Bryon Ehrhart , Global Head of Strategic Growth & Development at Aon Benfield, discusses the threats and opportunities in today’s insurance market.
Mr. Ehrhart says the threats do not surround the same issues faced 20 years ago after Hurricane Andrew and the Northridge Earthquake. Now that the industry has managed the risk down to lower levels of earnings and capital, the industry is searching for relevance. He notes that insurance premiums are at 3 percent, down from a peak at around 4 percent. Low interest rates are also a major issue. The threat to the business model today is eroding returns on large capital bases.
In the automobile business, the industry has found a way add value by making “big data” relevant to segments and people. Today, big data and cheap, GPU-based technology allow for faster machine learning, enhancing the value proposition. While some believe automation in the auto industry will make auto insurance coverage less necessary, Mr. Ehrhart points to examples of insurers building value by integrating other coverages into auto and home policies that make coverage more relevant.
Turning to health insurance, Mr. Ehrhart notes that the Affordable Care Act (ACA) has forced several major providers to pull out of government exchanges. On the other hand, private sector exchanges have been providing value to employers with more than 5,000 workers. Employee contributions to employee benefits have decreased over time, somewhat die to increased healthcare costs. As consumers take on more of the cost of health insurance coverage, Mr. Ehrhart believes the same sophistication insurers bring to the auto market will come to the healthcare business.
Mr. Ehrhart says “holistic lifestyle policies” help break the silo approach to selling coverage by offering coverage that follows the individual throughout the day, whether they drive a car or not – all liability and property risks covered in one policy.
Recent research suggests Mutual insurers are 50 percent more likely to stay in their current form over an extended period of time than stock companies. Mr. Ehrhart believes that gives Mutuals “the luxury of focus”, so insurers can focus on their constituents and their shareholder. Given the pace of change in the industry, “the luxury of focus will be a strong asset.