North American property/casualty insurance chief financial officers make capital spending decisions based primarily on financial strength as they confront new technology, other competitive demands and an uncertain future, according to a new Towers Watson survey.
Participants were asked to pick up to three responses that reflected what drove their capital spending.
Towers Watson found that 61 percent of responding CFOs use financial strength as the main driver. But 30 percent use opportunistic ventures as a trigger to spend capital and 26 percent spent capital to address market demand for traditional products and channels.
Meanwhile, 44 percent of CFO respondents said that technology is the biggest challenge to overcome as carriers pursue operational excellence and competitiveness.
So where will that capital be deployed over the next two years? Towers Watson said that 52 percent of respondents will spend the capital on analytics and other technology. Nearly half – 48 percent – will invest in underwriting, claim management core data systems and infrastructure, and the same percentage will focus financial resources on data capture, access and reporting.
Approximately 39 percent said they’ll focus capital spending on pricing and product development, according to the survey.
Investments aside, CFOs told Towers Watson they are worried about the future in a number of ways. According to the survey, 70 percent of respondents said redundancies will run out within 1 to 3 years. About 74 percent said they’re concerned about unexpected costs from legal cases, legislative and social trends. As many as 65 percent of respondents said they’re concerned about general claims and cost inflation, and 56 percent worry about new or latent sources of claims, according to the survey.
“Insurers’ focus on financial strength does not come at the expense of growth and innovation,” Alejandra Nolibos, director in Towers Watson’s property/casualty business, said in prepared remarks.
Nolibos noted that the focus on financial strength makes sense in the face of worries about loss reserves and other financial challenges ahead.
“The focus on financial strength … seems to be supported by CFOs’ concerns about the risks inherent in loss reserves,” Nolibos said. “They see reserve releases that may dry up soon and fear a turn in the relatively benign claim environment we’ve experienced in the last decade.”
Source: Towers Watson