PwC: Insurers Must Adopt New Approaches
Insurers “must find new ways to use the benefits of transformation programmes to position themselves for increased growth and profitability in a period of extreme uncertainty,” PwC said.
A spokesperson said, PwC research finds that although re/insurers continue to spend heavily on transformation programmes, they have generally struggled to deliver the intended benefits. For example, the top property and casualty insurers’ underwriting profits have shown no material increase over the past two decades.”
Arthur Wightman, Territory leader, PwC Bermuda, and Insurance leader, PwC in the Caribbean, said: “The central challenge facing insurers today is how to adapt by transforming their organizations and operating models. We see six areas that represent the range of levers for insurance transformation – costs, distribution, capital, ESG, technology, and people.”
Wightman added: “There’s huge volatility in how climate change is manifesting, in terms of underwriting and the risks that are being underwritten. There’s an enormous amount of effort being placed on gathering data – new data that certainly looks different from data ten years ago, using technology to better understand, and price risk.”
Re/insurers looking to make their mark on ESG
The spokesperson said, “Over the past 12 months, the macroeconomic environment has shifted at extraordinary speed, from a relatively low-inflation regime to one where prices are rising at close to 10 percent on an annualized basis in many European economies. Insurance industry CEOs now see Inflation as their top threat, according to PwC’s Annual Global CEO Survey 2023.
“The extraordinary confluence of events is especially challenging for insurance companies because it follows a long period of relative economic stability. This highlights a further key challenge facing financial services firms: no one who has entered the industry within the past 15 years has experienced an inflationary environment like the one that exists today.
“And at the same time, a set of devastating environmental events all over the world have presented insurers with new challenges.
“Insurers and reinsurers find themselves in the eye of this storm not only because of the implications of climate change for claims, but because their huge investment capacity puts them at the forefront of efforts to speed the transition to a low-carbon future.”
Marisa Savage, PwC Bermuda, ESG leader, said: “ESG is affecting both sides of the balance sheet for the sector as the regulatory focus on ESG and society’s expectations ramp up. Moreover, recent regulatory developments are forcing insurers to meet expectations with actions, especially on climate concerns, requiring institutions to develop a comprehensive and coherent approach to ESG across products and services, risk management and reporting.”
The spokesperson said, “In a recent PwC survey, 25% of global insurers told us that ‘understanding ESG-related regulations and guidelines’ is the main challenge in pushing forward their ESG agenda, followed by ‘understanding how best to take action on ESG’ [17%] and ‘matching ESG initiatives with customer needs’ [15%].”
Bermuda market resilient
Matt Britten, PwC Bermuda, Partner – Insurance, said, “When you think about just how challenging the environment has been for the Bermuda market, the multiple years of cat losses exceeding $100 billion, far-reaching impacts of the global pandemic, and more recently, rampant inflation and the rapid rise in interest rates, I think you have to say that the Bermuda market has weathered extremely well.
“It’s shown fantastic resilience, it continues to innovate and it remains a market that attracts new capital and new entrants.”
The spokesperson said, “On the need for re/insurers and ILS firms to demonstrate they can deliver an acceptable level of returns to their capital providers, Britten feels the newly hardened reinsurance market will make it more feasible for costs-of-capital to be sustainably met.”
Britten added, “I definitely feel that 1/1 of this year was a turning point, that should start to allow reinsurers to have a platform from which they can start generating those returns that will help them meet their cost-of-capital.”
