Property/casualty mutual insurance companies, facing stiff competition from their stock insurer rivals, are wary about the onslaught of technology, regulation and new sources of capital, Conning, Inc. concluded in a new report.

Conning highlights these and other responses from mutual insurers in its latest survey of the sector, this time involving 120 executives at 99 different companies different size and stature.

“Respondents indicated that technology and regulation are among their most pressing concerns,” Conning said, noting that all of these areas also offer points of opportunities as long as mutual insurers pursue shrewd planning.

That may be, but they still expressed plenty of worry.

As far as technology, Conning said that advances in the availability of data, data analytics and the ability to store large amounts of “big data”-related information and use it for insurance purposes could benefit both personal and business lines. But some smaller-or medium-sized mutuals see themselves at a competitive disadvantage versus large national stock insurers as far as maximizing the potential of these advances.

Conning argues, however, that smaller mutuals could particularly benefit here, because they could store big-data-related information in the cloud without having to worry about the cost of moving from “multiple legacy systems to new platforms.”

Nearly every insurer expresses worry about new regulators. But mutual insurers told Conning that they are anxious about new regulations from areas beyond traditional state regulators, including the relatively new Federal Insurance Office and the International Association of Insurance Supervisors, which is pursuing global standardization of insurance regulations.

Conning, in its report, noted that smaller mutual insurers may be disproportionally affected by new layers of requirements spurred by both bodies that would involve added reporting and actions for compliance. Beyond that, however, mutual insurers seem troubled about the uncertainty of it all, Conning said.

“Beyond the substance of regulatory developments, regulatory uncertainty is often heard to be a more significant concern,” Conning said. “Initiatives from the NAIC, as well, such as the ORSA and potential disclosures regarding executive compensation, also may increase the regulatory burden for mutuals.”

Conning pointed out that the way financial strength ratings and ratings changes at stock insurers and mutuals are distributed might suggest a lack of bias against mutual insurers. But that’s not the case, because rating agencies’ heavily favor diversification. That could hurt mutuals, Conning said, because their business is often concentrated in a particular geographic area.

Mutuals are also worried about “historically high levels of capital and surplus,” Conning said. While this may alleviate their concerns about limited options for accessing capital, they’re zeroing in on regulatory grey areas regarding capital and changes in the reinsurance markets as they vie for business in the face of heavy competition.

With all of this in play, mutuals may seek affiliations or mergers so they can achieve larger scale, more diversification of their business and broader capital bases, in order to alleviate their concerns, Conning said,

While some mutual insurers may see technology, regulatory and capital obstacles as a major threat, Conning said that the sector is more resilient than that.

“In more than two centuries of existence, mutuals have demonstrated resilience and flexibility to meet the changing needs of their customers, while maintaining a laser focus on policyholder service and their distribution,” Conning said. “If history is a guide, the most likely outcome is that the mutual sector will retain its strengths and core values as it faces today’s challenges and emerge somewhat changed, yet still relevant and strong.”

Source: Conning, Inc.