1. Open insurance and ecosystems: a new, customer-driven basis of competition
The rise of open finance, along with the ecosystems of financial solutions that it enables, has emerged as one of the defining financial services trends of the 2020s, primarily in response to changing customer needs and expectations. Across all lines of business, there is increased demand for more affordable, transparent and customized insurance that better suits evolving conditions and can be easily adjusted as the needs change.
Insurers must retool their platforms around APIs and microservices to enable secure and seamless connections among partners. Based upon current trends, we expect ecosystems will become a major business model in the relatively near future. As is often the case, what feels innovative today will soon become a baseline. And rather than waiting for regulators to define the rules, insurers should join the discussions about open insurance to ensure a level playing field as they seek to engage consumers in new ways.
To succeed, ecosystem business models need strong leadership from the top and a clear and executable ecosystem strategy based on their current market position, brand value, business models, talent pool, and level of technology sophistication. Despite the clear upside of ecosystems, most insurers are still working to develop the necessary tech and data capabilities, navigate distribution constraints and address organizational and cultural impacts.
2. Workforce transformation: the promise of a human-centered, tech-enabled enterprise
Not that long ago, the conventional wisdom in insurance held that workers would lose their jobs as insurers adopted more technology and automated more processes. Yet a profound shift was underway even before the COVID-19 pandemic, with business leaders working to address skills gaps, update their talent practices and instill more dynamic and agile ways of working. Now, competition has intensified for the most talented workers, who are more empowered to work when, where and how they want.
Today, a more nuanced and interdependent human-tech dynamic has emerged. The consensus among forward-looking executives is that human talent is every bit as important to future success as AI, machine learning and modernized processing platforms. Yet the scarcity of key skills and “the Great Resignation” mean that insurers must address the traditional view of the industry as slow-moving and dull if they are to become employers of choice.
Insurers will have to take stronger positions on the social issues that matter most to rising generations of workers (e.g., diversity and inclusion, sustainability) and provide meaningful work, as well as enhance their benefits, performance recognition and compensation models. Younger workers are also looking for more purposeful work, which gives an advantage to insurers that can articulate a clear story about how their products and services benefit society as a whole.
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3. Sustainability: a historical opportunity to lead, innovate and grow purposefully
Climate change and sustainability have re-emerged atop board and C-suite agendas as the direct impacts of the COVID-19 pandemic have receded. Previous discussions about sustainability were largely theoretical and centered on making public pledges of support. Today, however, leading insurers are taking tangible steps and adopting hard metrics to address the full range of environmental, social and governance (ESG) issues and opportunities.
For most insurers, the focus is squarely on the “E” in ESG, as climate change will have the biggest and most immediate impact on the industry’s financial performance. But social issues are now nearly as urgent.
Insurers can take many meaningful steps in the near term to help advance the transition to a greener economy. Mapping action plans to specific targets and establishing quantifiable performance metrics relative to sustainability are two ways insurers can live their purpose. Within a broader ESG strategy, insurers must identify priority focus areas, clarify why they are allocating resources to them, and determine what benefits they expect to achieve.
A clear road map must also reflect the impacts on different parts of the business and how ESG strategies will be executed. In tracking performance against sustainability targets, insurers should monitor risk exposures, value creation and progress toward specific goals. As reporting and disclosures become standardized, the most transparent companies will benefit from easier access to capital, increased customer loyalty and better share price performance.
We believe that sustainability, workforce transformation and open insurance are three of the most powerful forces reshaping the market in the near term. Read the full report to learn how insurance leaders can respond to these megatrends with urgency, creative thinking and bold action.
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Summary
Amid an ever-evolving social and financial climate, a number of megatrends are catalyzing a widespread transformation and a dynamic competitive environment. As much as they have accomplished since early 2020, much more creative thinking and bold action is necessary to meet the demands of 2022 and beyond. In addressing the many challenges of today’s market, purpose can — and should — serve to inspire their strategies and guide their actions as insurers seek to drive and sustain growth.
