A recent report by McKinsey Global Insurance Pool shows that the P&C insurance industry is doing well, with gross written premiums exceeding $1.5 trillion 5 years ago, representing a 5.1% increase from the previous year. Despite facing natural catastrophes, insurance carriers are still financially strong.

Insurance executives have not been idle. Instead, they have been reviewing their existing strategies and preparing for changes in the future. While they are concerned about the effects of digital advancements, this is just one aspect of their conversations. Three topics that have been discussed by P&C CEOs are outlined below, along with potential outcomes for future trends.

1. What transformations will technology bring to the value chain of the insurance business?

The insurance business system involves several stakeholders who each have a distinct role. The process flows from the customer to the retailer or wholesale broker, to the underwriter, to the service agent, and finally to the balance sheet and reinsurance company.

P&C executives are considering using artificial intelligence or automation to create new business models by examining each link in the value chain. For instance, carriers may opt to establish a shared-services organization for tasks such as claims. Additionally, vertical integration is being considered as an option.

Insurance companies are observing the evolving value chain and trying to predict when it will change and what factors will drive the change. Technology has already reshaped personal lines, and it is expected that small businesses will also follow this trend in the next few years. However, it may take up to a decade for mid-sized and large corporate segments to modernize.

2. What impact will smart homes and the future of mobility have on carriers that primarily emphasize personal lines?

Advancements in technology are reducing the potential dangers of home and auto products. With the increasing use of sensors in smart homes, appliances, and equipment can identify issues and alert owners beforehand, preventing damage.

The auto insurance industry is experiencing a major technological disruption, especially regarding the coverage of autonomous vehicles. There are around 1,000 property and casualty insurance carriers in the US, and over 75% of them rely on auto insurance revenue to sustain their business. Currently, ride-sharing services have already impacted the industry, but with autonomous vehicles, the risk of accidents and ownership will decrease, which means the risk will shift from individual owners to commercial owners. This and other factors will significantly reduce the amount of money that insurance companies will be paid for premiums.

Several options are available for carriers that rely on personal auto. They could opt for consolidation like the seven largest P&C insurers. Alternatively, they could diversify by expanding into home, commercial, or specialty products. Finally, they could explore opportunities that involve new types of risks.

The second option requires figuring out how technology will change the risk and how to manage it. For instance, with transportation being more of a mobility service, what risks should be insured and how? Likewise, in houses equipped with sensors, if a flood happens because of a faulty water heater, who is responsible? Addressing these questions could result in fresh possibilities.

3. Can the existing profit distribution be maintained over time, and what factors could influence its equilibrium?

In the past, distributors have received most of the profits in the industry. Currently, brokers have a return on equity of over 25 percent, while insurers typically see a return of around 8 percent.

What makes distributors so advantageous is that they have a strong connection with the customers, allowing them to establish better relationships and enhance loyalty. Furthermore, the manufacturing and distribution balance favors distribution because manufacturing lacks the level of individualization that services offer.

To gain a stronger position, carriers can work on becoming the preferred choice for customers. This can be achieved by offering products that are likely to keep customers loyal. By doing this, carriers can establish a direct relationship with their customers, bypassing any middlemen in the process.

Changes in the industry offer chances for development and innovative business strategies. P&C insurance providers do not need predictive abilities, but rather a realistic understanding of where the potential for success exists.