The constantly evolving insurance industry will face continued disruption and legislative uncertainty in the new year.
2016 was a challenging year. A contentious election dominated headlines, countless beloved artists passed away, and uncertainty about the ACA and other trademarks of the Obama presidency have persisted.
But will 2017 be any better? Insurers are anxious to see what a new presidential administration will mean for ongoing industry-wide concerns, including the rise of insurance tech startups, the future of cyber security, major M&As, and new industry regulations.
1. The Rise of Insurance Technology
In recent years, nearly every industry has witnessed the rise of disruptive startups — and insurance is no exception. Over the past few years, alternative insurance providers like Oscar, Metromile, and Simply Insured have cropped up and threatened to upset the industry status quo. Despite an S&P report which noted that insurtech may not be as disruptive as experts initially predicted it would be, larger carriers can learn from the small-business focus on improving the client experience with simplified processes and alternative service offerings.
2. Cyber Security
The frequency of cyber attacks has increased in recent years, and will likely continue to worsen as digital technologies become an industry norm. The financial liability of these attacks is a critical concern for insurers and policyholders alike, and only 33% of policyholders were confident that their insurer could withstand a cyber attack in 2016. It will be increasingly important in 2017 and beyond for insurance companies to take steps to protect the personal information of their clients.
The good news is that the insurance industry is beginning to rely on the National Institute of Standards and Technology Cyber Security Framework to manage aggregate risk. Insurers might also find opportunity in the face of heightened cyber vulnerability through the sale of personal internet security policies or commercial cyber risk management policies.
3. Foreign M&A Activity
Increased foreign investment — specifically from Japan and China — is expected to continue fueling M&A activity in the United States in 2017. Following months of Trump campaigning on promises to impose punitive tariffs on Chinese imports into the U.S., it’s likely that U.S.-China relations will experience a period of increased tensions during the early months of his presidency. Private equity will remain an important player in the deals market, largely because it has expanded its focus to include not only brokers, but the industry as a whole; and the need to eliminate costs will remain a primary driver of consolidation going forward.
4. Taxation and Regulation
Uncertainty abounds as the U.S. awaits a leadership transition that could impact proposed legislative changes — changes that could, in turn, directly impact insurers. Trump has promised to crack down on “wasteful and unnecessary regulation,” a promise that has the potential to modernize the regulatory system, making it more efficient, market-driven, and focused on measures that will protect customers. A decrease in regulation across the board may also feed into the recent uptick in M&A activity.
All insurance companies — regardless of size — should keep a close eye on these evolving industry issues as we move into the new year.