Property & Casualty Insurance Industry Challenges

Part
01
of three
Part
01

P&C Insurance Industry Challenges, Part 1

Some key challenges facing some of the largest property and casualty insurance companies include regulatory pressures, digital disruption, and a competitive marketplace. These challenges motivate property and casualty (P&C) insurers to alter their current strategy as well as operating models. Some of the largest P&C companies facing these challenges include State Farm, Allstate, Berkshire Hathaway, among other insurance companies.

Regulatory Pressures

  • One of the key challenges facing the property & casualty insurance industry is related to regulatory pressures.
  • Insurance companies based within the United States are required to comply with regulations passed by their states of domicile as well as those adopted by the states where they are "licensed to write policies."
  • Regulations like Regulation 103 passed in California are used to guide the conduct of the property and casualty insurance industry. These regulations often stipulate insurance premiums and form a base upon which defaulting companies can get pressured to refund excess premiums that they have collected from their clients.
  • One of the significant property & casualty insurance companies facing this challenge is State Farm. State Farm sees a decision on the regulation of "insurance rates in California as a challenge.
  • In its annual report, Berkshire Hathaway reveals that one of the challenges faced by its insurance sector relates to changes in regulations as well as "regulatory actions." These changes have the potential to adversely affect the company's operating results and its ability to allot capital. Berkshire Hathaway is one of the top ten writers of property and casualty insurance across the United States and wrote $43.86 billion for its property and casualty insurance sector in 2018.
  • Some insurance companies are using legal methods to combat these challenges that are backed by regulations. One of the companies pulling legal strings to avoid regulatory pressures is State Farm. The insurance company recently went to court to avoid paying out $100 million in customer refunds.
  • State Farm recently filed a case against California's Insurance Commissioner Dave Jones.
  • Based on written premiums, State Farm is one of the largest property and casualty insurance companies in the United States. The insurance company wrote $65.86 billion worth of direct premiums for their property and casualty Insurance category in 2018.

Disruptive Technology (Digital)

  • One of the key challenges facing the property & casualty insurance industry is related to digital disruption. State Farm, Allstate, and Progressive have speculated some potential scenarios for digital disruption. State Farm, Allstate, and Progressive are on the list of top ten writers of property and casualty insurance in the United States.
  • Digital technologies, like augmented reality, networked devices, as well as other emerging digital technologies, are providing new avenues and creating new revenue opportunities among insurance carriers. However, these technological advancements have altered customer behavior as well as customer expectations. Consequently, insurance industries are now struggling to keep pace with evolving technologies and investing in digital platforms as well as solutions are becoming essential to reduce risk exposures as well as enhance their operational efficiency.
  • State Farm and other insurers face challenges related to consumer digital purchasing habits. Digital technologies have evolved to a point where consumers now expect the ability to buy insurance products and services in a similar way to how they buy other goods as well as services using a mobile device and involving minimal human interaction.
  • State Farm believes that the disrupting or differentiating element in the competition felt within the insurance sector lies in its ability to overlay human relationships using enhanced technology such as digital. The company states that it is addressing this challenge, and it will continue to offer digital services and advance its digital capabilities.
  • Some significantly large property & casualty insurance players have anticipated major disruptions that may occur within their areas of operation and are building digital solutions to stay ahead. One of the companies developing digital solutions is Allstate. Allstate recently developed an analytics solution known as Arity after it anticipated significant changes within the transportation sector.
  • Allstate's new analytic company and solution (Arity) has 6recently partnered with Clutch to offer a disruptive digital product.

Competitive Marketplace

  • One of the key challenges facing the property & casualty insurance industry is related to a competitive marketplace.
  • Insurers operate in a competitive marketplace and are competing in terms of reliability, financial strength, financial ratings, underwriting consistency, as well as stability. They also compete in terms of capacity, policy terms, coverage conditions, and in several other areas. The competitors faced by insurance companies like Berkshire Hathaway and other top property & casualty insurance companies are often domestic or foreign.
  • It is quite challenging to combat market place competition in the insurance sector because there is an inadequate insight into the number of competitors operating within the industry. Some players in the industry believe that nobody knows the exact "number of competitors within the industry."
  • One insurance company facing challenges relative to a competitive marketplace is State Farm. Significantly large insurance companies offering property and casualty insurance like State Farm reveal that smaller or budget insurance product and service companies are leveraging cheap knockoff solutions to compete with them.
  • Lemonade recently revealed that big players in the insurance sector like State Farm are feeling the heat in the competition.
  • To survive the competitive market place, property and casualty insurance products and service companies like State Farm are offering low prices and undercutting their "competitor's rates significantly." For a long time, State Farm has built a record going by its ability to provide property and casualty insurance at "competitive prices."
  • To enhance its competitive edge in a competitive market space, Allstate recently proposed a transformative plan to end Esurance and consolidate all its brands to form a single business model. The CEO of Allstate (Tom Wilson) believes that the implementation of the plan will improve the company's competitive position as well as accelerate its growth.
  • Allstate intends to lower its costs to support highly competitive prices without having its margins go down. Allstate's new analytics company (Arity) recently partnered with Clutch to reduce losses and offer competitive rates for its car insurance.

Research Strategy

The study investigates some key challenges facing the property & casualty insurance industry. This strategy included the web resources of Damco Solution, among other trusted resources. Damco offers "proprietary" solutions. Damco Solution offers trusted technological services for businesses covering over 25 industries and has clients that include several Fortune 2000 companies. A recent Damco publication disclosed some top challenges confronting property and casualty insurance companies. The study has verified that some of the biggest P&C companies that write more than $1 billion in annual premiums are also affected by these challenges. A limited number of resources have analyzed the property & casualty insurance industry relative to companies that write more than $1 billion in annual premiums written in a single article. The study has extracted and includes insight into the property & casualty insurance industry, even if they are published along with insights from other insurance sectors. The study also ensures that included insights affect insurance companies that write over $1 billion in annual premiums for the property & casualty insurance sector. The research contains some steps or solutions that major insurance companies are leveraging to combat the key challenges facing the property & casualty insurance industry. The study considers key challenges as those challenges identified as top challenges by reputable sources and highlighted across a plethora of sources as affecting significant companies within the property & casualty insurance industry.
Part
02
of three
Part
02

P&C Insurance Industry Challenges, Part 2

Some key challenges facing the property & casualty (P&C) insurance industry include tense competition in the marketplace, challenges related to regulations, new technologies, and cyber risks. Some companies that write between $500 million and $1 billion annual premiums that face these challenges include the Radian Group Inc, Donegal Mutual, among other firms. These firms become innovative and often try to differentiate themselves from the competition, go to court to battle issues related to legislation or regulations, or take advantage of new technologies.

Significant Competition

  • One of the significant challenges facing the property & casualty insurance industry relates to substantial competition.
  • Competition changes the dynamics and drives market actors to seek expansion to cover new geographies. It often motivates insurers to create new products.
  • One of the insurance companies experiencing this tense competition is the Radian Group Inc. In its 2019 annual report, the group revealed that it faces competition from "other private mortgage insurers" in several areas including but not limited to customer relationships, price, underwriting guidelines, reputation, and perceived financial strength.
  • Radian Group Inc is one of the top property & casualty insurance companies in the United States and wrote P&C premiums worth $991.021 million in 2018.
  • One of the property and casualty insurance companies experiencing significant competition from bigger and smaller insurance companies is Donegal.
  • To weather the competition in the property & casualty insurance industry, some insurance companies are forming partnerships. Donegal Group has partnered with Donegal to offer its "subsidiaries" several competitive advantages like financial strength, operational as well as expense synergies, among other benefits. Donegal wrote property & casualty insurance premiums to the tune of $902.363 million in 2018.
  • Argo is differentiating itself from the competition in the insurance sector by seeking enhanced relationships with distribution partners, expanding its product as well as service offerings, fostering innovation, among other efforts. The company wrote P&C premiums worth $903.348 million in 2018.

Regulations

  • One of the significant challenges facing the property & casualty insurance industry relates to regulations or rules which often seem to be changing.
  • Traditionally, United States laws and regulations give states have primary power to regulate the insurance industry. However, in the middle of the 20th century, a Supreme Court ruling acknowledged that the insurance industry is also subject to federal legislation as well as federal antitrust laws. These changes in regulations affecting state and federal law have made the "world of insurance regulation" quite complicated and always-expanding.
  • These expansions have made it difficult to specify the rights of a policy seller or giver under an insurance policy. Challenging situations often arise and require insurance attorneys to step in and interpret an extensive array of insurance rules and regulations which often have various exceptions.
  • Property and casualty insurance companies are often exposed to challenges related to risks, and uncertainties similar to the one encountered by Donegal Mutual. Donegal Mutual recently revealed that it faces risks associated with changes in existing laws as well as regulations or the manner these laws get interpreted or applied. Such risks can significantly affect its operations.
  • Insurance companies that often feel some groups are trying to convince the judiciary to interpret or apply specific laws and regulations against them usually go to court to challenge such requests. Donegal Mutual recently faced challenges from a legal battle and has filed a "preliminary objection."

New Technologies

  • One of the significant challenges facing the property & casualty insurance industry relates to new technologies. New technologies such as advanced analytics, augmented reality, and other new digital technologies pose some challenges to insurance companies that do not adopt them. The consequence of not taking advantage of these new technologies may leave insurance companies unable to cope with the changing behavior of customers and their expectations.
  • Insurance companies are combating challenges that arise from technology advancements by launching system modernization projects and replacing their legacy technologies. Donegal Mutual (Donegal Ins Group) identifies one of the risks confronting it as the tendency to "fail to keep pace with" its competitors' new information technology systems. To combat this risk, the company officially commenced the modernization of its legacy systems and technologies in October 2018.
  • Predictive Analytics is a technology helping property and casualty insurers to adapt and combat challenges related to high losses and expenses. Church Mutual uses innovative "state-of-the-art" data analytics, as well as artificial intelligence. The company leverages these new technologies to identify policyholders' properties within areas of high-risk for wildfires and observes wildfire activity consistently to alert insureds issuers if their properties are threatened.
  • Church Mutual challenged and disrupted other players within the property and casualty insurance market in 2017 with the creation of a new CM Wildfire Solutions. Church Mutual Ins Group is one of the top 100 property and casualty insurance products and services providers in the United States and wrote $772.117 million worth of P&C premiums in 2018.
  • Donegal Mutual (Donegal Ins Group) is designing and implementing a new policy administration system as well as a new software platform to enable it to take advantage of enhanced "data analytics and reporting capabilities." Donegal Insurance Group wrote property & casualty insurance premiums worth $902.363 million in 2018.
  • Donegal Group is mitigating the challenges posed by advances in technology by adopting and utilizing a new "technology to improve" its operational efficiency.

Research Strategy

The study tries to identify some key challenges facing the property & casualty insurance industry and explores the websites and reports of property & casualty insurance companies that write between $500M and $1B in annual premiums. It also examines the web sites of proprietary insurance service providers like Damco, credible business news reports, among other resources. Damco provides trusted technological services across 25 industries and has clients from Fortune 2000 companies. The company revealed some top challenges confronting property and casualty insurance companies, which were verified across several other resources. Uncovered risks or challenges were confirmed to be affecting some P&C companies that write P&C premiums worth between $500 million and $1 billion annually. No resource was uncovered that analyzed the property & casualty insurance industry relative to companies that write more than $1 billion in annual premiums written in a single article. Thus, the study has extracted insights on the property & casualty insurance industry, even if they are published along with insights from other insurance sectors. The study also ensures that included insights affect insurance companies that write between $500 million and $1 billion premiums annually for the property & casualty insurance sector. The research has highlighted some steps or solutions that the included insurance companies are leveraging to combat the key challenges facing the property & casualty insurance industry. The study considers key challenges as those challenges identified as top challenges affecting the property & casualty insurance industry by reputable sources and appears across a plethora of sources.
Part
03
of three
Part
03

P&C Insurance Industry Challenges, Part 3

Some of the key challenges facing the property and casualty insurance industry include technology advancement, the rising cost of operations, and the increased competition.

1. Technology advancement

  • Augmented reality as well as networked devices and other emerging digital technologies have resulted in the creation of new avenues and revenue opportunities for insurance carriers.
  • With the advancement in technology, customers’ behavior and expectations in the P&C insurance industry has changed, which has subsequently led to certain industry players struggling to keep up with the technological evolution.
  • Companies in the segment are, therefore, addressing this challenge by investing more in digital platforms and solutions in order to enhance their operational efficiency and reduce risk exposure.

2. Rising Costs of Operations

  • This challenge is characterized by the growing need of players in the P&C insurance industry to upgrade to more comprehensive modern systems in order to enhance their performance and efficiency.
  • Companies in the segment are facing this challenge by searching for more cost-effective solutions to try to reduce their digital spending.

3. Increased Competition

  • The steady growth in the P&C insurance industry has led to the increased insurance capacity of carriers, number of new players entering the market, and the proliferation of online insurance services.
  • It is a challenge because the changing dynamics has brought about a more intensified price-based competition in the fight for market share in the sector.
  • Companies in the segment are, therefore, addressing this challenge by developing new products as well as expanding their markets into new geographies.

Research Strategy:

To identify some of the key challenges facing the property and casualty insurance industry, we searched for news articles, press releases, and media publications on related topics. We tried to find pain points faced by the industry by looking for interviews and opinion from industry leaders. We also looked into investor presentations of P&C companies with less than $500 million in annual premiums in the industry in order to understand the pain points they are going through and how companies in the segment are addressing and facing the challenges. After going through numerous news articles published in leading media outlets such as Forbes, New York Times, Wall Street Journal, Financial Times, Business Insider, Fortune, and Bloomberg, we were able to identify several challenges.
Sources
Sources