10 minute read 29 Jan 2021
Scenic view of beach

How purpose can guide insurers’ strategic priorities and actions

By Penney Frohling

EY-Parthenon Partner, Financial Services Strategy, Ernst & Young LLP

Financial services strategy practitioner. Helps clients navigate financial crises, new regulations, transformative customer, technology, geopolitical and environmental trends.

10 minute read 29 Jan 2021

Insurers should use their purpose to inspire and guide bold, dynamic actions to spark innovation and growth.

In brief
  • Insurance leaders must view purpose statements as strategically necessary rather than marketing or PR exercises.
  • Purpose can guide insurers through the increased focus on environmental, social and governance (ESG) issues.
  • Having navigated the uncertainty of 2020, insurers can use purpose statements to build momentum in addressing large-scale societal challenges.

In 2021, with the COVID-19 pandemic entering its second year and renewed containment measures in place, the insurance industry continues to make adjustments as it navigates a time of tremendous uncertainty. In engaging senior leaders across the industry, we have been struck repeatedly by how the pandemic speaks to the very purpose of insurance. From its earliest days, the origins of the industry were in providing protections for individuals, families, businesses and communities against disasters and unforeseen events. It’s why the industry was created and why it exists today.

While the current level of uncertainty is unprecedented, there is likely to be a lot more of it during the next twelve months. That’s why we believe this is the time for insurers to be bold and dynamic in re-affirming their purpose. Indeed, some industry leaders believe the COVID-19 pandemic, along with the other pressing issues facing societies around the world, marks an inflection point or the beginning of a new purpose-driven era for the industry. 

But putting purpose into action can be challenging, as we’ve highlighted in previous articles in this series. That’s especially true when multiple crises converge, as is happening now, and these crises require many quick decisions in virtually all parts of the business. Companies across industries have felt compelled to make public commitments to address social issues ranging from racial justice and gender equality to economic inequality to climate change. 

They are collaborating on solutions to these and other pressing problems – including data privacy, the retirement savings gap and uninsurable risks – that are too big for any one sector to solve. Environmental, social and governance (ESG) matters now feature prominently on-board agendas and in investor presentations.

For insurers, it all adds up to a complex matrix of risk and opportunity, and one that underscores the necessity and usefulness of clearly articulated and fully authentic purpose statements. As insurers look forward and consider how they can support an economic recovery and “build back better” programs around the world, purpose statements can provide strategic and actionable guidance that ultimately promotes both societal wellbeing and a financially healthy industry, two items that are very much atop the strategic agendas of C-suites and boards across the insurance industry. 

This article will highlight the unique challenges insurers are facing now and how they can use their purpose statements to best effect during the dynamic period ahead.

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Chapter 1

What insurers did well in 2020 and what to expect in 2021

Insurers must continue to manage through ongoing uncertainty.

Entering 2021, the industry as a whole is still navigating through a fierce storm. Visibility is improving and, financially speaking, the ship is proving sea-worthy. Most carriers have proven resilient in sustaining key operations in a remote working environment and have managed to stabilize their finances and capital positions. 

Without a doubt, the industry has created goodwill by taking “customer-first” actions such as returning or discounting premiums relative to auto policies in light of reduced driving and commuting. They also took advantage of the opportunity to “mainstream” usage-based policies, which look likely to become the norm in the future. Lastly, the industry made impressive contributions to distribute personal protective equipment, fund virus and vaccine research, and support the communities where they operate.

There is broad consensus that the scale of the pandemic is beyond insurers’ ability to cover on their own and that government solutions are required. The first round of business interruption lawsuits has been decided largely in the favour of insurers. In the UK, the FCA review of claims and exclusion language relative to the lawsuit covering 300,000 business plaintiffs took a balanced view of what is covered and not covered. The initial ruling is seen as a “significant step in resolving uncertainty.”

According to Insurance Journal, research from the University of Pennsylvania Law School shows that four times as many business interruption suits have been dismissed as are proceeding. However, in the US, France, the UK and Australia, more litigation is expected. The fight is far from over, and the significant threat of extended litigation remains for both insurers and business owners. So too the possibility of reputational damage for insurers, thanks to the very real possibility of harsh media and regulatory scrutiny. 

More economic hardship appears inevitable, as state-sponsored aid programs expire and many small businesses look likely to fail. High rates of unemployment are expected to linger through 2021. But the industry’s steady engagement since the onset of the pandemic shows that it is trying to proactively manage such risks. Insurers have an important role to play in supporting economic recovery at the fiscal, societal, commercial and individual levels. Having a clear road map of measurable actions and clear view of how these actions can protect and drive future returns is critical. That’s where purpose comes in and can help catalyse long-term value creation.

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Chapter 2

The convergence of critical issues and opportunities

Diversity and inclusion, climate change and COVID-19 are best addressed through purpose-led action.

The other defining social issues of 2020 – the Black Lives Matter Movement and climate change – have also confirmed the need for a well-articulated purpose, while also testing insurers’ willingness to deliver on it. Racial justice demonstrations worldwide, coming in the midst of lockdown, triggered bold statements by business leaders about the pressing need to end racial injustice. The insurance industry certainly made its voice heard. The COVID-19 pandemic has converged with diversity and inclusion initiatives, thanks to the growing body of evidence that women and minorities are disproportionately impacted.

Another intense hurricane season and massive wildfires in Australia and California once again commanded the attention of boards and senior executives. According to Swiss Re (pdf), the impacts and risks of climate change – including approximately £219bn in insured climate-related losses globally in 2017 and 2018 – are too great to ignore. Climate change is at the top of board agendas – and will remain there – thanks to the economic impacts, the prominent statements by key government leaders and new regulation soon to take effect. In March 2021, the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) will require companies in Europe to report more detailed information regarding climate change. More regulation is certainly on the way.

The thinking around climate change is evolving rapidly and expanding beyond the regulatory realm, with more balanced consideration of upside opportunities and downside risks. Many industries face a difficult transition to a low-carbon economy, which itself represents a significant commercial and societal opportunity. Indeed, Mark Carney, former head of the Bank of England and now a US Special UN Envoy, has called the shift to a greener economy, “the greatest commercial opportunity of our age.” Others have likened the scale and scope of opportunity to the industrial revolution. The International Energy Agency projects the need for $3.5 trillion in annual global investments to build the infrastructure. Alongside their peers in financial services, insurers have an important purpose-led role to play in facilitating this transition, not least in their leadership relative to ESG.

As these issues and forces have converged, senior leaders have been forced to recalibrate priorities and budgets to accommodate the urgency and complexity of the required decisions. It’s a tricky landscape to navigate. Day-to-day “fire-fighting” has been the norm in the face of market volatility, fluid claims volumes and uncertain prospects for further legislation and government intervention. The approach to the COVID-19 pandemic has been largely federated; the most impacted functions and operations address issues as they come in (e.g., claims spikes, capital management pressures, new risks for underwriting). Managing the safety and well-being of employees and securing corporate networks and assets have been the other (wholly understandable) priorities.

The first year of the COVID-19 pandemic has taught that large-scale, ongoing and repeated business disruption is possible, as are widespread economic lockdowns and the temporary shuttering of entire sectors. Most leaders have been focused on delivering the best numbers they can, managing shareholder and analyst expectations, and navigating the difficult operating environment. Most insurers have managed their responses very well. In fact, a recent analyst report from a global bank cited the “perception gap” among investors, consumers and the insurance industry; because of the singular focus on business interruption disputes, insurers have not received the credit they deserve for all the good they have done during the pandemic. 

The second wave of infections and the return of lockdowns may keep some leaders in a reactive posture, even as vaccines become available. However, there is growing consensus around the need to take a more strategic and long-term view, largely because such a perspective is necessary to act on the considerable opportunities on the horizon. From the top-down view, boards and senior management are reviewing actions to date to understand just how well insurers have lived their purpose, while those on the front lines of the business continue to make rapid adjustments based on shifting customer needs. 

Some insurers have actively embraced their purpose, emphasizing in earnings calls and public communications how they’ve used their purpose as a compass or lodestar guiding their pandemic actions and informing their long-term strategies, especially relative to ESG. Other insurers seem less convinced of the role of purpose, with the most sceptical viewing statements on climate change and social justice as mere rhetoric. 

The bottom line: seizing the moment to demonstrate the industry’s critical importance to society and the global economy

During its long history, the insurance industry has shown remarkable resilience and a unique ability to help society overcome great losses and understand new and complex risks, from natural disasters to terrorism. But the global scale and scope of the COVID-19 pandemic, climate change and other social issues require a much faster and more coordinated response. Insurers can’t go it alone, either in paying for claims or defending their critical societal and macroeconomic role. The convergence of the COVID-19 pandemic, climate change and social issues may represent the greatest test the industry has faced.

The past also confirms that those insurers that commit effectively to strategic change during and after a crisis tend to emerge as winners. Such future success requires that senior executives and boards objectively evaluate their purpose and its link to business strategies and operational realities. The key challenge is whether companies are ready – and able – to live their purpose in good times and bad. That the industry has not received the credit it deserves for its pandemic response only confirms the need to embrace purpose as a strategic compass and ensure that an increasingly broad set of stakeholders – markets, investors, consumers, governments and regulators – understand both why insurers exist and how they live that purpose.  


In a time of continuing uncertainty, a number of market, social and environmental forces have converged, forcing insurers to recalibrate future plans and rethink transformation priorities in light of authentic purpose statements. 

About this article

By Penney Frohling

EY-Parthenon Partner, Financial Services Strategy, Ernst & Young LLP

Financial services strategy practitioner. Helps clients navigate financial crises, new regulations, transformative customer, technology, geopolitical and environmental trends.