Property and Casualty

Insurance IndustryTrends, Strategies, and Best Practices

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CHALLENGES FACING THE INDUSTRY…

➢ Diverse business owners

➢ Changing consumer base

➢ Aging workforce

➢ Shrinking talent pool

➢ New skill and experience needs

➢ Advances in technology and analytics

➢ Increase in natural disasters

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TODAY’S BUSINESS OWNERS ARE MORE DIVERSE THAN EVER

From 2014 to 2015, minority-ownedbusinesses grew 5 percent, closing in on the one million mark (996,248).

In 2015, minority-owned businesses had a payroll of $254 million, and employed eight million workers.

Receipts were estimated at $1,168.5 billion.

Fifty-three percent of minority-owned businesses with paid employees are Asian-owned.

The number of women-owned businesses increased 3 percent from 2014 to over 1 million in 2015.

In 2015, payroll for women-owned businesses was $293 billion and receipts totaled $1,353 billion.

Twenty-five percent of all women-owned businesses are minority-owned.

Of those, 54 percent are owned by Asian women.

Source: Census Survey of Entrepreneurs 3

SMALL BUSINESS IS BIG BUSINESS

There are nearly 28 million small businesses in the US today.

Since 1995, small businesses - defined by the SBA as having fewer than 500 employees - have generated more than 65 percent of US jobs.

More than half of US workers are employed by a small business.

Over 22 million small business are sole owner-operated and have no additional payroll or employees.

More than 50 percent of small businesses are homebased operations - a growing segment of the small business sector that already generates a significant portion of US commerce.

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FROM SMALL TO MICRO…

From 2004 to 2010, US microbusinesses (employing 1-4 employees) created a net of 5.5 million jobs.

Large businesses (those with greater than 500 employees) lost 1.8 million jobs during the same period.

Micro businesses generate $2.4 trillion in receipts, account for 17 percent of GDP, and employ more than 31 million workers.

When small business is broken down by firm size (as measured by employees (1-4, 5-9, 10-19, 20-99, 100-499), the job creation numbers

demonstrate that micro-businesses create the majority of jobs.

Source: getbusymedia; microbiz 5

CONSUMER BUYING POWER: WOMEN, MILLENNIAL, LGBT

• In 40 percent of US households, women are the primary breadwinner.

• Sixty-six percent of millennial women earn the same or more than their partner or spouse.

• Experts estimate millennials overall will spend $200 billion annually by 2017.

• The LGBTQ community is highly educated and well represented in the community and the workforce.

• The community has one of the highestdiscretionary income pools of any diverse demographic in the US population.

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CONSUMER BUYING POWER: BLACK/HISPANIC/ASIAN

Black buying power increased 86 percent since 2000 to currently account for $1 trillion buying power.

Black buying power is predicted to increase to $1.3 trillion in 2017.

In 2015, Hispanics controlled $1.3 trillion in US buying power.

Projections estimate Hispanic buying power to be $1.7 trillion by 2020.

The US Hispanic population is 3xs larger than the Asian-American population, but the Asian segment is growing at a faster rate.

In 2015, Asian Americans had an estimated buying power $825 billion.

Asian American annual buying power is expected to increase to $1.1 trillion by 2020.

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INDUSTRY DEMOGRAPHICS BY JOB TYPE

2016 Insurance Industry Workforce Demographics

Industry & Job Type Male Female White Black Asian Hispanic

Insurance carriers 39% 61% 73% 11% 6% 10%

Insurance underwriters 37% 63% 79% 10% 6% 5%

Insurance claims & policy

processing clerks

15% 85% 64% 18% 7% 11%

Insurance claims adjusters,

appraisers, examiners,

investigators

38% 62% 69% 15% 2% 12%

Insurance sales agents 53% 47% 72% 11% 5% 12%

Actuaries (not available) - - - - - -

Source: BLS8

A study by McLagan/Aon Hewitt examined diversity among insurance carriers – 77 percent of survey participants were property and casualty carriers. The study found a significant lack of diversity, particularly at the executive and leadership levels.

Despite the apparent lack of diversity in the workforce, only six percent of companies participating in the survey reported having a chief diversity officer. Of the 94 percent of companies that don’t have a dedicated diversity position, only seven percent reported they planned on hiring such a professional in 2016.

Only half of survey participants reported they had a diversity strategy in place, or were in the process of developing one.

Table credit: McLagan/Aon Hewitt

GENDER DIVERSITY BY LEVEL

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RACE/ETHNICITY DIVERSITY BY LEVEL

Table Credit: McLagan/Aon Hewitt 10

WORKPLACE TRENDS AND STRATEGIES

➢ The combined impact of an aging workforce and shrinking talent pool is driving the need for new efficiencies.

➢ Insurers are revisiting outdated workforce strategies and experimenting with alternative staffing approaches including the use of freelance, contract and temporary workers.

➢ Outsourcing operations including call centers, mail rooms and claims processing also address workforce shortage challenges.

➢ Technical solutions are becoming a significant factor as insurance carriers employ technology to automate underwriting, provide insurance quotes online and computerize customer service.

Source: Deloitte11

TOMORROW’S UNDERWRITER

➢ Future underwriters will play multiple roles including: sales executive, decision scientist, consumer advocate, innovator and technical specialist.

➢ They will need to understand important trends and market risks and opportunities.

➢ Greater analytical and computing skills and competencies will be a prerequisite.

➢ A widening range of models will become ‘go-to’ tools for underwriters, including sensor-based technologies and semantic web applications that generate insight as opposed to traditional applications that collect and aggregate data.

➢ Communication approaches, outreach and information sharing with consumers and agents, distributors and colleagues will take place through mobile technology and social media.

➢ Increased automation and enhanced analytical capabilities will allow underwriters to focus on higher-value activities, such as account planning, solution development, agent partnering and nuanced risk assessment and decision-making.

12Source: EY, The Future of Underwriting

WORKFORCE TRENDS: TALENT SHORTAGES

Experts predict that over the next 3-10 years, 32 million US jobs will be vacated by workers retiring, and 20 million new jobs will be created.

During that timeframe, only 29 million new job seekers will enter the workforce, creating a potential 23 million worker shortfall.

An estimated 60 percent of all new jobs in the 21st century will require skills and experience held by only 20 percent of the current workforce.

• The number of insurance workers 55 or older increased by 74 percent in the last 10 years, compared to 45 percent for the overall workforce.

• By 2018, 25 percent of the insurance workforce will be of retirement age, creating a potential deficit of 400,000 positions.

• 65 percent of insurance organizations are planning to increase their staff in the coming year.

• Reinsurers, brokers, and underwriters are occupations at risk for personnel shortages.

Source: BLS; Jacobson Report13

Insurance Industry

WORKFORCE TRENDS: PIPELINE CHALLENGES

Despite placement rates close to 100 percent, the annual yield of graduates from the nation’s risk management and insurance programs meets only 10 to 15 percent of industry needs.

Build awareness of the industry’s opportunities among students and their advisors

Expand the number of graduates from schools of insurance and risk management

Improve the education and training that risk professionals receive

Professionals with backgrounds in STEM, CPAs, financial officers, and customer service professionals have transferable skill sets and fresh perspectives that can benefit the industry.

Banks and other financial institutions have been hit hard by the recent financial crisis and are laying off high-caliber employees, curtailing hiring, and, outside the money centers, lowering compensation.

Source: Jacobson Report

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WORKFORCE TRENDS: ANALYTICS SHORTAGES

➢ There is a growing need for data analytic skills sets and workers who can synthesize and analyze a wide range of data to generate insights, identify trends and develop accurate predictive loss.

➢ The number of data and analytics jobs in the US are forecast to increase by 92 percent by 2017.

➢ Companies in all sectors of the insurance industry are adding analytics positions at a rate more than five times faster than the overall national employment growth rate.

➢ Twenty-five percent of insurers are currently investing in big data and analytics.

➢ Eighty-two percent of insurance professionals believe their company doesn’t take advantage of technology and analytic capabilities that are available.

Source: Jacobson Report; Accenture – Strategy Meets Action

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WORKFORCE TRENDS: LGBTQ WORKERS

• 36 insurers were recognized as one of the “best places to work for LGBT equality” by the HRC, earning a perfect score on the 2017 Corporate Equality Index.

• Insurers and the policies they write will be impacted by evolving law and liability for businesses and municipalities around transgender rights.

• Both as assumers of risk and as employers, insurers are in a unique position when it comes to navigating the changing legal environment and civil rights issues surrounding transgender rights

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WORKFORCE TRENDS: AGING

• The Bureau of Labor Statistics predicts that by 2022, 25 percent of all US

workers will be over 55.

• By 2050, the number of workers 65 or older will grow by 75 percent; the

number of workers 25 to 54 will only grow by 2 percent.

• Older workers will be the largest source of talent in the next two decades.

Source: SHRM

• According to the Harvard Business Review, to

finance retirement, many workers currently in

their fifties will work into their seventies;

individuals in their twenties could well

be working into their eighties.

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WORKFORCE TRENDS: OVERCOMING REPUTATION

By 2025, millennials will comprise 75 percent of the workforce. To attract these workers, insurers need to address issues related to a negative industry image and reputation:

• Surveys found that only two in every five adults in the US feel positive about the insurance industry.

• In one survey, the industry’s reputation, as measured by admiration, trust, good feeling, and overall esteem, ranked in the bottom 25 percent of all industries. None of the 11 major US carriers in the survey escaped this ranking.

• A McKinsey study found the public perceives carriers as stagnant, outdated and not providing a public service; some of the most recognized brands were described as conservative, boring and not innovative.

• According to one national survey, less than ten percent of millennials reported being ‘very interested’ in working in the insurance industry.

Source: McKinsey 18

STRATEGIES TO OFFSET TALENT SHORTAGE

Mentoring: Pair new hires and experienced employees to ensure critical knowledge isn’t lost to retirement

Reverse mentoring: Let new hires take the lead in mentoring older workers and helping leverage technology and social media.

Develop from within: Identify high potential candidates and provide learning and development opportunities that are focused on developing new skills sets not replicating outmoded training.

Outsource non-core functions: Be strategic - identify opportunities for outsourcing that focus on complementary capabilities and not just cost reduction.

Modernize business processes: Invest in technology and training to improve efficiencies, reduce costs, and attract new talent.

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TALENT STRATEGIES AND RECOMMENDATIONS

• Insurance carriers need to develop, articulate, and model a commitment to corporate social responsibility, diversity and inclusion, and work-life integration - important factors in the employment decisions of today’s workers.

• New skills in technology and data analytics will be in demand as the industry transitions to mobile technology, paperless workplaces, and increased reliance on analytics.

• Career paths in the industry must be updated and recast to attract talent into new technical, data analytics, account management, product development, and executive sales and marketing occupations.

• The industry’s robust network of professional associations and schools of risk management can play a critical role in launching an industrywide makeover.

• Build career awareness, reputation and engagement during the high school years

• Leverage technology and social media (62 percent of millennials claim social media builds brand loyalty and engagement to engage talent pipeline

Source: McKinsey; Deloitte 20

Credit and Source: Salesforce.com/equalityreport 21

WORKPLACE TRENDS: LEARNING & DEVELOPMENT

➢ Shift toward more accessible and engaging corporate training options.

➢ More than 50 percent of companies are gamifying aspects of their organization, including their training programs.

➢ Gamification increases awareness among new hires by as much as 75 percent.

Source: Jacobson Report; Accenture 22

CHALLENGE: CLIMATE CHANGE

The potential impact of climate change on future insured losses is profound:

• The chairman of Lloyd’s of London said climate change is the number one issue facing the company.

• Allianz predicts that climate change stands to increase insured losses from extreme events in an average year by 37 percent within a decade.

• A study by Munich Re found that weather related losses have increased fourfold in the US since 1980. According to the study, extreme weather events led to $560 billion in insured losses from 1980 to 2015.

• Several large insurers have established special practice areas to establish a footing in the market: i.e. AIG’s Global Alternative Energy Practice, Allianz’s Climate Solutions, Aon’s Agri-Fuels Group and Chubb’s Green Energy Team.

Source: Lawrence Berkley; NAIC; III 23

INDUSTRY ROLE: CLIMATE LEADER

Hundreds of billions of dollars will be spent on clean energy technologies and other responses to climate change, creating an enormous new capital base of business operations requiring insurance.

• Unfortunately, most insurers are behind the curve in developing strategies in response to climate change.

• In a national study by Lawrence Berkley, only 10 percent of insurers reported they are working on understanding the implications of climate change and incorporating climate change considerations into asset management.

• About a third of carriers offer innovative products and services, and only 40 percent have disclosed climate risks to shareholders.

• Few carriers engage in climate change policy discussions, or lead by example through energy and carbon management in their own operations.

Source: Deloitte; Lawrence Berkley 24

BEST PRACTICE: DIVERSITY & INCLUSION

Miller introduced enhanced maternity pay (90 percent for 39 weeks) and improved paternity pay.

The company allows employees the ability to buy extra holidays and sabbaticals; 15 percent of Miller colleagues have already taken these options in 2017.

Miller partners with Evenbreak, Tower Hamlets BEP, The Brokerage, and Leonard Cheshire to identify diverse and disabled interns, apprentices, and job candidates.

The company set gender targets to increase female participation in senior positions

They also introduced technology that will enable increased flexible and agile working.

Source: Lloyds Report 25

BEST PRACTICE: WORK-LIFE INTEGRATION

• Two senior female underwriters at Atrium wanted to remain with the

company, but required flexible working arrangements after having

children.

• The firm piloted a ‘job share agreement’ between the two, an

arrangement that increased underwriter presence on the box and also

safeguarded the joint knowledge and experience of the two

professionals.

• Because the approach was rare in the industry, Atrium created the job

share arrangement from scratch, borrowing from an online public

resource: Civil Service Employee Policy: guide to job sharing.

• The trial was so successful, Atrium is considering similar job share

arrangements between other workers.

Source: Lloyds Report26

BEST PRACTICE: RECRUITMENT

➢ Insurance industry executives and groups working to attract millennials to the sector are now actively targeting their younger colleagues to help get the word out through the Insurance Careers Movement initiative.

➢ The Movement includes more than 600 insurance carriers, agents/brokers, trade associations and industry partners.

➢ In 2016, the recruiting initiative held a webinar designed to appeal to younger property/casualty insurance employees to raise awareness of the industry and help recruit new applicants.

➢ According to organizers, close to 2,000 people took part in the webinar, with millennials and others logging in from the US, UK, Turkey, Switzerland, Mexico, Ireland, India, France, Canada and Bermuda.

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BEST PRACTICE: PIPELINE

One leading US carrier’s recruiting program focuses on partnerships

with top universities. The carrier provides summer internship

opportunities with meaningful, mission-critical work to a group of

high-potential students. Students rotate through three areas of the

business, interact with high-level employees, and gain an insider’s

perspective.

Once these former interns are in place, they form the basis of an

alumni network that can further enhance recruiting efforts and build

awareness on core campuses. In addition to the opportunity to learn,

the carrier employs creative cultivation methods, such as events

outside of the work environment, to excite interns about the

organization’s culture.

Source: McKinsey28

NEW INDUSTRY APPROACHES

Metromile, a startup, has developed a customer- (rather than risk-) centric value proposition for occasional drivers. It offers a low base rate and then charges a few cents per mile driven. Metromile also offers an app that provides personalized driving, navigation and diagnostic tips, and can even remind drivers where they parked. Furthermore, the company has entered into a partnership with Uber that allows drivers to switch from personal to Uber insurance.

USAA has invested $24M in Automatic Labs, a telematics platform that claims it will “connect your car to your life” and provides a full suite of integrated apps (including wearables).

Sureify has developed a platform that allows insurers to underwrite life insurance based on lifestyle data inputs they obtain from wearables.

Source: PwC 29

NEW INDUSTRY APPROACHES

Bought by Many, a startup that uses social platforms in its go-to market strategy, helps individuals join or even create affinity groups, as well as find insurance solutions for their specific needs across different product lines. Of note, leading Chinese insurer Ping An has partnered with Bought by Many to create personalized travel insurance by leveraging social media data.

MassMutual is using internal resources to build Haven, a new, stand-alone, direct-to-consumer business.

Source: PwC 30

Mnubo provides analytics that generate insights from sensor-based data and additional external data sources like telematics and real-time weather observation to support better risk assessment.

P4 Medicine offers insurers better insights that they can apply to life and disability underwriting. Lumiata is offering the potential for better predictive health capabilities, while Neurosky is developing next generation wearable sensors that can detect ECGs, stress levels, and even brain waves.

Nauto offers a system that provides visual context and telematics with actionable information about driving behavior, including distracted driving.

NEW INDUSTRY APPROACHES

Source: PwC; Lloyds Report 31