7 minute read 5 Dec 2019
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How talent and technology is driving the US-Americas insurance agenda

By

Ed Majkowski

EY Americas Insurance Sector and Advisory Leader

Transformational insurance leader.

7 minute read 5 Dec 2019

For insurers in the US and across the Americas, it’s a time of great opportunity, but equally great risk. 

This article is part of our 2020 Global Insurance Outlook series.

The past decade’s low growth rates, lack of trust in institutions and declining policy sales are forcing insurers to redefine their value propositions to stay relevant for new generations of consumers.

Optimizing costs while investing in the right technologies and talent are also top agenda items. The willingness to take bold action will separate the leaders from the laggards. It will also enable some insurers to convert significant opportunity today into significant value tomorrow.

The unique mix of risk and opportunity is at the heart of the annual EY US and Americas Insurance Outlook (pdf). The report represents our organization’s perspective on the issues shaping the US and Americas insurance industry in the near term.

This year’s report was developed based on our deep sector knowledge, a survey of the EY Insurance practice across the globe and a variety of inputs from global and regional insurance leadership, selected clients and external analysts. The global, regional and individual country reports  complement the NextWave series, which takes a longer-term perspective (five years and beyond) and examine specific market scenarios that will shape the future of the industry.

A complex environment and challenging fundamentals

The insurance industry is still feeling the effects of a low-growth decade. Economic inequality coupled with lack of trust in institutions is driving more lawsuits, larger jury awards and broader definitions of corporate negligence. For insurers, that translates to more claims, higher loss ratios and the need to raise premiums. It’s not surprising, then, that the number of policies sold has fallen.

Rising expectations for better customer experiences

Consumers expect intuitive, personalized experiences. But many insurers are still playing catch-up compared to digital leaders. Innovative firms will develop full customer lifecycle journeys by incorporating better data and richer insights and applying lessons learned from the most successful tech companies.

Shifting demographics

Though populations are not changing in the Americas as dramatically as in other parts of the globe, insurers are still susceptible to large-scale socioeconomic change. Mass retirements are looming. And insurers can’t take for granted that younger generations will automatically purchase conventional insurance products – particularly as they delay traditional milestones like marriage and home ownership.

An aging population

76%

The projected increase in share of US population aged 65 years+ by 2040.

Source: Oxford Economics

Persistent barriers to growth

Low interest rates remain a big challenge, especially for life insurers. Flat productivity, low inflation and low savings propensity are also dragging down the industry’s prospects. New value propositions, such as those related to financial wellness, and a shift toward fee-based products are two ways insurers should respond.

A looming recession

The current fear of recession and lack of overall macroeconomic confidence threaten the recent run of successful results. A slowdown will impact life insurers as ROI dries up and consumer saving falls. Non-life insurers will be impacted as government and private spending drops, affecting trade, consumption and overall economic activity.

Fear of recession

67%

US CFOs expecting a recession by the end of 2020.

Source: Duke University survey, 2019

Scarce talent

Both life and non-life insurers need more “digital people” – that is, those who know how to use advanced technology. Forward-looking executives recognize that the right talent and skills are necessary to generate strong returns on investments in technology and transformation.

Key trends: Non-life

The recent history and near-term prospects for property and casualty (P&C) insurers can be characterized as a “good news, bad news” story. Growth dynamics improved in 2018, but trade and political uncertainty are likely to limit growth and profitability in the long term, particularly on the commercial side.

Insurers need to adjust how they approach transformation initiatives. To avoid disappointing returns, they must define clearer business cases focused on specific problems or opportunities.

1. Winning the war for talent

As more administrative tasks are automated, the remaining talent will need to be more highly skilled, actively engaged and focused on higher-value analytical work. Thus, reskilling is also a huge priority.

To attract top talent, insurers need to tell a better story and clearly articulate the industry’s societal purpose and value. When insurers can find the right people, they may lose them quickly if the culture feels inflexible.

2. Digitize customer experience, sales and distribution

For years, insurers have sought to improve the customer experience. But too often, it has been primarily about price competition – a dangerous strategy. Insurers that have succeeded have used digital to streamline and personalize the customer experience, including access to human help when necessary. The goal must be to combine the best digital capabilities with the unique benefits of the human touch.

3. Collaborate and compete with “Big Tech,” InsurTechs and other third parties

Insurers are looking to both compete and ally with major tech players, InsurTechs and other new market entrants. When it comes to deploying tech, insurers must start with core issues and clear objectives, making it easier to identify the tools and capabilities they need to solve specific business problems.  

The rise of InsurTechs

4x

The increase in number of InsurTech investments made by incumbents from 2014 to 2018.

Source: WTW-CB Insights

4. Achieve operational excellence and cost efficiency

Cost management is a perennial concern. Recent gains in pricing may briefly improve cost ratios, but they’re not viable over the longer term. The ultimate goal should be to achieve operational excellence, while establishing a lean and flexible cost base. Realizing this goal requires core system transformation, digitization of the workplace, as well as deployment of AI, the cloud and increased automation.

Key trends: Life

Growth in the life insurance business in the Americas has been sluggish over the last two decades. Large market segments have been neglected, and the industry has fallen short in communicating the importance and value of its products to consumers.

A return to profitable growth has to be at the top of the strategic agenda for life insurance executives. A key step will be to move away from needlessly complex products and toward streamlined products that offer the outcomes customers want.

1. Deliver financial wellness

Financial well-being is a hot issue, but few firms have clearly defined it in terms of product offerings or value propositions. The first step is to understand consumers’ biggest financial stressors, then deliver products and services to help alleviate that stress. The focus must be on trust and transparency in marketing new offerings and developing services.

2. Win the war for talent

Life insurers are facing a triple-threat in the war for talent. Significant numbers of workers will retire soon, automation is increasing, and insurers are losing talent to banks and asset managers. Culture change at this scale requires careful planning.

Leaders should not only consider new job descriptions to attract more tech-savvy workers, but also how the corporate mission relates to younger generations looking for a clear sense of purpose in their work.

3. Achieve operational excellence and cost efficiency

Operational excellence and cost optimization are critical to near and longer-term results and goals. Insurers must find ways to move beyond their outdated, clunky legacy systems and advance transformation and innovation initiatives with a holistic focus.  

Technology infrastructure as at 2018

70%

Shares of insurers with cloud computing in their technology infrastructure, up from 20% since 2016.

Source: Novarica

4. Manage persistent regulatory pressures

Beyond the strict concerns of regulatory compliance, insurers that demonstrate a commitment and ability to protect personal data and other sensitive information may strengthen consumer trust – especially as regulators focus on customers’ best interests. The most forward-looking insurers will use this as an opportunity to transform their finance functions and update processes.

How insurers should move forward

Insurers have understandably focused on upgrading technology in response to ongoing margin pressures. But, technology is just one variable in the equation for successful long-term change.

A more holistic approach incorporates talent and cultural factors, as well as the emphasis on product innovation and new business models. Tomorrow’s market leaders will be technology-enabled, data-driven and operationally efficient – but also people-powered and purpose-led, with strong cultures that are adaptive, engaged and capable of rapid change.

For more insights, read our US and Americas outlook report (pdf) which include country outlook snapshots of Brazil (PDF) and Canada (PDF).

Summary

EY 2020 US and Americas Insurance Outlook presents a mix of risks and opportunities in its discussion of key trends and forces shaping the insurance industry across the US and Americas over the next few years. Talent and cultural factors, as well product innovation and new technology-enabled business models will drive the key market leaders of tomorrow.

About this article

By

Ed Majkowski

EY Americas Insurance Sector and Advisory Leader

Transformational insurance leader.