Understanding the future is all about signals – and we have a lot of them.
We face new challenges including inflationary market economy, supply chain problems, rising interest rates and low unemployment. We are grappling with the heightened reality of societal, climate and technology risks and their potential impact on our lives. We are experiencing declining profitability, rising claims ratios and claims costs, increasing demand for reinsurance capacity, lower disposable incomes and a growing talent drain with a projected high rate of retirements in the insurance industry.
At the same time, we see a changing market landscape. The year 2023 is poised to deliver some game-changing scenarios that will impact insurance. Amazon is re-entering insurance in the UK.[i] Apple can take out health insurance in 2024[ii]. Google provides data and analytics at scale through expanded partnerships with insurance companies such as travelers.[iii] Insurance companies will continue to acquire new distribution channels or InsurTech technology, as American Family did with Bold Penguin[iv] and Travelers with Faith[v]. And the InsurTech space will change and consolidate due to higher interest rates, tighter access to capital and lack of profitability.
With all these signals in play, 2023 will require insurers to respond by strengthening business fundamentals and foundations, while meeting the challenges of a changing market.
Risk – New, changing and increasing complexity
Risks increasingly capture our attention.
Environmentally-influenced catastrophic events, such as the recent hurricanes in Florida, caused significant losses. Reinsurance prices are rising and access to capital is tightening, highlighting the effects of environmental risks. We also see increased social risks, risks associated with government policies that affect crime and more. And the increased use of technology and digitization in our daily lives increases the risk of cyber incidents. These layers of risk sit on top of the traditional approach we take to underwriting individual policies which now requires us to look at portfolio risk.
This complexity of risks will continue to reshape P&C and L&AH insurers̵7; product offerings, underwriting opportunities and the use of broader data and analytics. All of these will in turn affect customer relations.
Underwriting is the heart of the insurance industry. With rapidly changing risk factors from weather, climate, society, technology and more, it is increasingly important to evaluate individual risks and the exposures against an entire portfolio, to assess risk and risk appetite, and ultimately profitability. The underwriting discipline is making great strides not only to automate workflow, but to transform the way underwriting is done by providing access to more data sources to gain new risk analysis insights while creating vastly improved agent/broker and customer experiences at the same time.
Operationally, this requires a combination of digital business solutions including next-generation core, digital insurance workbench, AI/ML models, digital loss control and the ability to ingest a range of data sources to create real-time risk management and insights.
There are large gaps between today’s operations, business capabilities and technology and those required to compete and drive profitable growth in an increasingly complex risk world. Exploring the gaps requires an assessment of today’s reality and the opportunities for not only operational improvement, but strategic innovation. Expanding opportunities met with innovative strategies will establish a new set of leaders who can adapt to our complex world with increasing risks.
Shift from product-centric to customer-centric
The future is about the customer. Being ready for the future is about understanding the customer signals that should shape business strategies. From covid to historic inflation, to severe weather events, customers are enduring an ongoing series of challenges that have shaken their sense of financial security in how they can protect their homes, cars, lives, financial well-being and more.
Although insurance’s traditional products have always been crucial in creating security for the customer – new and growing risks require new ideas and approaches. Market dynamics and the changing needs and expectations of insurance buyers (especially the younger generation) are encouraging insurance companies to break away from traditional operational and technical constraints. The new customer assesses the insurance experience on a completely different scale.
The rise of individualization and personalization is rewriting the customer experience and the insurance process: from the products offered and their pricing and underwriting, to the recommended channels and to the services provided. Customers seek simple, humanized experiences that require a shift from product-centric to customer-centric design and implementation.
Risk management and risk resilience
The old adage of “control what you can control” is now front and center for insurers as they look to new risk management strategies as a critical component of their insurance and customer service strategy. They are increasingly focusing their time and resources on how to better assess risk and prevent loss to improve insurance profitability and customer experience.
Today’s increased risk, market environment and pressure on profitability require a greater focus on preventable losses and better results. Insurers must focus on ensuring profitability, proactive risk mitigation to minimize or eliminate claims and improved customer experiences.
Resilience is essential to living in a world filled with change and uncertainty. It will give insurers and insureds the ability to avoid or minimize risk and reduce the stress of recovery. Building resilience in insurance will make it more relevant to customers. Resilience deserves a place in the customer experience discussion. Leading insurance companies will leverage technologies such as IoT devices, smart watches and value-added services to assess and monitor risk, with the goal of proactively responding, to avoid or minimize risk through value-added services. Not only will customers embrace this, but insurers will create new revenue streams that provide customer value, increasing loyalty and trust.
Channels – Multi-Channels Meet customers on their terms
In the traditional distribution model, insurance companies struggle for mind share, so customers think of them when they need insurance. Many large insurance companies spend hundreds of millions of dollars on advertising and others spend significant dollars in the traditional agent/broker channel to keep them “top of mind” when policies are considered.
With the increasing competitive challenges to attract and retain customers, insurance companies must develop and use a broader distribution ecosystem that engages customers when and how they want … putting the customer first.
Today’s interconnected world requires insurance to play across a broad distribution spectrum of channel options, expanding the reach of customers when, where and with whom they want to buy insurance. These options form a distribution ecosystem that expands reach, but requires a partnership approach, especially for embedded channels. Built-in insurance changes this paradigm completely. With it, the insurance no longer exists soldbecause it is purchased as part of something else.
Today’s buyers don’t necessarily associate with traditional channels and will look to purchase insurance through other channels or devices, as we highlighted in our annual consumer and SMB survey. Additionally, buyers have other trusted and loyal relationships with entities such as Gig Economy groups, health and fitness organizations, major retailers, automakers, big tech and more, demonstrating that partnerships and built-in insurance make sense.
The bottom line … if distribution channels are easy to use with products that are easy to understand, then insurance has an opportunity to grow through frictionless multi-channel distribution.
Technology investment is accelerating
The technology provides a basis for adapting, innovating and delivering at a rapid pace to implement strategy and market changes. The increasing importance and adoption of platform technologies, APIs, microservices, digital capabilities, new/non-traditional data sources and advanced analytics are now critical to growth, profitability, customer engagement, channel reach and workforce transformation.
From front office to back office, next-generation SaaS platforms are reshaping business focus from policy to customer, from process to experience, from static to dynamic pricing, from point-in-time underwriting to continuous underwriting, from a historical view of data to a predictive one and prescriptive view, from traditional products to new, innovative products and so much more. An insurer’s ability to create and grow an ecosystem of partners to deliver increased value to the customer relationship gives it the power to deepen and differentiate customer loyalty.
The slow and steady investment in technology, which averages around 3-4% of DWP, is incremental at best and not sufficient to keep pace with the growing challenges in the industry. Given the pace and multifaceted nature of digital transformation, leading insurers will focus on their business strategy and the investments required to adapt to the many changes.
Even with the macroeconomic headwinds and other market challenges, every aspect of insurance is being redefined in the future, and next-generation technology is the foundation of that future. Recent history has shown that backing down is a big mistake. The dot-com crash of 2000-2001 and the financial crisis of 2007-2008 proved that this strategy was short-sighted.
Those who lead will accelerate their investment rather than retreat, even in challenging economic conditions, “putting the pedal to the metal.”
And they will be prepared for the next big disruption, leapfrogging the competition.
The question is… are you ready for 2023? For 2025? For 2030?
Join our upcoming webinar, 2023 Signals Shaping the Future of Insurance, with myself and a number of leading InsurTech influencers where we will discuss and debate these topics and more areas of change and opportunity in the insurance industry.
[i] Amazon UK moves cautiously into insurance sales – BBC News [ii] https://www.forbes.com/sites/barrycollins/2022/10/18/apple-will-launch-health-insurance–in-2o24-says-analyst/?sh=a83e30162db8 [iii] Google Cloud and Travelers Create Connected Data Ecosystem to Improve Commercial Insurance Process (prnewswire.com) [iv] A Done Deal: American Family, Bold Penguin Gather for Small Business (amfam.com) [v] Trōv Technology Assets Acquired by Travelers (prnewswire.com)