Data is king in Canada’s challenging p&c insurance market: EY outlook

Property and casualty insurers in Canada are encouraged to use data and analytics, as well as invest in people and technology, to develop a new approach better able to meet the current persistent cost pressures and market challenges, notes a report released today by Ernst & Young (EY).

Improved use of data and analytics can help Canadian p&c insurers – already facing and expected to continue to face challenging and highly competitive conditions – could help increase their profit margins, suggests EY’s 2015 Canada property-casualty insurance outlook. The report was co-authored by Marc-Andre Giguere, EY’s national insurance leader, and Walter Rondina, senior manager, financial services insurance at EY in Canada.

“Historic low interest rates, volatile investment returns and low grows domestic product growth are forecasted to persist in 2015, adversely affecting the industry’s profit margins and premium growth,” notes the report.

“Companies have access to a lot of structured and unstructured data, such as information about customers’ lifestyles, online experiences and even driving habits,” Giguere says in an EY statement. “Analyzing this data will require a new approach and significant investments in people, hardware, software and technology. But ignoring analytics will be very detrimental to p&c insurers in 2015 and beyond,” Giguere cautions.

“Predictive analytics and modelling methods are powerful tools that can assist insurer growth, profitability and sustainability objectives,” states the report.

“Personal data is now a new economic asset class. The ability to identify customer behaviours and personal risk profiles has become a competitive differentiator, guiding the tailoring of services products and premiums to each customer’s specific situation,” it adds.

Besides the traditional sources of data to which insurers have access, telematics offers insurers even more data about their customers, EY reports. Telematics plays a big role in allowing for usage-based pricing and is a quickly growing trend in Canada, the company statement notes.

“While a huge force on its own, analytics delivers more value when integrated with all facets of operations,” Giguere says. “That includes offering low insurance prices to low-risk drivers based on their driving habits, evaluating the value a customer can bring over a lifetime, and creating a more efficient claims process.”

The report emphasizes, however, that developing strong analytic capabilities will demand significant investments in people, hardware, software and technology.

EY reports that data analytics can also be leveraged to develop strategies to retain high-value customers, employees and brokers, as well as to pinpoint hidden revenue opportunities within the customer base. Having the right analytics tools will allow insurers to identify new growth opportunities while protecting and optimizing bottom-line results, the statement adds.

More generally, the outlook suggests that in 2015, to achieve growth and relieve pressures on costs and profit margins, successful p&c insurers in Canada will need to undertake a number of strategies. These are as follows:

• improve customer connectivity;

• expand distribution and customer service;

• transform operations to meet future needs;

• build an enterprise data excellence infrastructure;

• proactively address regulatory changes; and

• improve cyber security.

With regard to improving customer connectivity, “a strategic imperative for insurers across all product classifications, geographies and operating models is the need to strengthen customer relationships, putting customers at the core of operations,” the report states. “Successful insurers in 2015 will leverage customer-centric innovation to differentiate themselves and gain sustainable market leadership positions.”

Among other things, tools such as websites, blogs and social media increasingly must be mobile and accessible on a constant basis; insurers need to present a clear and differentiated brand image, in addition to transparent pricing terms, customer service, claims settlement, billing options, product offering and channel offerings; and a flexible and integrated multi-channel should be developed, “driving the right consumers to the right channels for the right interactions at the right price,” the report states.

“The availability of consistent information through multiple channels is a baseline requirement for insurers in 2015,” it emphasizes.

Another key for many p&c insurers in 2015 will be to optimize distribution channels. “The goal is to create a consistent customer experience by integrating distribution and communication channels and providing enhanced transparency of information,” the outlook states.

Insurers are encouraged to adopt tools – such as cloud computing, smartphones and business collaboration software – “to deliver and receive digital information on any device – safely, securely and with few resources,” the report adds.

That said, insures must be prepared that changes could lead to new risks. “As the insurance industry further embraces the use of mobile and digital devices and new distribution channels, the risk and impact of cyber theft becomes more problematic. The new ways of developing and distributing products generally require new processes, systems, languages and cultures – all involving varying degrees of security risk and threat awareness,” the report points out.

“New methods are needed to definitively identify the cause of a data security incident, when it occurred, the assets affected, and whether or not insured assets were exposed outside the organization,” EY advises.

There is also a need to look beyond 2015 by transforming operations to meet future needs. On the claims front, for instance, the outlook suggests the following initiatives in 2015 will prove beneficial:

• implementation of systems to measure and reduce claims leakage;

• optimization of claims outcomes by ensuring appropriate amounts are paid claimants;

• claims strategic sourcing strategies to optimize loss adjustment expenses and indemnity costs;

• approaches that segment claims based on customer profile, claim type and complexity;

• claims fraud management; and

• improved ease around mobile/Internet claims filing.