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Five strategic themes defining the near future of insurance

8 minute read 25 Nov 2021

There are ample growth and transformation opportunities for insurers that take the right actions now.

In brief

  • Purpose will be influential in shaping new value propositions, designing enhanced services and executing ESG strategies.
  • New products, personalized experiences and empathetic communications can strengthen customer engagement.
  • Carriers can tighten strategic focus, and simplify the business by engaging with private and alternative capital.

By most accounts, the insurance industry has come through the COVID-19 pandemic in much better shape than many industry analysts believed possible in the immediate aftermath of the lockdown. Indeed, the attention of senior executives and boards is now focused on taking advantage of profoundly altered market conditions and new consumer needs.

Specifically, leaders are looking to spark growth and transform operations for a more digital and customer-centric future. The path forward will be defined largely by corporate purpose, with products designed to boost consumers’ financial well-being and protect against future shocks (including another pandemic). At the same time, the workforce will be refreshed with new skills and capabilities, leaner and more automated processes will become the norm, and capital will be deployed with more focus and creativity.

Purpose is also essential to shaping forward-looking strategies because of the disruptive societal trends – including climate change, geopolitical shifts and economic inequality – that are reshaping the insurance industry. As the EY CEO Imperative frames the current landscape, “Planning to rebound to an old normal is not an option. CEOs must reimagine their strategies for long-term value creation.”

This article highlights five key strategic priorities and supporting actions, covering the full breadth of the business, where insurers can achieve meaningful performance gains and substantial cost improvements in the months and quarters to come. It serves as a follow-up to a similar piece we published more than a year ago, as the industry was just coming to terms with the full economic implications of the pandemic. Today, these themes remain closely intertwined and will continue to evolve, even as insurers prioritize growth in this changed market landscape.

1

Chapter 1

Bringing purpose to life

Purpose will guide the development of new products, management metrics and ESG strategies.

The pandemic’s massive financial impact on individuals, families and businesses sparked a great deal of conversation about the purpose of insurance. Many industry leaders saw an opportunity increase of the “mindshare” of insurance with consumers by finding ways to help contribute to global economic recovery and individual financial well-being.

The Environmental, Social and Governance (ESG) agenda has also shone a bright light on purpose relative to climate change, racial equality and other pressing societal issues. C-suites and boards must make sure the right ESG strategies are in place, as well as robust execution plans and appropriate metrics to track progress toward ESG goals. Metrics are particularly important to ensure inclusion into ESG funds and indexes that are capturing ever-larger shares of capital flows.

For many insurers, defining the right ESG strategy equates to finding the right balance between excluding high-volume carbon emitters and promoting the transition to a low-carbon economy. While some insurers have refused to underwrite policies for certain sectors and companies (e.g., oil and gas, mining), others are emphasizing investments in green energy, sustainable packaging and other businesses expected to grow in a greener economy.

We believe engaging with customers with new climate-related solutions can boost insurers’ growth. In commercial lines, such products would protect businesses against increased risk of flooding and promote adoption of carbon-reducing technologies. For consumers, future auto policies might include carbon offsets. The key is to embed purpose in underwriting processes, as well as in policies themselves.

Key actions for senior leaders and boards:

  • Examine how your purpose aligns with changing customer needs and shifting market dynamics
  • Define the right metrics to monitor the execution of ESG strategies and communicate progress to stakeholders
  • Identify specific actions to embed purpose in operations and specific product features
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Chapter 2

Preparing the workforce with new skills and capabilities

Market conditions and the hybrid working world necessitate new employee experiences.

How EY can help

Remote working and hybrid working arrangements will permanently change how employees in insurance and every other industry do their jobs. Insurance leaders should seek to build on the digital collaboration capabilities that they instilled during the pandemic, even as they meet increased demand for flexibility regarding when and where employees work. Ongoing EY research clarifies what workers want and the importance of maintaining strong culture in the hybrid world.

 

What the insurance workforce does is also changing. The most important new capabilities are, to a large extent, the same as they were pre-COVID-19. Data science, beta underwriting and user experience design top the list. In general, however, insurers need people who think digitally and are comfortable working in agile fashion within multi-disciplinary teams. 

 

The “Great Resignation” provides a clear opportunity for insurers to refresh their workforce. With so many people changing jobs, insurers that can provide interesting and meaningful work, within a flexible employee experience, will gain an edge in attracting and retaining new talent. A clearly articulated purpose – e.g., protecting individuals and society from its greatest threats – can boost engagement with workers and consumers alike.

 

Insurers that have had the most success to date in setting up a flexible workforce experience have taken a data-driven approach in defining their policies. Many have embraced parallel working structures, where specific teams of workers that would benefit from in-person interactions are in the office at the same time. Others are seeking access to scarce talent via collaboration with insurtechs, joint ventures and outsourcing relationships. Such strategic sourcing can help insurers both manage labor costs and compete in the war for talent.

 

The ultimate goal is talent liquidity – the ability to seamlessly move workers around the business as needs dictate. But the “work from anywhere” world presents new risks and requirements relative to tax policy, social security schemes, immigration status, and pay and compensation. As difficult as it will be to achieve, talent liquidity represents a huge upgrade from yesterday’s more rigid org charts. It’s also necessary for insurers to establish and benefit fully from new business models, such as ecosystems. In other words, talent liquidity will soon be a competitive imperative, rather than the aspiration it is today.

 

Key actions for senior leaders and boards:

  • Define the top skills the organization will need to meet key strategic objectives during the next 18-36 months
  • Assess how alternative sourcing strategies can provide access to the most in-demand skills and specialist expertise
  • Ensure that purpose statements are included in recruiting materials 
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Chapter 3

Enhancing consumer engagement

Customer-centricity comes to life with simpler products and richer experiences.

How EY can help

Perhaps the biggest COVID-19-driven change in insurance was the rapid shift to nearly all-digital operations – an eye-opening experience for an industry once thought to be slow-moving and resistant to change. Sustaining both a strong digital orientation and a relentless focus on consumer needs will be key to making the most of the clear growth opportunity.

 

The pandemic’s severe economic impacts on consumers worldwide provide ample motivation to upgrade product portfolios and value propositions around financial well-being. EY research shows customers are most interested in products that cover short-term costs (e.g., mortgage payments, credit card bills, tuition fees) in the event of lost income. Compared to many current policies, these are simpler products with targeted protections and clear value propositions. Insurers that make them easy to find and purchase online have an opportunity to connect with a currently underserved segment.

 

Here again, purpose plays a role. That is, insurers that link their offerings to the outcomes and protections consumers want (e.g., financial well-being) stand to gain an edge in building long-term, even lifelong, relationships. Looking ahead, new products, with more flexible features, and stronger digital experiences are necessary to enable the business model transformations many insurers want to enact. Stronger ecosystem business models will also become the primary platform for customer engagement in the future.

 

Key actions for senior leaders and boards:

  • Develop affordable and accessible solutions to engage previously underserved segments (including younger consumers) with offerings to improve financial well-being
  • Expand ecosystems to offer broader product options and richer, more personalized experiences for customers
  • Ensure customer communications build trust through empathy and a warm, human tone
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Chapter 4

Digitizing for cost optimization and capital efficiency

Simpler, leaner and more operations promote scalability, agility and future innovation.

More digital operations also present opportunities to achieve badly needed cost efficiency. The ongoing pressure on costs, particularly in competitive and commoditized lines of business, shows no sign of letting up. A flexible and highly automated process environment that can easily scale up or down as demand fluctuates is essential to long-term financial success.

Capital management has become a critical capability for many insurers. Freeing funds to invest in digital transformation is a top priority, because both the front and back offices need optimizing. There is a virtuous circle effect to digitization efforts. While substantial investments are often necessary, they can deliver outstanding returns in the form of immediate-term cost savings (along with experience enhancements and process simplification). In turn, those savings can be invested in new product development and increased personalization that take advantage of the leaner and more automated processing environments. Innovation follows cost efficiency in this sense.

Given the upside, it’s no wonder that CEOs are focused on digitization. Nearly two-thirds, or 63%, of respondents in the global EY CEO Imperative survey, said that accelerating technology and digital innovation is having the greatest impact on their company.

Another important dimension of capital management is the divestment of non-core businesses. We have seen many high-profile divestments during the last few years, even by the most successful carriers and brands. The goal is usually to simplify the business and tighten the strategic focus, which helps reduce costs and improve capital efficiency.

Key actions for senior leaders and boards:

  • Build a business case for automation and digitization in the back office and define how much capital can be unleased for redeployment to other parts of the business
  • Rigorously assess the product portfolio to identify the most likely candidates for divestment
  • Review internal capabilities and functions to determine which are truly core and which can be best managed by third parties
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Chapter 4

Navigating through structural change and realignment

“Alternative” capital and macroeconomics are driving business simplification and strategic focus.

The current matrix of opportunities and risks is being shaped by large-scale structural change and realignment. The rise of alternative capital sources and the pronounced trend away from globalization are the most powerful underlying forces.

Alternative capital – a misnomer given that it has been mainstream for quite some time now – continues to flow into the industry. The rigor of such capital in returns-seeking is influencing board and senior management agendas across the industry, particularly relative to strategic focus and divesting non-core businesses. Geographic focus is one manifestation. The era of “flag planting” is well and truly over, as dominance in a few markets is clearly more beneficial than having a broader presence across global regions.

Insurers are engaging capital sources in more creative ways, too. Some carriers are adopting unique entity models. Others are seeking partners to fund digital transformation and launch new business models and even new brands. More consolidation and divestment are to be expected as the industry seeks to recover from a decade of slow growth and the pandemic’s impacts.

One can’t speak of capital flows without mentioning shifting regulatory regimes and accounting change. Even if the pandemic had never occurred, insurers were facing significant change in how they measure and report performance. Senior leaders also need to reconsider the narratives by which they communicate with investors. Within the next year, management must be ready to explain the meaning of new IFRS 17 and LDTI metrics in ways investors can understand and that provide context around insurers’ growth strategies.

Key actions for senior leaders and boards:

  • Conduct a full scan of the insurtech landscape to determine the most promising candidates for collaborations, joint ventures and/or acquisition
  • Identify the optimal entity structures and capital strategies to achieve long-term strategic objectives
  • Shape a clear narrative for capital markets so they understand performance under new metrics and reporting regimes

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    Summary

    This is a moment for improvement in the insurance industry, especially for those carriers that can craft a clear strategic vision and take bold action. In our conversations with leaders across the industry, we see renewed energy regarding growth and transformation opportunities after the shock of the last year. Taking advantage will require managing through and around these interrelated themes.

    About this article

    EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.