In an insurance industry facing multiple challenges, prioritizing next steps isn’t easy. We highlight seven steps well-prepared insurers can take.
The insurance industry faces an unparalleled combination of challenges, including: transformative advances in technology; increasingly demanding customers seeking personalized solutions; and a change in investment regime, potentially with structurally higher inflation. While each challenge requires multidimensional responses, we offer seven steps for insurers to consider. They’re based on a session at AB’s “Navigating Disruption and The Future of Insurance” forum led by Jim Bichard, Insurance Practice Leader at PWC, and the attendee Q&A. The presentation was based on PwC’s Insurance Reimagined: Insurance 2025 and Beyond report and 2023 CEO Survey; the conclusions stated here are AB’s.
1) Build Trust Through a Better Customer Experience
Globally, trust in institutions is at an all-time low, but customers recognize and trust the providers that can respond to their needs. Increasingly, they want to transact by mobile phone, get quicker quotes and pay more flexibly—and that’s just for starters.
For insurers, building these competencies means either hefty tech spending or partnering with tech-savvy companies that already lead in customer experience (CX) know-how. Partnering may seem like the easier and cheaper option, but experience shows that to be effective, partners must genuinely seek win-win solutions and already possess the necessary collaborative skills to make joint-venture arrangements work.
Action point #1
Recognize your core competencies and acknowledge important deficits. Are you on your way to enhancing CX in-house, or could partnership have more impact?
2) Execute Digitally Across the Whole Organization
Good execution has always been essential in the insurance business. However, with the marketplace changing so radically, times have moved fast forward. Today, the key concept is to be fully digital across an entire insurance organization, rather than simply in discrete projects. Digital must be at the heart of everything you do, and the entire business needs to embrace it. Many firms are struggling with this difficult transition.
Cloud adoption is crucial in advancing capabilities. The insurance industry has typically been slow to shed legacy systems, and creating a cloud-enabled organization is vital to access data quickly and work with customers and other organizations more effectively. Firms that fail to do this won’t be able to harness the full power of artificial intelligence (AI).
Action point #2:
Senior management should adopt a digital mindset to enable a fully digital organization with cloud-based capabilities.
3) Make Your Organization Attractive for Enterprising People
Insurers’ HR needs are being transformed by the AI revolution, calling for new talents and skill sets. For instance, insurance companies won’t likely need to hire armies of claims apprentices in the future, because AI is likely to take over much of this function. Instead, insurers will need data scientists and data architects to “rewire” the traditional way of doing things. This new talent will also crave a dynamic environment to work in. Will they want to work for you?
Insurers whose HR departments have been built around managing a big workforce, many of them carrying out routine functions, will require a different approach for this new world. The key will be to think about talent planning five to 10 years into the future, and that may require HR upskilling to address rapidly changing needs.
Similarly, awareness and views on environmental, social and governance (ESG) issues are shaping the preferences of talented people—and customers. So, it’s vital to demonstrate that your company acts responsibly both internally and externally. Insurers need to elevate the role of ESG and embed it in their organizational DNA.
Action point #3:
Consider your HR skills, ESG integration and brand. Are they sending the right messages for tomorrow’s talent market?
4) Reallocate Capital to Focus on Changing Priorities
Insurance markets are changing fast. The amount of intangible assets on corporate balance sheets has increased by 25% in just the last year. In India, population growth and growing affluence have expanded the potential market for health insurance by 800–900 million people. Correspondingly, the protection gap—the difference between insured and uninsured assets globally—continues to rise. Given the scale of opportunity, insurers are already actively managing their balance sheets to reallocate capital to priority business areas.
Life insurers have been moving to capital-light products for several years. For instance, they’re developing unit-linked pension and savings solutions, where investment risk lies with the customer, to satisfy a range of risk appetites. In property and casualty (P&C), more complex products—including intellectual property and cyber risks—tend to have longer tails and require more capital for extended periods.
But changing markets and advancing tech can expand opportunities to use capital more efficiently. On the retail side, there’s increasing interest in shorter-duration products such as usage-based policies. Telematics is already very big in Italy and growing fast in the US. The tech is far advanced from the days of inserting a black box in a car. Now, it’s about a mobile phone/ app-based service where insurers can collaborate with motor customers in real time to improve their driving habits and reduce their costs.
Action point #4:
Focus on capital. Can you make it work harder by directing funding toward higher-potential avenues?
5) Learn from Advances in Emerging Markets
Global insurance markets exhibit huge differences, from old-fashioned to leading-edge. For instance, Japan is now a very mature market featuring traditional life products, while in the US insurers still write a lot of personal lines policies through agents and telephone sales.
By contrast, Africa has completely leapfrogged legacy products and methods to adopt online and mobile phone–based transactions. And in Asia, WeChat offers a new window into the future of transacting. Using these territories as examples, it’s possible for insurers to create greenfield enterprises within their organizations to start the process of transformation.
Action point #5:
Look beyond traditional markets. Even if a firm doesn’t have operations in Africa and Asia, those markets can still provide vital lessons to enable a breakaway from legacy models.
6) Adapt to the Growing Complexity of Climate-Change Risk
Climate change is a priority issue. While some traditional lines might still appear profitable, failure to adequately evaluate climate risks could lead to catastrophic losses.
In the UK, for example, many insurers struggle to price flood risks accurately. Even one or two flood events can wipe out profits for the whole year, given that this line is not a high-margin business.
The global reinsurance market effectively aggregates all these individual risks—and it has made money above its cost of capital in only one year in the last six. That statistic speaks to both the greater incidence of climate change–driven natural catastrophes and the failure of underwriters to price them adequately. This year, the pricing environment is much more robust, and business may be more profitable.
But the complexity of the risk environment has risen, and underwriting has still not responded adequately. So, in the future there will likely be more climate events that haven’t been properly understood or priced.
Action point #6:
Recognize the increasing complexity of climate risks and evaluate them with particular care.
7) Link Investment and Business Strategy
The era of ultra-low interest rates was very tough for the insurance industry. With risk-free rates so depressed, investment returns were constrained and there was an essential focus on getting the underwriting right to stay solvent. Now, interest rates are much more attractive, while many businesses have struggled to adapt underwriting to higher inflation, particularly on the loss-cost side. And behind these changes there are bigger strategic investment issues to consider.
An effective investment strategy is a function of the type of business an insurer chooses to write. Every organization has a different business strategy, but there are common factors for insurers to consider for investment purposes. For instance, CIOs must understand: the external and internal forces shaping product distribution; the type of liabilities that may be taken on the balance sheet because of evolving business strategy and how long they’ll stay there; and the probable volatility of the business returns.
Action point #7:
Ensure business and investment strategies evolve together. Are they sufficiently linked and mutually well understood?
