Global: P&C insurers must reset relevance by plugging protection gaps
Source: Middle East Insurance Review | Mar 2023
As the nature of risk is evolving faster than ever, commercial carriers must step up to fulfil the societal desire for resilience in a volatile world by closing protection gaps - or risk losing relevance, said the McKinsey & Company’s Global Insurance Report 2023: Expanding commercial P&C’s market relevance.
The report noted that global commercial property and casualty (P&C) lines have delivered strong financial performance in recent years following the soft market of 2013 to 2018, despite widespread disruption in the wake of the COVID-19 pandemic, Russia president Vladimir Putin’s invasion of Ukraine and the resulting supply chain disruptions. Premiums have been propelled by extensive year-on-year risk-adjusted rate hardening: the annual premium growth rate for commercial P&C lines has hovered at 6% to 8% since 2018, and combined ratios have been improving.
However, commercial carriers find themselves at an inflection point as they face a continuing cycle of economic uncertainties, including inflation, geopolitical headwinds, environmental challenges, and capital constraints. This gradual acceleration of macroeconomic trends across multiple events that are pressuring the insurance industry is different from previous shocks. In combination with the structural changes in the nature of risks, commercial carriers today need to address four critical challenges.
Commercial carriers will need to invest and take decisive action in response to each of these four challenges. First, commercial carriers must define a clear source of distinctiveness to protect their margins by competing beyond rates. Second, they can expand relevance by closing protection gaps through product innovation, more sophisticated pricing, and risk prevention and mitigation solutions. Third, commercial carriers will need to secure capacity by innovating the use of alternative capital and addressing investor concerns about long-term profitability. Finally, commercial carriers must reinvent their employee value proposition and develop the capabilities to shift from art to science to address the risks of the future. M