect on the insurance industry in the near future. For the most part, of the 42 Canadian insurers who participated in the survey, their opinions align with their international counterparts and the general survey findings apply to the Canadian market. For example, Canadian executives ranked capital management and regulatory constraints as their number one and two megatrends. However, there were some differences between the responses from life and property and casualty insurers. For example, p&c insurers felt more strongly about the increased role of advanced technology/big data and the impact of increased extreme weather/climate changes than volatile economic environment or the attraction/retention of talent. Those insurers, who have traditionally used predictive modelling more extensively than life insurers, recognize the benefits of such techniques and predict that they will play a more significant role in the near future. FOCUS ON TALENT Interestingly, Canadian survey respondents appear to be more concerned about talent retention and attraction over the next five years as compared to other survey participants. Slightly more than a quarter of the North American survey participants, 27%, viewed talent attraction and retention as a serious concern, while the equivalent figure for Canadian respondents was 41%. In Europe, only 14% of insurance executives polled thought attracting and holding on to talent was going to be an issue during the same period. In Asia/Pacific, however, about one-third (31%) of the responding executives felt talent would be a long-term problem. The difference in perspective is not easy to explain. Designing and selling insurance products to future generations will be very different from what it is today. Insurers will need creative and innovative employees who understand the changing dynamics of the customers’ motivation to buy insurance, and the profitability drivers under the new upcoming accounting rules. In a small and competitive market, Canadian insurers may be at a disadvantage when it comes to finding and keeping the talent they will need. PREPARATION WANTING In addition to identifying and ranking trends, the survey also asked respondents to rate how well-prepared they were to address them. Canadian respondents tracked closely to their international counterparts when it came to capital management and changing regulatory environment. They also share some of the concerns on being able to leverage volatile economic conditions. Though the Asia/Pacific respondents displayed confidence in their ability to meet demand for new products in emerging markets, they confessed to being ill-prepared when it comes to dealing with the increasing power of consumers using social media. In all, 43% of Asia/Pacific executives reported that their companies were not prepared at all and probably would not be for some time. Likewise, Canadian respondents also acknowledged being unprepared to deal with social media-savvy customers (44%) – compared to 34% for North American executives, and 21% for European respondents. As part of the survey, executives were also asked if there were other industry or market trends they believe will have a transformational impact on their business. Responses from life and p&c insurers included big-picture issues, such as the following: • the convergence of megatrends – i.e., the use of advanced technology/ big data in regards to demographics, extreme weather events, and longer-term risks like carbon footprints and nanotechnology; • product commoditization, non-traditional competitors and the use of usage-based insurance for risks other than auto; and • changing consumer demand. Canadian executives also listed shorter-term, more tactical concerns, including the following: • broker consolidation and the emergence of direct writers; • increased competition, including from the banks; and • p&c industry consolidation. Results show that surveyed industry executives believe that capital management, low interest rates and regulatory constraints will almost certainly continue to be challenges over the next five years. However, talent management – at least for Canadians – appears set to become a growing issue, while other megatrends, such as the increasing role of advanced technology and the impact of social media, may yet become just as important. Save Stroke 1 Print Group 8 Share LI logo