Insurance CEOs are more concerned than leaders in other industries about combined disruptive threats to their revenue growth prospects, according to findings from the 20th annual “PwC Global CEO Survey.”
PwC polled 95 insurance CEOs from 39 countries, who expect to be hugely affected by disruptive change and “feel more threatened” than leaders of sectors such as entertainment and media, banking and healthcare, the survey report said.
Nevertheless, insurance CEOs’ optimism about their growth prospects remains strong, though they’re less buoyant than last year, PwC said. Thirty five percent are very confident that revenues will improve over the next 12 months (compared to 38 percent last year) and 39 percent are very confident they’ll see an increase over the next three years (compared to 52 percent last year), the report continued.
Further, 81 percent of insurance leaders expect they can grow revenues organically by “embracing new technologies, adapting their workforce and pursuing M&A activity,” said a synopsis of the report, issued as a press release by PwC. (See “Path to Growth” section below for more on CEO optimism).
Fears around the speed of technological change have increased since last year, with 83 percent of insurance CEOs citing it as a threat to growth (up from 69 percent) and 28 percent saying technology will completely reshape competition in the industry over the next five years, the report continued.
New entrants to the market continue to be perceived as a threat, with 65 percent of insurance leaders highlighting concerns about the competition they face, it said.
Technological disrupters range from robo-advice to pay-as-you-go and sensor-based coverage, the PwC report added.
The competitive pressures are “heightened by competition from lean and agile insurtech entrants, which can get closer to customers while still being able to undercut more established businesses on cost and price,” said the report. “Incremental innovation and marginal cost savings won’t be enough to sustain profitability and growth in this disrupted marketplace.”
Economic, Social, Policy & Environmental Threats
Over-regulation continues to be the number one concern for 95 percent of insurance leaders across the globe, the report said, noting that other threats are uncertain economic growth (84 percent), social instability (75 percent), geopolitical uncertainty (74 percent) and the future of the Eurozone (72 percent).
“Over half of insurance leaders globally (60 percent) believe it is becoming harder for them to compete in an open global marketplace amid moves toward more protectionist national policies,” PwC continued.
Additional concerns include increasing tax burden (71 percent), exchange rate volatility (62 percent), climate change and environmental change (61 percent), terrorism (56 percent), unemployment (56 percent), inadequate basic infrastructure (47 percent), and access to affordable capital (39 percent).
In the area of business threats, more than three-quarters (78 percent) of CEOs are concerned that shifting customer behavior threatens growth, (up from 64 percent last year), according to the report.
“Even if a business has a dominant market share, it will still need to get closer to customers and be able to customize products and services to their individual preferences,” the report said, noting that keeping pace with change isn’t just a matter of embracing new technology.
The full list of business threats to growth cited by respondents is: speed of technological change (83 percent), availability of key skills (81 percent), cyber threats (81 percent), changing customer behavior (78 percent), lack of trust in business (74 percent), new market entrants (65 percent), , readiness to respond to a crisis (58 percent), supply chain disruption (34 percent), volatile commodity prices (29 percent), and volatile energy costs (21 percent).
“In order to adapt, insurers need to ensure they have a diverse workforce representing their customer base but 83 percent of insurance CEOs see a lack of availability of key skills as a threat to business growth,” the report’s synopsis continued.
“Diversity and inclusion are moving up the agenda as insurance CEOs look to broaden their talent pool and bring in the fresh ideas and experiences needed to foster innovation,” the report said. “Ninety-four percent of insurance CEOs are keen to promote talent diversity and inclusiveness, more than those in any other industry PwC surveyed.”
Many women and other groups who are under-represented in senior management still face barriers to promotion, the report said, emphasizing that policies alone won’t overcome these issues. “What’s needed is a change of mind-set that stretches from more agile ways of working to how targets are met and performance and potential are judged.”
Path to Growth
“Despite soft premium rates, low interest rates and subdued economic growth contributing to ongoing cost pressures, insurance CEOs are generally optimistic about their companies’ growth prospects with 81 percent of those surveyed confident they can achieve [organic] revenue growth over the coming year,” said the survey.
PwC indicated that many insurers are rising to the challenges they face. “Their readiness to embrace the new possibilities opening up in the marketplace is evident in the fact that 67 percent of industry leaders see creativity and innovation as very important to their organisations, ahead of other financial services sectors,” the report said.
The report noted that 61 percent of survey respondents said “they are exploring the benefits of humans and machines working together” in order to ensure their workforce is fit for the future.
Drawing on the CEO survey findings, the PwC report examines how insurers can emerge stronger from this period of strategic and operational transformation. “What typifies the leaders is not how much they invest, but the culture of innovation that permeates the organization. The front-runners also recognize that ‘customer intelligence,’ along with the quality of the client insights and interactions that underpin it, is their most valuable asset and surest foundation for profitability and growth.”
Following a wave of industry megadeals in late 2015 and early 2016, the survey found that 35 percent of insurance CEOs say they are planning new M&A activity in the next 12 months to drive growth and profitability.
“The optimism shown by insurance CEOs for continued growth shows how the speed of technological change can be turned into a great opportunity,” commented Jim Bichard, UK insurance leader at PwC, in a statement.
“As customers demand more interactive and transparent interactions with their insurers, partnering with startups to learn new ways of working enables the sector to tap into a wealth of different experiences,” he added.
“By engaging with these new entrants to the market and simultaneously rethinking their in-house talent strategies, companies are waking up to the fact that a smart, diverse workforce will be their secret weapon. Insurers can reap the benefits of being proactive in disrupting themselves as a way of combating perceived external threats to growth such as regulation,” Bichard continued.
The full report can be viewed on the PwC website.
*This story appeared previously in our sister publication Insurance Journal.