Insurance Executives Expect Significant Uptick In M&A Activity In 2014
In surveying 95 U.S.-based senior insurance executives,
"M&A activity is expected to ramp up in the next year as insurers leverage their strong capital positions to seek profitable growth, enter new markets and rationalize non-core operations," said
When asked to identify the primary drivers of M&A activity in the insurance industry in 2014, executives most frequently cited "access to new markets and geographic areas" (45 percent); "regulatory changes and pressures" (45 percent, up from 36 percent in 2013); "access to new technology and products" (37 percent, up from 29 percent in 2013); and "improved use of capital" (24 percent). Fourteen percent of respondents also indicated that the "strategic divestiture of current assets" is one of the initiatives expected to consume management's time, energy and resources the most, up from three percent last year.
"The global regulatory landscape continues to emerge as a key deal catalyst as insurers consider the continued implementation of risk based capital and capital management initiatives," said
A Growing Investment Agenda
More than half of respondents (52 percent) believe that "customer demand and changes in customer focus, buying patterns and preferences" will be the primary driver of transformation for their business, followed by "coping with changes in technology" (45 percent) and "domestic competition" (42 percent).
When asked to identify the highest-priority investment area for their company over the next year, respondents most frequently cited "strategic acquisitions" (34 percent, up from 22 percent in 2013), followed by "customer programs" (25 percent, up from 23 percent in 2013), and "information technology" (24 percent). Over the next two years, insurers are primarily looking to boost their technology investments for "customer growth and customer service" (27 percent), "data and predictive analytics" (26 percent) and "risk modeling and analysis" (24 percent).
However, cost continues to be the primary challenge to implementing and supporting more sophisticated data and analytics, as indicated by 37 percent of respondents.
"Following the financial crisis, insurers were not in a position to make significant investments in their businesses, but now they realize they need to improve operations to win in the marketplace—with a focus on customer-centric strategies," said Hay. "Those insurers who make investments in predictive analytics and modeling, and leverage data to gain a 360 degree view of the customer and effectively manage risk stand to rise above the competition."
Turning attention to talent management
The number of respondents who indicated that "resources/strategic talent" would top their investment agenda rose dramatically from two percent in 2013, to 24 percent this year. With respect to primary areas of focus for talent management, insurance executives most frequently cited "development and training" (52 percent, up from 31 percent in 2013); "retention" (46 percent); "acquisition and recruiting" (34 percent, up from 18 percent in 2013); "performance management" (34 percent); and "succession planning" (22 percent). In fact, the number of executives who indicated that "human capital realignment and talent management" would be a key focus area for operational improvement jumped from seven percent in 2013 to 18 percent this year.
"As baby boomers begin to retire and fierce competition for Generation Y candidates heats up, it's more critical than ever that insurers invest in talent now to close the talent gap and gain a competitive advantage," added Hay.
Regulatory Pressures Persist
The impact of new regulations and legislation remains the biggest threat to insurers' business models, as indicated by 34 percent of respondents. Respondents also believe "losing share to lower-cost producers" (31 percent), the "speed/magnitude of the economic recovery" (23 percent), "lack of job growth" (18 percent) and "cyber-threats" (17 percent) are primary threats to their business models. When asked to identify the potential regulatory changes that would have the most impact on their businesses, insurance executives cited "the need to manage multiple capital requirements" (35 percent); "changes to the insurance contract standards by the
Tracy Iacovelli KPMG LLP(201) 307-8655 [email protected]
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