Property/Casualty Insurance in the Era of Rising Complexity

The last half-decade has brought about tremendous change as property and casualty insurers have been operating in an era of rising complexity. Continuous shifts in the economic landscape have led to the emergence of new risks and increased exposure to existing ones.

Executive Summary

Offering a review of trends impacting the P/C insurance marketplace, Scott Shapiro, the U.S. Insurance Sector leader of KPMG, brings three big ones into focus: technology, talent models and weather patterns.

To remain competitive today and going forward, P/C insurers must understand the broader landscape while at the same time developing the capability to manage the increasing complexity of the risks they underwrite.

Take, for example, the COVID-19 pandemic. One significant change to emerge was in personal auto insurance loss trends. In 2020, loss frequency notably decreased because of reduced driving activity. Conversely, loss severity increased, often due to fewer vehicles on the road and a higher incidence of high-speed accidents. As a result, the loss ratio has risen considerably since 2020.

Insurers have continued observing severity levels above their initial expectations, even as driving frequency returns to pre-pandemic levels. This uptick in severity has proven to be a persistent issue rather than a one-time anomaly.

While there are myriad trends and factors such as the aforementioned example resulting in the continuing evolution of the P/C space and ways of doing business, here are three other areas to take note of going forward:

Opportunities for Innovation and Modernization

Riding the tidal wave of technological change remains critical for the P/C space.

Insurers have unique opportunities for innovation in products that cater to evolving customer needs. For instance, P/C insurers can offer parametric insurance products that provide coverage based on predetermined triggers or thresholds, with swift and transparent payouts in response to specific events.

P/C insurers can offer parametric insurance products that provide coverage based on predetermined triggers or thresholds, with swift and transparent payouts in response to specific events.

Additionally, insurers can focus on prevention and mitigation services. This can include helping customers proactively manage and reduce risks through offerings like exposure management and resiliency efforts. By teaming with technology providers and leveraging data analytics, insurers can assist policyholders in implementing effective risk reduction measures.

Another article by Author Scott Shapiro: The Evolving GenAI Journey: Three Ways the Technology Is Impacting P/C Insurance

It’s worth noting that underwriting modernization holds great promise. Using data analytics and technology solutions, insurers can examine the entire underwriting process, identify areas for improvement and make quicker, insight-driven decisions. This can lead to more accurate risk assessment and pricing.

Moreover, integrating technology into various aspects of insurance operations, such as claims processing and customer service, can greatly enhance efficiency and customer satisfaction. Insurers can help policyholders to easily access information, report claims and manage their policies.

Related article series: Making More Connections

Evolving Ways of Working, Talent and Staffing Models

Across industries, the need to upskill talent is taking on greater need, and P/C insurers are no exception as the skills and competencies required for technical roles like actuaries, underwriters and claim handlers are evolving.

A broader skill set is now in demand, with technicians increasingly expected to have strong communication skills to clearly articulate complex concepts to different stakeholders within the organization.

There’s also a shift in staffing models to meet changing business needs and evolving talent preferences. Alternative talent sourcing models, like managed services, are becoming more popular. These models allow insurers to adjust resources and access specialized expertise as needed, offering greater flexibility, cost efficiency and access to specialized skill sets. Furthermore, the increase in remote and hybrid work arrangements is transforming how actuaries and other insurance professionals work and learn.

“A broader skill set is now in demand, with technicians increasingly expected to have strong communication skills to clearly articulate complex concepts to different stakeholders within the organization.”

To effectively navigate this transformation, organizations need to address challenges in maintaining a strong company culture, fostering collaboration and ensuring effective communication among team members. Insurers will need to adapt their management practices and invest in digital tools and platforms to support this new work environment.

Evolving Weather Patterns

Lastly, but certainly of significant importance, the industry is continuing to grapple with the impact of evolving weather patterns, especially the rise in severe convective storms. These storms, which often take the form of intense thunderstorms with damaging winds, hail and tornadoes, have grown more frequent and severe in recent years. This increasing frequency and intensity lead to higher claims and losses for insurers.

The unpredictable nature of these storms, combined with their potential for widespread damage, has complicated the accurate assessment and pricing of associated risks. Consequently, insurers are having to adapt their underwriting practices and risk models to better manage these challenges.

Looking Forward

As noted earlier, P/C insurers are confronting myriad challenges that are continuing to reshape business models ranging from technological advancements to new ways of working to and a changing climate. Those insurers who embrace data and analytics and continue to reassess their approach to the marketplace will continue to be best positioned to adjust to and succeed in an environment defined by evolving risks.