As we entered this new decade at the start of 2020, industry assessments reflected a positive outlook with increased growth potential expected, despite the low interest rate environment that historically has challenged insurers. What a difference in just a short 6 weeks on the outlook for the insurance industry as a result of COVID-19. The COVID-19 crisis rapidly shifted this assessment to a “negative” market outlook, primarily due to the significant volatility and uncertainty in the financial markets and the impact of low interest rates.
Out of previous crises, including 9-11 and the 2008 financial meltdown, some insurers began to make some operational and technology changes. But these were not enough to fully address shifting customer needs and expectations or to achieve the digitization of insurance through the entire life-cycle. Then came the InsurTechs who looked at things differently – from the customer view, an outside-in view. InsurTechs introduced new products, customer experiences and business models that adapted to many of the market shifts we were experiencing. Regardless, of whether you are an incumbent or InsurTech, today’s crisis is poised to be a potential game-changer for the industry, requiring insurers to address both their current and future business models at the same time. We do know that companies that strategically invest in their business and technology are better positioned for growth and success – especially during a crisis.
There are many insurance implications arising from COVID-19 that we are seeing every day in the news. These implications will bring so many levels of change — short-term, mid-term and long-term. For a quick glimpse into the multiple possible futures of insurance, myself and three of my Top 50 InsurTech Influencer peers – Chris Cheatham, Sabine Vanderlinden and Mike Conner are gathering (virtually) to share and discuss our views. We invite you to join us on April 30, 2020 for this webinar, titled, “The Future of Insurance Post-COVID-19: Insights, Learnings & Recommended Actions from Top 50 InsurTech Influencers.” This blog provides a quick preview of some of the topics we will be discussing.
One of the implications at the top of our list will be a corporate self-assessment and an industry assessment of how we need to adapt to a “new normal” that is still unfolding. Before we choose knee-jerk reactions with long-term consequences, we should stop and think ahead. Here are some thoughts to consider based on looking into the near, mid and long-term future.
First start with your customers. What is the impact on your customers, their lives and their businesses? How will their needs impact your operational processes, particularly with social distancing?
What channels do your customers have available to them to buy and service their insurance? If you are exclusively agent-driven, how will this impact your business if customers want digital options? Do your agents have robust portals to work with their customers? Do you?
As an example, Forbes recently reported that starting January 2020, online life insurance sales increased 30-50% for companies with speedy apps that used data/algorithm driven underwriting, particularly for those 45 and under, the prime growth market of Millennials and Gen Z.[i] And the surge in potential life insurance demand following COVID-19 could replicate the 78.9% surge in 1919, immediately following the Spanish Flu pandemic, as noted in a report published by the National Association of Insurance Commissioners.[ii]
Jump forward to 2019. The industry was slowly embracing digital experience platforms, advanced data and analytics, and cloud, API-enabled core platforms to expand digital capabilities and innovative products that grow and retain their business, while also transforming their business model as a digital insurer. Newer Cloud and digital core systems are currently being tested and most will fly through well, accelerating priorities and transforming forward-thinking companies into truly digital insurers.
Industry companies of all types (e.g. carriers, agents, brokers, vendors, and others) could see operational constraints, resulting in cost-containment measures. Startups and weaker vendors/partners may fail faster due to limited financial resources, sales cycles shifting, risk factors changing and investors rethinking their investment themes. One result may be a reevaluation of partnering relationships. Strong financials and access to capital or cash are crucial.
Digital experience becomes the #1 priority across all lines of business. This crisis has exposed less than desirable customer experiences due to manual, paper-bound processes, non-digital post-service transactions like claims, payments, printing, mail, a rise in online insurance purchases, and the need for extra caution due to fraud. As a result, projects will likely be reprioritized to digital and cloud based platform solutions – giving flexibility, scalability and variable costs needed going forward, such as those discussed in detail in our Cloud Platform report. Waiting 3-5 years for cloud solutions is likely no longer viable given the dramatic shift.
As small businesses come back, many of their business models may have changed – more delivery and takeout for restaurants, retail and grocery stores; tele-health will accelerate for medical professionals; schools and colleges may move to more online-based. There will be likely be a greater need for these businesses to insure themselves and a corresponding need for insurers to undertake a fresh review of risk for those businesses. This could uncover the potential need for new products – such as cyber insurance. Policy language will be re-evaluated to address the current situation and how to mitigate uncertain coverages moving forward with new products. At the same time some businesses will not come back. Based on previous disasters, up to 40 % of small businesses never reopen after a disaster.
Just like after the financial crisis, the rise in Gig workers and the on-demand economy will grow. Gig workers had been seeking access to more insurance benefits products prior to COVID-19, and this situation will likely accelerate this so they can carry these benefits from gig to gig. And an increased interest in on-demand, usage-based insurance – even beyond auto – will grow, particularly for the Millennial and Gen Z generations who have indicated stronger interest based on our research. All of this will require new capabilities for policy and billing to support continuous underwriting and variable billing options.
Digital leaders, many who align to our Knowing – Doing leader focus from our Strategic Priorities report, will aggressively invest in new business models, products, processes – including customer engagement and distribution models aligned to a more digital economy and growing demographic. More insurers will look to expand to alternative digital channels such as marketplaces and embedded insurance offerings with other businesses, decreasing the cost of customer acquisition while expanding reach.
The digital and cloud focus will continue long-term across all aspects of an insurer’s operating model. Development of partner ecosystems, whether for technology, data, channels or other needs will rapidly build out, changing how insurers work with partners but also within new ecosystems – like mobility, health and wellness, financial services, retail and more.
We will see acceleration of innovation and expansion of digital models into the more complex commercial lines, excess and surplus and the London Market, building on the experiences within other lines of business and the emergence of new operating models, products and technologies.
And new risk models will emerge (just like they did after 9-11) that will redefine risk exposures based on the “hot zones” for future situations. And at the same time, with the change in behaviors by individuals and businesses, other risks could shift due to less travel, less concentration of employees in a single location, less pollution, an expanded distributed workforce, and more.
As we have highlighted over the last few years, companies need to modernize and optimize their current business while also looking to create their business for the future – one that aligns to a new generation of buyers, risks, behaviors and expectations. New leaders will emerge with new operational models (processes, technologies, products, people, partners) from the ground-up, exploiting the “legacy debt” of others who are focused on digital transformation and innovation. This approach aligns to the AM Best innovation ratings – finding the right balance between operational innovation and disruptive innovation with new business models.
Today’s stress points are proving that insurance must rapidly adapt to fit a different future than what we thought just 6 weeks ago. The future will require us to not only become innovation experts but also to become expert managers of the unexpected.
In this unprecedented new normal thrust upon us by the Coronavirus pandemic, we will likely see a dramatic restructuring of economic, commercial, social and business aspects as well as shift in needs, expectations and demands of individuals (employees and consumers) that will reshape how we live, how we work, and how we use technology. Companies that reinvent themselves based on these shifts will disproportionally succeed.
Are you thinking of reinvention? What are your plans for the short, mid and long-term? Will you emerge as a leader in this new normal?
[i] Danise, Amy, “Consumers Panic Shopping For Life Insurance In The Face Of Coronavirus,” Forbes, March 12, 2020, https://www.forbes.com/sites/advisor/2020/03/12/consumers-panic-shopping-for-life-insurance-in-the-face-of-coronavirus/#351a4a826a6f
[ii] Zawacki, Tim, “US life industry’s statutory income statement strength set to sink,” S&P Global Market Intelligence, April 13, 2020