The challenges faced by small- to medium-sized (SMB) property and casualty (P&C) insurers are many, and they are unique. Competing in markets that demand the same amount of functionality as their larger counterparts, SMB insurers struggle to be able to scale and efficiently respond to customer requirements. This struggle is taking place amid an ever-present tough regulatory environment, where often the same judicial, legislative and regulatory rules and requirements apply to P&C insurers of all sizes operating in multiple jurisdictions. For example, following the stringent cybersecurity regulation that was issued earlier this year by the New York State Department of Financial Services, the National Association of Insurance Commissioners (NAIC) adopted for national rollout the Insurance Data Security Model Law, which includes new requirements for protecting the confidentiality and security of information and systems for insurers across all lines of business. This will impact insurers’ accounting and reporting capabilities, adding additional processes and output to an already complicated business unit structure.
Another challenge relates to how SMB insurers will be able to respond to the improved economic outlook, which in 2018 and 2019 is expected to boost global demand for non-life insurance, according to research conducted by Swiss Re Institute and published by Deloitte. Accordingly, SMB insurers, similar to larger carriers, will be challenged to increase revenue, but often lack the necessary or adequate capacity, resources and technologies to fuel organic growth. This means new products, improvements in customer service or a dedicated focus on innovations take a back seat to “keeping the lights on” and maintaining the status quo. This affects an insurer’s ability to increase speed to market and expand into new states with new lines of business.
And while well-intentioned SMB insurers have an eye on strategic vision, many lack the assets that larger carriers take for granted, such as access to support resources to get the job done efficiently and cost-effectively. Ironically, in our current economic environment, it’s assumed that insurers with large books and multiple lines of business face the highest costs, when the fact is that smaller insurers often face both hard and soft cost challenges related to outdated technologies, staff and workflow issues, and the resultant inability to streamline business functions in order to meet new business demands.
We cannot assume that SMB insurers are happily married traditional thinking and doing; in fact, these carriers are all too aware of the consequences they are suffering as a result of decisions made related to their stature within the industry. For example, when decisions are made that restrict support resources, a lack of efficiencies can slow processes tied to billing and commission processing, negatively impacting the insurer’s entire distribution network. During a CAT event, carriers that are slow to respond due to a shortage of claims processing resources are vulnerable to competitors that have found creative ways to solve these business problems.
Like their larger counterparts, SMB insurers are called to conduct a comprehensive review of their operating models, evaluating processes, technologies, staffing and related skillsets, as well as the potential for sourcing those skillsets where it makes the most sense. The good news is that sourcing does not need to be an “all or nothing” proposition; insurers have the opportunity to customize their sourcing strategy to best fit their operational needs.
Most carriers know that the “way it’s always been done” may no longer work, and the door to growth is open to those who find creative ways to transcending the challenges associated with “doing more with less.” In fact, SMB insurers have an opportunity to do much more—and optimize their operations as successfully as their larger competitors—with the right help.