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Five factors driving commercial insurance transformation

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The commercial insurance industry is under rising pressure from five influences including economic uncertainty and increasing environmental, social and governance (ESG) activism, KPMG says.

The five “signals of change” identified in a report also include client and broker expectations, regulatory and legal deglobalisation and technology evolution.

“The business landscape is changing rapidly,” Global Head of Insurance Laura Hay says. “Despite strong market performance, traditional commercial insurance business models are coming under pressure from swirling changes that now have the sector on the cusp of a radical transformation.”

The report on the future of large commercial insurance says clients and brokers expect a cutting-edge experience that is sophisticated and customised. At the same time the rise of insurtechs in the commercial space is starting to add competitive pressure around client pain points.

Regulatory and legal issues are also in focus amid uncertainty around long-term covid impacts, the crisis in Ukraine, inflation, interest rates change and supply chain disruptions.

“The world order is changing and that has catalysed a shift towards more assertive national regulation in some markets,” the report says.

“Combined with ongoing concerns about business and supply chain resiliency, many commercial insurance players are starting to find the regulatory landscape more fractured and complicated than ever before.”

In technology, industrial automation and robotics are providing opportunities to streamline processes amd to gather and analyse data, while cloud-driven technologies, artificial intelligence and machine learning have implications for automation in underwriting and claims settlement.

“To help ensure they are maximising their technology investments, we anticipate commercial insurers will need to put digital and data capabilities at the core of their operating and business models to drive decisions across the business,” KPMG says.

The report says ESG factors are influencing the scrutiny insurers face from regulators, investors, employees, clients and the public.

“While ESG may sometimes feel like a distraction from the core business, the reality is that it is critical both to stakeholders and future growth,” KPMG says.

“In our view, commercial insurers will need to embrace the shift towards ESG prioritisation, both as a way to differentiate and as an opportunity to innovate.”

The report identifies three business models for success in the long-term.

The “agile global player” model reflects the harnessing of new technologies by established firms that are often large international insurers covering multiple countries, business lines and segments.

The “innovative specialist” is seen as a nimble and dynamic organisation able to embrace new and emerging risks, with technology and data helping to scale rapidly and respond aggressively to opportunities.

The third “open-source risk manager” model brings together the best risk management and indemnification solutions from different sources.

Global Head of Insurance Advisory Mark Longworth says requirements for digital transformation go beyond the technology.

“It should be driven by deep client, broker and market insights, and it should be underpinned by a digitally-enabled technology architecture and empowered workforce,” he says. “In our view, it is only by taking this ‘connected’ approach that insurers can achieve true value from their digital transformations.”