KPMG survey reveals insurance CEOs’ perspectives, growing importance of ESG

A KPMG survey has revealed the evolving challenges and opportunities faced by CEOs in the insurance industry at a time of continuing uncertainty. The 2022 CEO Outlook draws on the perspectives of 1325 CEOs across 11 markets, providing insights into their outlook on the prospects for their industry and also the wider economic landscape. A very interesting development is the significant increase in the importance given to Environmental Social and Governance (ESG) issues, with a growing awareness that more and more stakeholders and employees expect companies to have a well-developed ESG strategy.

In terms of the economic outlook, while 90 percent of the insurance CEOs surveyed believe a recession is likely in the next 12 months, 53 percent believe it will be mild and short and 79 percent have plans in place to deal with it. Insurance CEOs are readying themselves and their organizations to weather current geopolitical and economic challenges, while exploring how they can mitigate recessionary impacts to plan for economic disruption. In the coming 6 months, 50 percent say they are planning to bring overseas operations back to a local level or even in-house to cope with geopolitical challenges. Many are also considering or will consider downsizing their employee base in the short-term and putting a hiring freeze in place (for the next six months, 77 percent have implemented or plan to implement a hiring freeze, while 84 percent have considered or will consider downsizing their employee base). Nevertheless, turning to the longer term, 87 percent say they are planning to increase the size of their workforce over the next 3 years.

A clear majority of the CEOs surveyed are optimistic about longer term global economic growth as well as the growth of their sector over the next 3 years: 72 percent indicated they feel either confident or very confident about the global economy’s growth potential, a slight increase from 70 percent in 2021, while 90 percent said they feel confident or very confident about the sector’s growth prospects, compared with 84 percent in 2021. When asked about their own company’s growth, most expressed confidence (87 percent) but this nevertheless marks a decrease of 6 percent compared to 2021. Strategic alliances (28 percent), organic growth (21 percent) and managing geopolitical risks (20 percent) top insurance CEO lists of the most important strategies for achieving organizational growth objectives over the next 3 years, with M&As ranking lower compared to last year.

Insurance CEOs are directing digital investment to support growth, with 77 percent saying they have a strategy in place to drive digital transformation to remain relevant and stay ahead of the competition. Working closely with experts in the field is important; 78 percent agree that partnerships are critical to staying resilient and continuing their pace of digital transformation (an increase from 65 percent in 2021). Cyber security is an increased concern. The vast majority agree that a strong cyber strategy is critical to gain trust from key stakeholders (82 percent). Moreover, 84 percent see information security as a strategic function to help them gain competitive advantage. More CEOs say they are prepared for a cyber attack — 59 percent, up from 48 percent in 2021. This probably reflects awareness that recent geopolitical volatility has led to significantly increased risk.

One of the most interesting lessons of this survey is the growing importance of ESG. CEOs increasingly understand that businesses embracing ESG are best able to secure talent, strengthen their employee value proposition, attract loyal customers and raise capital; 28 percent of the insurance CEOs indicated that employees and new hires are demanding greater ESG reporting and transparency. a significant increase from 3 percent in 2021. Moreover, 59 percent of insurance CEOs see stakeholder demand for increased reporting and transparency on ESG issues up to a significant extent (up from 48 percent in August 2021), while 81 percent believe stakeholder scrutiny on social issues will continue to accelerate (up from 60 percent in August 2021). Furthermore, the survey reveals an increasing realization that a successful ESG strategy must be serious and not mere PR: 22 percent indicate stakeholder skepticism around greenwashing is increasing (up from 12 percent in August 2021).

Moreover, we are seeing a clear commitment to investing significant sums in developing an effective ESG strategy — 64 percent of the insurance CEOs surveyed have committed to allocating more than 6 percent of revenue to make their organization more sustainable, while 49 percent say they will invest between 6 and 10 percent of revenue, almost double the figure from 2021.

The survey shows that even though there is understandable concern in the sector about short term economic  difficulties, overall the CEOs are generally positive as to the future of their industry and of their companies. To succeed in the current environment, they will need to focus on strategic investment, such as the right technology, while also remaining responsive to the needs of their stakeholders and employees. I am particularly encouraged by the growing awareness of the importance of ESG, which is no longer merely a ‘nice to have’ but must be an essential element in the strategy of any successful business. To stay ahead, insurance CEOs in Romania need to be proactive in developing their ESG strategy. They should not merely wait for regulation but should lead the way.