What are the thoughts on the term “strategic resilience”? It probably makes you think about being prepared for the future. But how do you prepare for an unpredictable future, including rapidly evolving technological innovations, ever-changing customer and employee preferences, expanding environmental challenges, and increasing complexity in government regulation, to name a few? And what do you do when the future you thought would happen, right? Or when the future you thought would happen in ten years’ time actually happens in five? Is it possible to prepare for several futures?
In this blog series, I will explore these issues using Accenture̵7;s strategic resilience framework and modeling to show how scenario planning for the future should not be a guessing game – nor should it be a purely academic exercise. You can, and should, harness the power of information we have today to build flexibility and sustainability into your business model to thrive now and be prepared for tomorrow.
The future of insurance is full of uncertainty
It turns out that the future is difficult to predict. We get many things wrong, from election results (Brexit) to technology trends (how many autonomous vehicles roam your area?) And a pandemic that was a shock to the world.
When looking at the insurance industry specifically, there are many developments that are difficult to predict. Three of the largest are: emerging risks (aging population, climate change and cyberattacks), the sharing economy (freelancer, car, home) and the smart economy (technology-integrated products). The specific issues in these areas show how unpredictable the future is:
- What will the lasting effect of the covid-driven recession look like for the insurance industry (eg changing demand)?
- How will emerging risks affect the industry in the short, medium and long term?
- How will consumer preferences and the sharing economy affect the production and distribution of insurance products?
- How will increased environmental catastrophe affect (re) insurance markets and demand?
- How will the scope of corporate responsibility be increased or decreased?
- To what extent will the introduction of advanced technology (eg AI / ML / VR) disrupt insurance processes?
Given that there is so much unknown, are we left to guess how these will play out in the future – or worse, just wait and see? The answer is no.
Accenture’s framework for strategic resilience
Although it is not possible to predict the future, we can identify triggers that lead to market shifts. We can also use historical data and industry insights to model current trends (using a model we have developed for this purpose) to outline different future scenarios. These scenarios represent how key trends can lead to different results under different circumstances. Based on this information, we can decide which strategies would be most appropriate based on considerations such as financial opportunity or risk.
We begin by describing current and future trends with the PESTEL framework: political, economic, social, technical, environmental and legal. From there, we determine where each trend is currently heading – the baseline. The next step is the crucial part of strategic resilience modeling: What happens if a trend changes course due to an unforeseen event or change in the market?
This is where scenario planning comes in. We outline different scenarios based on potential changes in each trend. But our strategic framework for resilience is more than just a scenario modeling exercise. We can use real data and finances to see where the greatest opportunities and the highest risks are in each future scenario. With that knowledge, we can determine the most appropriate long-term strategies for a particular business.
Let’s look at a quick example. Historically, small commercial insurance has been an underserved market with low premium income and high support needs to obtain and provide the necessary coverage. Websites like Etsy, eBay and Amazon make it easier than ever to sell products, while apps like Uber and DoorDash have established a gaming economy. A whole generation of new entrepreneurs has been created. These entrepreneurs and their employees need insurance, but most will still represent very low premiums on an individual basis.
This group has also expressed digitally savvy preferences for shopping and service. If companies lacked these budding new business owners and underestimated the perennial trends of data dissemination, combining digital opportunities and consumption of B2B, then they probably realize right now that there is a growing and accessible market (albeit still evolving).
Insurance companies respond when they see digital InsurTechs such as NEXT and Vouch build new business models and steal market share. Older players are entering or expanding their digital presence in the small business market, such as Berkshire’s biBERK and THREE insurance. USAA recently launched a small commercial model to support the needs of veteran entrepreneurs. New distribution ecosystems are also emerging via the brokerage market to provide little commercial coverage through a digital model, such as Aon’s CoverWallet.
Instead of reacting, Accenture’s strategic resilience framework could have shown this potential possibility before it became apparent. By describing several potential scenarios and then analyzing the financial opportunities and risks for each, the insurance companies could look at the consequences of different potential futures and make a well-informed, data-driven decision.
The specific decision will depend on a company’s current reality, needs and long-term goals. The point is to systematically analyze current trends, expand flexible scenarios based on potential changes and then make informed decisions that are specifically designed to build resilience in the business.
The markets, product lines, channels, value propositions and technologies you choose to invest in – these choices all affect a company’s strategic resilience.
In the next part of this series, I will limit my focus to one important category that affects the world: sustainability and ESG (environment, social and governance). I will explore the key ESG trends currently affecting the insurance industry and go through specific scenario planning to illustrate the power of strategic resilience.
In the meantime, if you are considering building a long-term strategic roadmap that is resilient and takes into account future unknown things, please contact me here.
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Disclaimer: This content is provided for general information purposes only and is not intended to be used in consultation with our professional advisors.