A resilient insurance industry amidst rising challenges
- Significant investments planned in priority areas
- Despite cost challenges, a large majority are confident about business growth in the year ahead
- Hybrid working here to stay, but major shift in workforce strategies expected
- Skills deficit challenges in specialist areas have shot up
- Progress continues on digital transformation and climate action
Minister for Financial Services, Credit Unions and Insurance, Seán Fleming TD, today launched the 2022 PwC and Insurance Ireland Insurance Leaders Survey highlighting the views and priorities of Irish insurance leaders. With nearly 40 responding Irish insurance leaders, the report benchmarks key trends, challenges and priorities in the industry as the economy, globally and in Ireland, faces significant economic uncertainty and disruption. The survey also launches at a time when the global protection gap (the difference between actual and insured losses) is widening at an accelerating pace and is expected to reach US$1.86tn by 2025, according to PwC forecasting.
Key findings from the survey point to a resilient insurance industry in the face of significant challenges. The majority of Irish insurance leaders are confident about business growth in the year ahead as significant investment increases are planned in priority areas. Competitiveness is seen as the key priority for Government. Hybrid working is here to stay for the majority as a major shift in workforce strategies is expected. Steady progress is being made in digital transformation and climate change commitments, but there is more to do in both of these areas.
Seán Fleming TD, Minister of State in the Department of Finance with responsibility for Financial Services, Credit Unions and Insurance, said: “Ireland is recognised as a very significant global financial centre for insurance. Ireland is the largest exporter of insurance services in the EU. The insurance industry has proven itself to be very resilient in response to recent challenges and the sense of optimism from the sector is very welcome. The Government’s Action Plan has produced positive results. Over the past year there has been a 10% reduction in motor premiums. These reforms were sought by the insurance industry and it’s important that the sector pass on all savings and benefits back to the public, in terms of reduced premiums and increased risk appetite.”
Rising costs the greatest business challenge
In the face of high inflation and recessionary fears, the business challenges that insurance firms are facing have shifted drastically compared to last year. Increasing cost pressure (61%) is by far the greatest business challenge, having shot up from 19% last year. In second position, nearly half (47%) are concerned about the retention of key talent and which was the top challenge prior to the pandemic in 2019. The cost of insurance claims (36%) is the third greatest challenge, up from 16% last year.
Significant investment increases in priority areas
Significant increases in investment are expected in certain priority areas over the next three years including Environmental, Social and Governance (ESG) initiatives (43%), digital transformation (38%) and leadership and talent development (23%).
Demonstrating the resilience of the industry, a large majority of Ireland’s insurance leaders (83%) are confident about business growth for their organisation in the year ahead, similar to last year (85%) and up from 75% prior to the pandemic in 2019. They also have ambitious hiring plans with six out of ten planning to increase headcount in the year ahead, up from 54% last year.
Competitiveness seen as top priority for Government
The single key Government priority, as seen by Irish insurance leaders, is ensuring that Ireland remains competitive in the face of rising costs (86%, up from 51% last year). Other key priorities for Government include ensuring the availability of key skills (54%, up from 23% last year) and continuing to address the cost of claims (45%, up from 34% last year).
John O’Leary, Leader, PwC Ireland Insurance Practice, said: “Despite economic uncertainties, Irish insurers are confident about growth prospects in the year ahead. The survey points to a resilient insurance industry which has come through the tests of COVID-19 remarkably well while investing in priority areas. Steady progress is also being made in a number of critical areas such as digital transformation and climate change. However, cost pressures and the availability and retention of key talent have increased dramatically.
“The volatility surrounding the macroeconomic climate makes it even more important for insurers to conduct robust scenario modelling as they refresh their strategies. Insurers should protect their business from both financial and non-financial risks and ensure that their strategic decision making and risk management processes are fit for purpose.”
Moyagh Murdock, CEO, Insurance Ireland, said: “It’s encouraging to see general business confidence and optimism reflected among the leaders in the insurance sector in Ireland, but the emphasis now needs to be on remaining competitive as an industry in the face of global headwinds. Insurance leaders are aware that they must do everything they can to bring innovation to their businesses and leverage technology to gain efficiencies in a consumer-driven world. In this regard, it bodes well for both consumer and the industry to see the strong focus on digital transformation in this year’s survey with most insurers developing plans to leverage automation and AI technology to enhance products and services for customers. Also of note is the increased emphasis on the climate action agenda with almost half of insurance leaders surveyed having a plan to manage climate risks and 60% having a carbon-neutral or net zero commitment in place.”
Hybrid working here to stay as major shift in workforce strategies expected
Over three-quarters (76%) of survey respondents expect that over 80% of their workforce will continue working remotely up from 41% last year. Irish insurance companies are responding to the new ways of working by planning major changes in their workforce strategies. For example, eight out of ten are planning to invest in their hybrid / flexible working models, up from 62% last year. Other key areas for investment are in the health and wellbeing of their workforce (57%, up from 31% last year) and in diversity and inclusion (54%, up from 46% last year). Given the acute challenges with available talent, it is surprising that few see the need to invest in upskilling/reskilling (6%).
The survey reveals that skills deficit challenges have shot up in many key specialist areas compared to last year. For example digital/technology skills (2022: 90%; 2021: 59%); actuarial skills (2022: 67%; 2021: 40%); Compliance (2022: 45%; 2021: 33%); Risk (2022: 42%; 2021: 29%); underwriting (2022: 39%; 2021:28%).
Steady progress in digital transformation, but still room for improvement
Nearly seven out of ten (69%) Irish insurance leaders agree that automation and AI are fundamentally changing the way insurers interact with consumers. Over two-thirds (68%) anticipate that more than half of their IT estate will be in the cloud in 3 years time, up from 59% last year.
While less than three out of ten (27%) are currently offering consumers personalised solutions, a further 41% have plans to do so. Only 19% are well-advanced in leveraging opportunities from humans and machines working together (chatbots, robotic process automation), but most others are developing plans to do so.
Some good progress on climate change commitments
Nearly half (46%) of Irish insurance leaders currently have a plan to manage climate risks in relation to their insurance portfolio and investment strategy. This represents a significant increase from 28% two years ago. Six out of ten confirmed that they have made a carbon-neutral or net zero commitment.
59% of insurers have issued a product that specifically targets the ESG aware consumer or are in the process of designing such products