In our Strategic Priorities 2020 report, based on results from the COVID insurance survey, we noted that huge changes are still under way for insurance, with new initiatives blurring traditional insurance industry assumptions and boundaries giving way to new customers, technology, processes , products and business models. These new initiatives and responses to changes that emerge in our research showed an ever-growing gap that redefines a new era of industry leaders, surpassing laggards and followers with 62% and 21% gaps, respectively, calculated over the next three years – of which one year now is over.
Then COVID hit – hard and fast. And our strategies, priorities and plans gained a new perspective, a new focus and in many cases a new concern ̵
Almost seven months later, with the realization that we will never return to "normal", insurance managers have a unique opportunity to consider their future insurance. Chief Strategy Officers, Chief Innovation Officers and Chief Customer Experience Officers will be crucial in defining their strategies and priorities for 2021, as planning must go far beyond traditional business planning to consider a two-pronged strategy: first, operations and second, innovation – a two-speed strategy to drive insurers' survival and growth strategies.
State of the insurance industry
Why focus on survival and growth? The situation in the industry, in light of the rapid change due to COVID, tells the story.
Pre-COVID, the outlook for the non-life insurance industry was stable, with an average of 2.4% growth and combined conditions of just under 100 at 98.9%. However, ripples of change that have become stronger challenge this mature but fragmented market. From converging macro trends, a changing risk landscape, a continued flow of capital and new competitors, change and digital transformation became constant. In fact, the InsurTech investment continued to reach new highs of $ 6.37 billion in 2019, introducing new technologies, business models, channels and products that would help change the industry and meet the needs and expectations of a changing customer. COVID has accelerated the digital transformation of the industry.
Digital transformation needed to be much more than putting a portal on the front-end. Basically, challenges and concerns were exposed with the operational model of the insurance business – especially compared to other industries – and emphasized the need to change and improve. Some important statistics that highlight this include:
- Average net profit margin for insurance companies is 2.7% [i]
- Average time to deliver a new product to the market is 7 months [ii]
- Average net promoter points for real estate insurance are 35% and 41% for car insurance [iii]
- It is estimated that 70% of catastrophic losses are uninsured and amount to a coverage gap of $ 1.3 trillion [iv]
- Distribution and transaction costs as a percentage of the premium were on average 30-40% [v]
- Swiss Re noted that Almost all business areas are expected to be negatively affected and create growth challenges for insurance companies. [vi]
- 50% of the insurance workforce is expected to retire in the next 10-15 years [vii]
- Only 6% of P&C insurers were rated as leaders and only 5% as prominent in the top two of the Innovation Assessment of AM Best in March 2020. [viii]
The changing market and competitive landscape, low growth, narrow margins, high operating costs, declining customer satisfaction and slow market speed for new products place many insurance companies further behind the leaders who surpass them, which makes their business increasingly unsustainable in the long run. In fact, AM's best innovation assessment in March 2020 stated that there is a connection between innovation and operations. The insurers that have the best operating performance have better innovation results and those with the highest overall financial strength have higher innovation levels.
The digital transformation of the industry is crucial
The industry had already begun a digital transformation that accelerated due to a combination of factors – customer expectations, technology and changing market boundaries. Today, the COVID pandemic and its impact on the economy affects companies, employees and everyday life, and has exposed the flexibility (or lack thereof) of all industries and companies within them to reconsider their strategies and plans. With growth that is closely correlated with GDP, these consequences affect insurance directly and indirectly.
The McKinsey article in June 2019, "How to Win in Insurance: Climbing the Power Curve", [ix] noted that the economic profit gap has widened. between the industries they have tracked since 2010 and emphasized that they were at the top with future digital business models. The top six industries, including software, personal products, technology hardware, media, semiconductors and pharmaceuticals, outperformed the top eleven industries and the bottom six industries in terms of financial gain. Insurance was in the bottom six industries. And COVID accelerates the trends that existed before the crisis and widened the gap between top and bottom, placing insurance further behind industries that want to play in the insurance space.
What's really amazing about McKinsey's research is that b 20% destroyed an astonishing $ 976M per company per year, the middle 60% trampled the water by producing just one. average of $ 26 million, and the top 20% increased by an annual average of $ 764 million in financial gain. This is in line with the growing Knowing-Doing Gap that we have identified and tracked in our research on strategic priorities that has shown that leaders surpass Laggards by 41% last year and Followers by 15%, placing both Laggards and Followers in the future. risk.
Why the gap?
These industries are proving to be more resilient compared to those at the bottom because of their digital business models that stand in contrast to traditional business models, such as streaming media versus traditional satellite; home cooking versus eating out; and home delivery versus in-store purchases. In insurance, we have seen growth in online shopping, especially for many of the new "digital first" startups such as Lemonade, Root, Ladder Life and others. These and other companies have resilient, future-ready digital business models that are positioned to ride the trends and crisis – increasing the gap for competitive advantage and positioning them as leaders.
So how do companies climb the power curve and position themselves as leaders?
First, you need to know where you are in the power curve and knowledge gaps compared to those leading the digital transformation with resilient digital business models. Second, you need to prepare and prioritize plans that are crucial to moving forward. And third, you must carry out these priorities with a sense of focus and urgency.
That's why strategic planning for 2021 is more important than ever … and the traditional business planning method may not be enough in this age of dramatic change and pressure.
Acting on strategy is so crucial, especially with the pace of change we continue to experience. As the McKinsey article points out, strategy is about playing the odds, increasing the amount of "doing", even if certain plans fail, to ensure total success. And that's why the two-speed strategy is so important – finding the right balance between optimizing today's business and boldly creating tomorrow's business.
No Turning Back – Making the Bold Moves
COVID has forever changed the way our customers, channels and employees get involved — from quotes and purchases to filing claims. Even as business and finance continue to recover and recover in the coming months or even years, strategy leaders expect a large portion of our business interactions to remain virtual, intensifying a new level of competition for the customer experience.
Unable to return to "normal". Bold movements that embrace the "new normal" will define the next generation of leaders in the insurance industry.
What this means is that every business needs to reconsider how they prioritize and allocate resources – people and capital. Will you keep things relatively the same and allocate the same amount to each business unit to keep it operational and focus on some improvements for business processes and products? Or will you redistribute some of these resources to make bold changes for the future?
These strategic decisions made for 2021 will affect and drive if and how the organization is future-ready and sustainable in the long term. COVID has given the industry an opportunity to wipe out our strategic slate, utilize the lessons learned and redistribute resources to redefine business and business models for the future of insurance. Now is the time for leaders to take decisive action, not to be pampered by the tough decisions. Because we will never return to pre-COVID. There will also be no "right" time to take the bold step.
Today's changes require that insurers have clarity on how to succeed in the future of insurance. Each company will find its own path. Those who are brave decide to invest in their future with capital that would normally be invested for other purposes. These bold moves to optimize current operations and create future operations significantly increase the insurer's potential for success. Future market leadership and success will be defined by redistributing, re-prioritizing and accelerating your 2021 strategies and plans using a two-speed strategy.
As the great philosopher Socrates said, "The secret of change is to focus all your energy, not on fighting the old, but on building the new."
What will your future be like? How do your strategies adapt to what leaders do? What specific traits can you quickly go from knowing to doing?
Your answers will determine your readiness for a new decade and the future of insurance.
What is your bold move?
[i] Hall, Mary, "What Are The Insurance Profits' Common Profit Margins?" Investopedia, 27 April 2020, https://www.investopedia.com/ask/answers/052515/what-usual-profit-margin-company-insurance-sector.asp#:~:text=The%20insurance%20sector' ; s% 20net% 20 profit, accident% 20 insurance% 20 companies% 20 average% 202.7% 25
[ii] Josefowicz, Matthew, "Speed to Market for Property / Casualty Insurance Insurance," Novarica, March 2019
[iii] "Average Net Engine Profit (NPS) for Selected Insurance Branches in the United States 2020," Statista, https://www.statista.com/statistics/1033788/nps-insurance-companies-usa/#:~ : text = NPS% 20of% 20of% 20selected% 20insurance% 20company% 20in% 20the% 20U.S.% 202020 & text = NPS% 20demonstrate% 20policy% 20loyalty% 20and of% 2041% 20%% 20in% 202020
[iv] Jarzabkowski, P., K. Chalkias Cacciatori, R. Bednarek, (2018). Between State and Market: Units for Gaps and Catastrophic Risk Cass Business School, City, University of London, 26 June 2018
[v] “NextW ave Insurance: personal lines and small commercial How insurance companies need to change in a fast-paced world, ”Ernst & Young LLP, 2019
[vi] Staib, Daniel, et al.,“ Sigma 4/2020: World insurance: rid out the 2020 pandemic storm, ”Swiss Re Institute, July 9, 2020
[vii]“ Navigating the talent crisis, ”Insurance America, June 28, 2018, https://www.insurancebusinessmag.com/us/opinion/navigating-the-talent- crisis-104286.aspx  [viii] "Best & # 39; s Special Report: The Advent of Innovation," AM Bäst, 10 March 2020,
[ix] DiAmico, Alex, et al., "How to win in insurance : Climbing the power curve, "McKinsey & Company, June 18, 2019, https://www.mckinsey .com / industries / financial services / our insights / how-to-win-in-insurance-climbing-the power-curve