It’s also important to remember all the turbulence beyond the COVID-19 pandemic. Calls for greater racial and social equality will impact how insurers write coverage and go to market. Cyber threats continue to proliferate with little or no effective risk modelling or pricing. The massive savings and protection gaps will become increasingly severe as more citizens reach retirement age. In fact, in the US 10,000 people will turn 65 every day for the next 10 years. Life and health insurers must recognize both the huge potential upside and downside risks in these demographic shifts. They can’t overlook the competitive implications either, as banks and investment firms recognize the need for increased financial well-being. Six major hurricanes and a total of 30 named tropical storms added up to five once-in-100-years events in the 2020 Atlantic Hurricane Season. Every $1 of uninsured loss from natural catastrophes now costs US taxpayers $7. It’s difficult to overstate the impact of climate change on society and, therefore, the need for insurers to develop solutions that protect people and industry and help them rebuild after catastrophic events.
The focus must be on transformation initiatives that connect and optimize all links in the value chain. Every traditional value chain component can be enhanced by stronger digital capabilities and advanced technologies, as highlighted below.
1. Product development
EY research and analysis (pdf) has found that the insurance industry has created only five new product classes during the last 30 years. Because of the pandemic, many insurers are reimagining product development around the emerging needs of customers. To design better solutions, they must be systematic about embedding customer insight into product innovation.
Even before purchasing, consumers want personalization. According to recent research, 59% say tailored engagement based on past interactions is very important to win their business. We know that certain life milestones trigger insurance purchases. But most insurance companies are unable to predict or even identify when their customers might be ready to buy a home or start a business. And they aren’t known for engaging emotionally with, say, expecting parents. Smarter digital interactions and more effective predictive analytics are critical for insurers seeking such personal engagement. They will also help insurers strengthen consumer trust by balancing personalization with privacy concerns.
3. Distribution and service
COVID-19’s acceleration of digital placement might be the pandemic’s biggest immediate-term impact on the industry as the shift away from face-to-face distribution gains momentum and self-service increasingly dominates customer interactions. The EY organization predicts (pdf) 75% of large commercial and reinsurance policies will be placed via a digital platform in traditional insurance marketplaces by 2030. According to Insurance Journal, an estimated 40% of current risks are tradable on digital platforms. This doesn’t mark the end of agents or brokers, though they’ll need to pivot to higher-value advisory services delivered via hybrid models. “Human-in-the-loop” interactions will provide access to the advice precisely when and how consumers need it. That’s especially important in life and health lines, as well as for financial well-being solutions.
The key is to deliver great experiences and personalized service at every touch point. Research shows that insurers have plenty of room to improve and could emulate the practices of top performers in other sectors. In a time of crisis, insurers are only a few quality interactions and experiences away from delighting customers. Educating customers about their true risk exposures and the right approach to protection is a great place to start.
Better technology and richer data sets will enable underwriters to identify profitable risks more quickly and assess market demand for new products more accurately. Insights that take hours or minutes to generate today will be available in seconds tomorrow. Gone are the days when referral and pricing processes played out over weeks, by which time clients were often long gone. Automated data ingestion, third-party data streams, AI, and predictive analytics will help underwriters do their jobs better, faster and smarter than ever before.
The claims experience has an outsize impact on client loyalty, longevity and likelihood to refer. Nobody wants claims to happen, but when they do, they are the moment of truth for customer relationships. The key is assessing claims accurately and paying them quickly. And this isn’t tech for tech’s sake; companies with innovative underwriting and claims platforms show greater market share and stronger year-over-year results.