Canadian insurers well positioned despite challenging year ahead: Ernst & Young

(Toronto, 30 January, 2012) The Canadian insurance industry faces a challenging climate, but there are opportunities for success – if insurers make the right moves in 2012, says Ernst & Young.

“Canadian life insurers are facing a volatile market in 2012,” explains Doug McPhie, Ernst & Young’s Canadian insurance industry leader. “Equity markets continue to be unpredictable, and we’re seeing a low interest rate environment, which increases risks for insurers. Ongoing changes in regulatory and accounting standards also pose new hurdles.”

The property and casualty (P&C) side of the industry is in a similar situation. McPhie says volatile capital markets and expanding regulation could affect insurers’ risk and capital management programs.

Despite this tough climate, insurers from both sides of the industry who focus on key areas may still be able to achieve growth despite the relatively flat economy. Management should look to reinforce sound risk management standards, make better use of technology and the internet, and work hard to learn about the impact that changing market demographics has on how insurers engage their diverse customer groups.

“To reposition strategically for growth and remain high performers, insurers have to focus on innovation, taking data analysis to new levels and using social networks to better understand the customer,” McPhie advises. “Streamlining cost structures and using a variety of stress testing scenarios to get a better grasp on cash flow could also generate competitive advantages in this environment.”

Ernst & Young suggests Canadian insurers will need to focus on the following to remain competitive in 2012:

Life insurance industry:

  • Manage the company for the current volatile market. Evaluate investment opportunities by using a variety of stress tests to improve asset/liability matching and management processes to better align organizations to new realities.
  • Get a firmer grasp on cost containment. Streamline cost structures. Essentially, do more with less.
  • Prepare for accounting and regulatory convergence. Create products and services suitable to the new regimes, and reduce costs to bolster bottom-line earnings.
  • Drive efficiency and risk management improvement through technology. Implement data analytics to get a better sense of consumer behaviours and risk scenarios.
  • Embrace the internet. Make the brand more visible, reach out to new audiences and develop stronger relationships with consumers through internet applications like social media.

P&C insurance industry:

  • Manage low interest rates and asset liability matching. Set appropriate risk tolerances by identifying relevant stress tests and measuring exposure to risks.
  • Make better use of technology to increase business intelligence and improve efficiencies. Improve cash flow across the business, and tighten operational efficiencies through advanced analytics, cloud computing and social networks.
  • Transform core insurance systems. Transform billing systems to improve customer experiences and cash flows.
  • Strengthen risk management infrastructure to respond to regulatory challenges. Move towards internal capital models for internal risk management, capital management, regulatory reporting requirements and rating agency assessments to improve risk management standards.
  • Adapt to the changing face and voice of the customer. Develop marketing plans composed of multi-channel strategies including online and offline channels to suit demographically diverse customer expectations.

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