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In the latest EY NextWave Insurance report, the insurance team made a bold prediction – that the large commercial and reinsurance sector will experience $600bn in revenue growth and 25-35 percent improvements in combined operating ratios by 2030, despite the Covid-19 pandemic.
Those projections were based on our extensive dialogue with clients and industry stakeholders, as well as deep research into the current state of the market and likely future trends. Despite the crisis, we remain bullish on the large commercial and reinsurance sectors.
The growth forecasts come with a few caveats. For one, results are likely to be depressed for the next year or two. For another, insurers have a lot of work to do if they are to seize the opportunity. For instance, they must move urgently and ambitiously to develop new business models and new product offerings, in addition to upgrading their technology and retooling their workforces. It’s worth noting that many of these actions were necessary even before the crisis hit.
Not all market players will benefit equally; those firms that establish a clear vision for their future and then drive near-term change while simultaneously placing intelligent, long-term bets for what’s next and beyond, should emerge as leaders. Those that double-down on in-flight transformation initiatives are likely to have an edge in returning to profitability.
Specifically, EY teams believe the following six imperatives hold the key to unlocking such dramatic future growth.
Define your purpose to dramatically increase relevance
The world has never needed the insurance industry more than it does today. Cybercrime, climate change, geopolitical uncertainty and pandemics are all serious risks that call for leadership and new forms of collaboration among businesses, communities and governments.
Thanks to their ability to assess risk and provide protection, insurers are uniquely positioned to provide such leadership and help deliver the protection society so clearly needs.
However, the industry must change current perceptions, particularly in light of negative press surrounding pandemic exceptions to business interruption policies. It must articulate its social purpose and importance more clearly and forcefully. That will help differentiate the industry in the minds of customers and employees eager to engage with companies that share their values. Strategically, it can help insurers and distribution partners confirm their relevance to companies considering self-insurance or relationships with new market entrants. Premium holidays and discounts during the crisis are a good place to start, but ongoing engagement with regulators and authorities will help demonstrate the industry’s commitment to restoring the economy.
Enhance client value through bespoke products
New products and services should reflect how companies are structured and operate today. They should also be designed to address a shifting risk landscape. Flexible and bespoke products that cater to the unique risks, exposures and asset bases of individual customers will become the rule during the next decade. In this sense, product innovation starts with a clear understanding of customer needs. Appropriate coverages for intangible assets (which represent the majority of business value today) will be at the top of the priority list. In the wake of the Covid-19 pandemic, leading insurers and reinsurers can, and should, expand specific coverage for pandemics; they should also enhance the loss prevention and risk advisory services that will allow them to significantly upgrade their core value propositions.
New services are also essential, especially as cost pressures intensify and customers demand to know what value they will receive for their premiums. That value can be demonstrated by effective loss prevention and risk advisory services.
It’s important to note that the tailoring of products becomes practical and cost-effective only if insurers have lean back-office operations.
Insurers need advanced data management and analytics capabilities if they are to successfully target offerings to the unique needs of individual customers.
Deploy technology to drive operational agility – especially in underwriting and claims
While technology alone won’t drive the transformation required to seize the growth opportunity, there is no doubt that significant technology investments will be necessary.
The Covid-19 situation has made stronger infrastructure and more flexible toolsets an operational imperative, given the likelihood that remote working becomes the norm and more interactions become digital.
There are many technologies to evaluate, from artificial intelligence, robotic process automation and blockchain, to customer relationship management tools, rules-based underwriting workstations and rate-quote-bind systems. Internet of Things-enabled sensors, the cloud and big data are among the others that must be taken into account.
All technologies must be considered in terms of their ability to drive top-line growth, increase profitability and reduce expenses.
The top-priority investments will be in platforms and toolsets that directly link to customers, partners and other market participants. Such technology will pay off in the form of enhanced digital experiences, streamlined data sharing and faster and more accurate interactions.
This sort of pervasive connectivity across the industry forms the heart of the dynamic value exchange and evolving business models that are likely to emerge in the wake of the crisis.
Initiate the shift from claims management to loss prevention
As long as there is insurance, there will be claims. However, in the future, the volume of claims will fall to a fraction of what it is today, thanks to continual loss prevention driven by timely insights.
That’s an enormously positive development for the industry, because insurers and customers alike would rather prevent losses than submit claims.
To be clear, the shift to active loss prevention requires fundamental adjustments to operating models, technology and talent. The Covid-19 pandemic will certainly accelerate the shift to loss prevention, risk advisory services and usage-based products.
Enacting this transition will take a great deal of work, but it will pay off handsomely for insurers that get it right.
Get completely connected and fully digital
The future of large commercial insurance and reinsurance will be vastly more open, transparent and collaborative than it is at present.
The digital exchanges and rich ecosystems that are now emerging will work in real time and connect buyers and sellers to products and services that transcend traditional boundaries. The economic lockdown from Covid-19 has only confirmed that digitisation must be an absolute priority.
In forming their own ecosystems or joining those developed by others, insurers must find a role that is unique, value-adding and differentiating. Such strategic focus is critical because no one company will be able to be all things to its customers. Nor should it try.
Even as interactions across the industry shift to digital, human talent will be more important than ever. Taking action based on insights, managing customer and supplier relationships and envisioning new products and services – these are the areas where insurers, reinsurers and brokers need great talent, not just advanced technology and rich data.
Create the workforce of the future
Tomorrow’s workforce will look radically different to today’s. The skills and roles at the heart of operations will be reshuffled. The goal should be to create and nurture a diverse, inclusive workforce infused with digital skills and innovative thinking. Diversity of skills, thinking and experience are especially important.
To compete for scarce talent, insurers must provide an attractive work environment, appealing compensation, clear career paths and a larger purpose.
Culturally, employees must be empowered to embrace risk, try new ideas and fail faster. That will require a mindset shift for many industry veterans. The ability of teams to collaborate effectively – including under remote working conditions – will become a cultural hallmark of commercial insurance leaders.
No discussion of tomorrow’s workforce is complete without mentioning technology and automation. Along with cloud technologies and managed services, these will help reduce the cost to serve within traditional business support services. They will also free human talent to focus on more valuable and more meaningful work.
During the next decade, EY teams believe fundamental change will deliver extraordinary growth for large commercial carriers and reinsurers. We also believe that the Covid-19 pandemic will accelerate many of the trends and developments we have outlined here.
Though there will be fewer losses, customers will receive more value. The frequency of customer engagement will increase (including through digital channels), even as claims interactions and annual renewals – long the primary customer interactions – fall away.
Though the workforce will be smaller, talent will be more important than ever before.
These changes may seem counterintuitive, but we see power in the paradoxes. After all, a 350-year-old industry doesn’t have to be old-fashioned. Indeed, it can – and must – be made new again.
Disclaimer: The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organisation or its member firms.
Simon Burtwell is UK insurance consulting leader for Ernst & Young LLP.