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Insurance CEOs have much to prove

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The CEOs of the world’s biggest companies are facing challenging times amid a volatile and often unpredictable global economy – and the rapidly transforming insurance marketplace is throwing up more than its fair share of challenges to insurance and reinsurance leaders.

The fact people are living longer and have more wealth to protect presents insurers with an opportunity, but one of the biggest threats facing them is the value of the product they sell. 

The trend to commoditisation, the squeeze on margins and the increase in self-insurance is not only intensifying price competition, it also muddies the value of coverage.

This is an insurance-specific issue, with long-term implications, but insurance CEOs face many more problems that place them in the same boat as their peers in other industries. This will come as something of a shock for many insurance chiefs not used to being part of the wider CEO community.

The insurance industry – perceived, with some accuracy, as “clubby”, arcane and hidebound – often stands apart from the economic and market conditions that trouble other sectors. But more than ever the issues that keep CEOs awake at night apply equally across diverse industries.

This is evident in the 18th annual PricewaterhouseCoopers (PWC) Global CEO Survey, which includes a breakdown by sector.

When PWC researchers asked company CEOs about the trends that will most disrupt their companies over the next five years, it was clear the issues raised are commonly affecting companies across the economy with some force.

What is striking is that the insurance industry has revealed itself to be more at risk than other sectors from market forces that normally would not trouble it. 

The survey finds 69% of insurance CEOs feel their industry will be disrupted by changes in distribution channels, 71% by changes in customer behaviour, and 88% by changes in government and industry regulation.

With intense competition showing no sign of abating, insurers are increasingly looking to buy market share.

Nearly half of insurance CEOs plan to enter joint ventures or strategic alliances over the next year. Two-thirds view these as a means of gaining access to new customers.

But it is not just about new customers. More than 30% of insurance CEOs see alliances as an opportunity to strengthen innovation and gain access to new and emerging technologies.

Insurance chiefs are feeling the pressure of the “war for talent” as they look further afield than they have previously.

A rapidly changing market requires a more diverse workforce with new talents: 80% of insurance CEOs told PWC they now look for a much broader range of skills than before. But this has exposed them to new risks, with 71% admitting the “limited availability” of the key skills they require is a threat to growth.

Diversity is now recognised as a critical means of enhancing business performance, innovation and customer satisfaction. Nearly three-quarters of insurance CEOs have a strategy to promote talent diversity and inclusiveness, or plan to adopt one.

But nearly 40% have no plans to seek out talent in different geographies, industries or demographic segments – reflecting again the insularity of the industry.

QBE Group CEO John Neal, who was interviewed for the report, told researchers he fears neither negative trends nor new market entrants.

“You’ve got to look at disruptors and see what you can learn from them. They often come with very smart innovation and different service propositions. You’ve got to welcome their participation in the marketplace because they teach us different ways to interact with customers.”

At a time when insurance faces challenges that are no longer industry-specific but common to companies across the economy, CEOs would be well advised to open themselves to strategies and thinking from other industries and markets. 

Insurance companies might do well to recruit more widely into their senior executive ranks. This would not be without its own challenges: insurers have tended not to look to other sectors when recruiting senior executives, and the feeling is mutual. Non-insurance executives rarely look to insurance companies as an avenue for advancing their careers.

As well as appealing to consumers and businesses to underline the value of cover, insurance companies need to convince the best and brightest talent in other sectors that they have much to offer.

In a complex and contradictory environment, insurance CEOs will more than ever have to prove their worth. If that raises the bar for the quality of executives in the insurance industry – including CEOs – that can’t be a bad thing.