The inefficiency of business processes is getting in the way of value proposition to clients in the insurance industry, according to Bruce Carnegie-Brown, president and chief executive of Marsh Europe/Middle East.
In his speech, entitled, "Why Wait For a Burning Platform to Change?", presented in Ireland, Carnegie-Brown emphasised that the industry needs to change, but that changes should be driven by opportunity and not regulation.
He highlighted the importance of adding value to clients through innovation, and suggested the industry could, for example, increase the ability to quote for multiple year transactions. This, he said, would effectively reduce the high volatility of prices and capacity in the insurance market.
Carnegie-Brown compared the banking industry to the insurance industry, saying although it is considerably larger, banks do not take significant risk. This, he said, has a direct impact on the industry's return on capital. The global insurance industry has averaged a return on capital of 8.5% pa since 1980 compared to the US banking industry where the return has been 15% pa.
In his speech, he said the insurance industry was as capital-intensive today as it was twenty years ago, but that by contrast banking is much less so. This was due to the industry's failure to diversify as banks have done, with underwriters' revenues continuing to be derived exclusively from two sources: underwriting risk and interest income earnt on the premiums paid. In a low interest rate environment, he said, this interest earning accounts for a smaller percentage of revenue.
Carnegie-Brown criticised the insurance industry's over-reliance on "anecdotes and broad cycles" as opposed to independent and objective data which he stated is the "lifeblood" of the banking industry.
He also viewed technology as another problem area because of the inability to agree industrywide standards, and suggested facilitating the automation and standardisation of "all parts of the insurance process which offer individual insurer and broker participants no competitive advantage and create no value or differentiation in clients."
He added that this standardisation was also needed in contract certainty.
Carnegie-Brown emphasised the urgency of the need to change saying: "Let's be more ambitious for what we can achieve, and let's begin to fulfil our value proposition by fixing our processes and by focusing on selling the real value of what we do to our clients."
