Concern shifting from pricing to regulatory issues among U.S. insurers: survey

American insurance companies are investing more time and resources to prepare for new regulatory requirements being set out on the international and federal level, according to a new outlook survey from KPMG.

 Based on a survey of 101 senior insurance executives conducted this spring, 60% said regulatory and legislative pressures are the most significant barrier to growth in the coming year, up from 47% last year and 41% in 2011.

Two years ago, executives were also most concerned about cost, KPMG noted.

“Insurers have experienced a significant shift in the marketplace; in just two years, industry executives have abruptly diverted their attention from pricing concerns to regulatory matters,” Laura Hay, national leader of KPMG’s  insurance practice noted in a statement.

“This turnabout is even more significant when you consider that economic conditions have only slightly improved during this time period, so the combination of these two factors creates an exceptionally challenging market,” she added.

Healthcare reform, tax reform and accounting changes, as well as increased regulatory oversight in the U.S. and internationally, have led to insurers developing enterprise-wide risk management plans across all risk types, KPMG said.

“Insurance executives increasingly find themselves responding to clients that understand the close relationship between cost and regulation,” noted David Sherwood, head of KPMG’s U.S. insurance regulatory group.

“To be successful, insurers must craft and align business strategies that can balance both market forces,” he said. “This challenge cannot be approached as an exercise in compliance the business must proactively engage in the regulatory dialogue and look for the benefits and the opportunities.  They are there.”

However, insurance executives are reportedly increasingly confident, with 36% saying that their companies were “very prepared” to manage the impact of regulatory changes, up 11 percentage points from last year, KPMG noted. Only 1% reported that their companies are “not prepared,” down 7% from 2012.

Executives also reported being more confident in their companies’ data analytics capabilities, and a third listed that issue as their highest priority investment area over the next year. More than half (51%) also reported spending on technology to be a priority.

Insurers also showed less interest in merger and acquisition activity for the coming year, KPMG said. While 22% indicated being “very likely” to be buyers over the next year in the 2012 survey, this year, only 10% indicated the same.

Similarly, 17% indicated allocating resources toward acquisitions to be a priority.

Accessing new markets is the driver for 41% of executives in terms of M&A activity, and regulatory changes ranked as the second leading driver, at 36%, KPMG added.