Key trends: Non-life
The European non-life business has been stagnant for the last five years, and there’s a pervasive sense of the need to try new and different approaches. But insurers must adjust how they approach transformation initiatives, as past efforts have not sufficiently moved the needle on performance. Insurers must define clearer business cases focused on specific problems and performance improvement opportunities.
1. Digitize sales and distribution
By finding strong partners with complementary services, insurers can provide a holistic risk experience, with technology, tools and data designed to both prevent and manage risk. And with the growing emphasis on digital channels and customer-centric experiences, insurers must invest in digital tools that enable their sales teams, rather than just creating channels for direct customer interaction.
2. Win the war for talent
Beyond the matter of an aging workforce and large-scale retirements, the most pressing issue is filling large talent gaps, such as the need for more digitally savvy resources. Reskilling is critically important because of tight labor regulations, and the shortage of analytics professionals and data scientists. Insurers also must reassess their cultures, instilling a sense of purpose to attract new generations of talent.
3. Achieve cost efficiency
While weak financial performance and lack of growth make the focus on cost cutting understandable, insurers can’t afford to overlook high-impact investments. Process optimization, both through partnerships and tech transformations, particularly with the cloud, is becoming more common among forward-thinking insurers.
4. Manage persistent regulatory pressures
The regulatory agenda remains full for European insurers. Brexit, IFRS 17 and tax reforms in the US are among the initiatives insurers must prepare for. The growing interest in data privacy and cyber security will raise the bar even higher.
5. Navigate sustainability and climate change
While it’s extraordinarily difficult to manage aggregate climate risks across the portfolio, the industry is uniquely positioned to help families, businesses and communities protect themselves. Of course, insurers must be able to accurately model and price the risk associated with climate change if they are to take advantage of the potential upside of increased premiums and convert it into bottom-line value.
Key trends: Life
Traditional life products are no longer very attractive to consumers, given the lack of returns. That means life insurers must prioritize cost management strategies and clients’ migration to fee-based products. Future success depends on insurers’ ability to develop innovative products and services, improve the customer experience and increase operational efficiency through modern technology.
1. Manage persistent regulatory pressures
Initial regulations are being managed primarily as a compliance exercise. But newly defined key performance indicators will require insurers to articulate new storylines to better explain their performance to investors. The most forward-looking insurers will use new regulatory requirements to inform and influence product design and differentiation.
2. Digitize sales and distribution
Current life insurance products are generally not digitally enabled. As a result, customer needs are not yet reflected in the product pipeline or in product development processes. The digitization journey is inevitable, but some sort of interpersonal or face-to-face interaction will be necessary because of the complexity of life insurance products.
3. Achieve cost efficiency
Most insurers are already on their second or third major cost reduction initiative. But with no investment yields, high dividends leave little funding for investing in modernizing legacy systems. And many life insurers are still outsourcing. Insurers must think carefully and critically about how to integrate cost-cutting into a holistic business development strategy.
4. Leverage IoT and connected insurance
Life and health insurers recognize the need to adopt innovative technologies to get closer to their customers. The Internet of Things (IoT) and connected sensors are among the top-priority technologies, particularly as they allow insurers to apply concepts from behavioral economics to help people reduce risks and make better decisions.
5. Promote financial wellness
European consumers have shown much interest in digital aggregators and seem to prefer more direct product recommendations. Retirement planning programs are mostly state-sponsored, but given the decreasing role of the state, life insurers need to modify their value propositions and expand their offerings to address changing customer needs and fill the gap.