The FINANCIAL — Insurers are struggling with innovation, which is preventing them from capitalizing on potential new market opportunities, according to a new report from KPMG International, published on June 15 at the International Insurance Society Global Forum in New York.
The new report, Demystifying the public private partnership paradigm, recognizes the role insurers can play in responding to global challenges including climate change, disaster resilience, infrastructure investment and saving for old age to aid economic sustainability. It also highlights the significant commercial opportunities for insurers in addressing these challenges, such as securing significant returns by providing long-term debt financing solutions in areas such as flood defense.
However, insurers are struggling with innovation strategies to achieve this. In response, KPMG suggests an increased role for insurers in Public Private Partnerships (PPP) – partnerships between insurers and non-traditional organizations, including public, private and non-governmental organizations.
KPMG surveyed more than 280 insurance executives across 20 countries about their innovation strategies, and found that a worrying 45 percent of insurers admitted that they had no formal innovation strategy.
For most insurers, governance over their innovation strategy remains highly informal, with 40 percent suggesting that they believe innovation to be an informal collective responsibility of the entire organization1. Interestingly just 8 percent of respondents cited having a Chief Innovation Officer within the organization2.
Perceived barriers to innovation include regulation, lack of core skills and the challenges of simply keeping up with business as usual.
Mary Trussell, global insurance innovation and high growth markets lead at KPMG International, said, “We must think differently about the world. Global risks are increasing in variety, volatility and volume. Insurers will either need to innovate or raise premiums and add more exclusions, which has implications for economic growth. Insurers have real financial muscle given the global insurance industry accounts for around one third of the world’s investment capital3 and are expert in risk management and resilience – but often misunderstood or over-looked by policymakers.”
“PPPs can bridge the protection gap as well as direct investment to areas that support economic and social development. Done correctly, this is a win-win situation.” This is expected to be a key topic of discussion at the 51st annual International Insurance Society Global Forum being held in New York 14-17 June.
Since 2012, many of the largest insurance organizations have adopted the UNEP (United Nations Environment Programme) Finance Initiative’s Principles for Sustainable Insurance4, with some engaged in PPPs aimed at building disaster-resilient communities and economies.
Gary Reader, global head of insurance at KPMG International, concluded, “There is much to be done in educating policymakers about the important role the insurance industry can play in achieving sustainability goals. However it is clear that nobody expects the industry to shoulder these risks and challenges alone.”
“With the insurance industry continuing to play a more active role in helping the world respond to seemingly intractable global challenges such as climate change, disaster resilience and economic sustainability, insurers are cultivating new and innovative partnership agreements.”
“We are already seeing some of the world’s leading insurance groups taking significant steps by creating and growing partnerships with public, private and non-governmental organizations. Those who have innovation at the heart of their business can capitalize on these opportunities.”