An Accenture survey of equity analysts says insurers must improve their efficiency

Insurers must improve their operating efficiency or risk their financial ratings being downgraded, a consultant has warned.

Accenture surveyed 100 equity analysts worldwide. Almost four in five analysts (77%) worldwide and 89% in Europe said that improving internal processes was critical for sustainable growth.

The report also warned that insurers that focused on mergers and acquisitions at the expense of organic growth could suffer as a result.

Peter Courtney, head of Accenture’s insurance practice in the UK, said that analysts would reward those insurers that put long-term efficiency-boosting programmes in place, while penalising those who did not.

He said that downgrades relating to efficiency could occur as soon as this year.

He said: “This is a big concern for commercial insurers. The link between equity analysts and credit rating agencies gathers a momentum of its own… [The ratings agencies] have done this in the past. And they will do it again.”

Courtney also questioned the use of share buy-backs as a means of securing long-term growth.

He said: “The use of share buy-backs is a short-term measure. It is almost an admission that the executive is bereft of ideas of how to invest better.

“If all insurers want is growth in the short-term, it means they are in to slash and burn. The key message is that unless you look at the medium to long term, [the ratings agencies] will penalise you.”

The report found that climate change and related environment issues were the greatest challenge for the industry, followed by ageing IT and regulation. The majority of respondents said investment in technology over the next three years was critical.

Courtney said: “[Investment in technology] has to move up the value chain. But the numbers of insurers [investing in IT] are few are far between. However, we are seeing signs that this is starting to change.”