New regulatory and reporting proposals, technological change, and changing customer demographics and expectations are pushing insurers to re-evaluate existing business models, insurance products, and core functions and systems, according to PwC US in its recently released report, Top Issues: The Insurance Industry in 2014. In addition to creating new competitive pressures, this environment offers opportunities for those insurers that can effectively meet customer needs and align their business strategies accordingly.

"Due to rapid demographic and technological change, the insurance industry is in a truly transformative period," saidJamie Yoder, insurance advisory practice leader, PwC US. "Insurers can adapt and thrive, especially if they effectively utilize emerging technologies to improve their operations and better serve customers."

The report identifies several areas of opportunity and challenges that are expected to influence insurers' businesses in 2014 and beyond:

Operational modernization
Proposed and actual changes to regulations and standards, as well as increased importance of technology and innovation, are compelling insurers to re-evaluate all aspects of their business model and operations, including the role of the finance, actuarial, risk management, IT and other functions. Insurers will need to have more sophisticated financial reporting, risk management and analysis in order to address complex measurement and disclosures, regulatory requirements and market expectations. Accordingly, there will be increased demands on the finance, risk and actuarial functions, as well as potentially significant impacts to business strategy, investor education, underlying processes, systems, internal controls, valuation models, and most other aspects of the insurance business. There also is a desire among CEOs for finance, accounting, risk and actuarial functions to become more relevant to the business overall, and for engagement with stakeholders in ways that better communicate the value of the business.

Relevancy to consumers
Socio-demographic changes, behavioral economic realities and technological developments have created formidable challenges for all insurers, particularly those in the life sector. Over the last few decades, life marketshare has significantly declined even though there is still a clear need for protection in a time of economic uncertainty. Moreover, many property and casualty insurers have struggled to overcome the commoditization of much of their product lines. The reality is that many traditional insurance offerings are unresponsive to changing demographics and consumer expectations.

However, technological change, most notably improvements in the amount and quality of customer and market data, has created new and potentially superior distribution and communication channels that are changing both the nature of the business and relationship management. Successful carriers will most effectively take advantage of these transformational changes by understanding and in turn addressing households' holistic, long-term – even multi-generational – needs.

"It's crucial for insurers to address generations X and Y and other typically underserved groups who come to the table with new preferences and increased expectations," said Anand Rao, insurance advisory practice principal, PwC US. "Younger customers demand simplicity, transparency and the ability to engage with insurers when and where they prefer. Insurance providers who don't recognize and address these changes will miss an opportunity with people theymust successfully target in order to grow and survive."

Uncovering opportunities in core systems transformations
The insurance industry is entering an era in which carriers can change their policy administration, claims and billing systems with less risk and more control than ever before. This is due to the result of aging legacy platforms, complicated market demands, and an increased mature vendor landscape. Making speed to market, operational efficiency and IT rationalization areas of focus will likely be industry differentiators and help some insurers beat out competitors.

"Core systems transformations are sophisticated processes but if done strategically, they have the potential to draw new value points back to insurance organizations," said Imran Ilyas, insurance advisory practice principal, PwC US. "Customer interactions have become the Holy Grail for high retention rates. Utilizing a technology solution that creates a consistent customer experience across the enterprise and arming agents with the most vital information should be an overarching goal for insurers in 2014."

In addition, improving data analytics, and meeting IT spending and underwriting goals on data migration and form consolidation also remain key to core systems transformation processes.

"The high-level takeaways from Top Issues and PwC's 17th Annual CEO Survey include a mix of ongoing concerns from previous years with new points of interest related to technological change, ongoing shifts in demographics, and preparing for the future insurance landscape," Yoder added. "Technology and relevancy with customers remain an ongoing focus for insurers in 2014. The companies that can change with the times – both inside their organizations and with external stakeholders – will succeed.  The carriers that do not will struggle to maintain market share and ultimately survive."