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Top Insurance Industry Issues 2021: Confronting a changing world

May 10, 2021

Ellen Walsh
Insurance Advisory Leader, PwC US

It seems like we once had more time. Before being double- and triple-booked for meetings, before home-schooling, we used to plan for things like vacations — and we took those vacations.

Insurers certainly know that feeling. The entire industry has been adapting to a changing business environment, fueled by the rise of digital technology and more demanding customers. Carriers used to make five- to seven-year transformation plans. They knew their competitors, and being a reasonably fast follower seemed like a strategy. That’s no longer the case.

We’ve been looking at top issues facing the insurance industry for years, and we can tell you that today’s environment is quite a bit different than anything we’ve seen in the past. The forces are similar, of course, but overnight we experienced dramatic changes in the perceptions and reality of where and how work is done. How insurers react to these shifts could determine the industry’s future. This year’s Top Insurance Industry Issues series examines five topics our clients are talking about — distribution, ecosystems, talent, underwriting and alternative business models — and we offer some suggestions on how you can respond.

Insurance business models

For decades, we’ve watched insurers emphasize dependability — often correlated with size. But as attitudes change, flexibility and responsiveness is growing in importance to your wholesale and retail customers just as it is to your employees. To remain relevant, insurers may have to get past outdated assumptions about what it takes to succeed. In Fine-tuning insurance business models, we see industry leaders rethinking their purpose and looking to alternative business models, along with thinking about their companies’ structure.

  • Restructure the balance sheet. Many insurers, especially those with long-dated liabilities, are looking to more sophisticated capital structures as they try to cope with the low interest rates environment. Some are finding buyers as they divest product lines and books of business. This may lead you to some difficult but important questions about what your company’s core business genuinely is.

  • Adapt to pay-as-you-go. Usage-based insurance (UBI) is still a niche, but it’s attracting a lot of attention and could quickly gain traction with buyers. You might want to start experimenting now because you’ll likely need to develop new technical competencies like different ways to assess, underwrite and price risk. There’s clearly a lot to learn, and you won’t want to play catch-up.

  • Embrace fee-based services. In moving beyond traditional models, some carriers are switching from asset-intensive businesses like life and annuity policies toward financial planning. This could require new ways to reach clients, and new ecosystems might help. This trend is still emerging in property and casualty insurance. 

  • Integrate with business partners. To support the alternative business models of the future, you’ll need to open your technology architecture to share information in real-time with other product providers, channel partners and customers. This is both a cultural and a technical shift.

Insurance ecosystem opportunities

Insurance ecosystems are starting to change some pretty basic assumptions about what it takes to succeed in the industry. Ecosystems refer to an interconnected system of services, typically from different providers, wrapped up in a single integrated user experience that enables customers to fulfill multiple needs in one stop. Ecosystems may help smaller carriers or regional players compete more effectively against companies with far larger balance sheets. Meanwhile, larger carriers may use them to strengthen their offerings.

In Insurance ecosystems provide companies the opportunity for a fundamental shift, we look at why ecosystems have taken on new urgency for insurers, and the considerations carriers might make when setting their course.

  • Choose your ecosystem role(s) strategically. You can get involved in a variety of ways, but not all roles will be equally useful. There are different implications if you’re building a shared platform or participating through some behind-the-scenes technical integration.

  • Good opportunities won’t last. Can you identify and react to promising deal opportunities quickly? When certain ecosystem positions are taken, or when the InsurTech player that can fill a key need has been bought by a competitor, you’ll be out of luck.

  • Adjust your approach to match an ecosystem’s maturity. You may need to integrate quickly — or show patience and be willing to live with interim solutions. Governance may exist, or not. With a flexible approach, your efforts can have far more impact.

  • Make deliberate choices with your ecosystem investments. In an ecosystem, it’s crucial to know how to keep your customers “plugged in” and use the available data wisely. This has real implications for your technology and product design teams.

Forces shaping insurance distribution

Brokers and agents have known for years that customer engagement was morphing into something different. Personal relationships and human connections remain important, of course. But customers struggling to adapt to the pandemic and the changing economy need real answers to their problems. That’s where the compass of most sales activities is pointing and producers expect carriers to help. In Forces shaping insurance distribution, we offer some suggestions.

  • Choose where to compete. Too many carriers still spread a broad net, using a “spray and pray” approach. We encourage insurers to define what sets them apart and pursue those specific capabilities.

  • Spot the challenges and the opportunities. You’ll want to really understand how well your buyers’ needs and your sales and operational models align. Usually, you’ll want to start with a baseline assessment of what’s working and what’s not.

  • Invest in novel solutions. One-size-fits-all has less appeal now than ever. You’ll want to design products that address individual client needs by channel — and be able to explain their value.

  • Invest in the “digital” insurance sales rep. As sales processes change, you’ll want to approach education and training very differently.

  • Use data for better targeting. We’re awash in data, and it’s time we use that to give our channel managers specific ideas to meet their clients’ needs.

The underwriting challenge

In The insurance underwriter’s challenge: turning data into useful information, we acknowledge the power of artificial intelligence (AI) to develop smarter and faster underwriting. It’s an extremely powerful tool, but it’s not a cure-all, and marrying human expertise and innovative technology seamlessly is easier said than done.

  • Make cycle dynamics work for you. Most of us have never faced a market like this. Some lines are experiencing some of the hardest markets in decades. Traditional underwriting strategies won’t work as they did before. The key is understanding loss behavior on a granular level. 

  • Get the right information at the right time. Many insurers are drowning in data, but few have meaningful, timely feedback between loss data and underwriting decisions. A few industry leaders are building entire information environments that can provide underwriters with more actionable, real-time information about product and portfolio performance.

  • Choose the risks you want. Customers really hate having to invest time in unproductive discussions about contracts carriers really don’t want to offer. When you know where to make your play, you can become known among channel partners as a carrier that makes faster, better choices.

  • Focus on efficiency. Underwriting efficiency typically doesn’t get much attention, but in this environment it really matters. There are quick wins to be had, as intelligent automation improves workflows, freeing up underwriters to provide customers faster and more useful communications.

Talent strategies for insurers

Replacing talent in the insurance world is becoming a critical issue, not only because of the industry’s high median age but because the world is rapidly changing. In Talent strategies for today’s insurers, we note that insurers have been losing the battle for top talent for a while now. But the past year has actually given carriers an opportunity to change the odds.

  • Address the return to office work. Some companies are pushing to bring everyone back to the office. Tread carefully. Our research shows a gulf between what employees and employers want. Make sure you know which roles need to be onsite, and why.

  • Close the growing skills gap. Carriers still need core, industry-specific capabilities, but they also require skills like digitization, data science, behavioral economics and user experience design. New techniques like digital literacy training can help meet the need.

  • Rethink assumptions about roles. The insurance industry has typically assumed that work needed to be full-time and in-person. But there are real benefits to be had from more flexible models, including project-based assignments, if you can manage the associated risks.

  • Understand what workers want. Your incentives may be misaligned with what workers want now. By making career paths more dynamic and addressing the growing desire for flexibility along with stability, you may make your brand more appealing to recruits.

The road ahead

Many insurance companies we know have already been working on these issues. They’ve known that they need to open up more of their technology architectures, share more useful information with channel partners, link loss data more tightly to the underwriting process, and so on. But they too feel pressed for time.

We’re all adapting to new enablers, like new sources of capital, InsurTech tools that help us reimagine the possible, and shifts in customer demand. The market is looking for different ways to think about risk management, and it won’t wait for five- to seven-year roadmaps and fast followers. These are big changes.

Legacy carriers have one big advantage: A trusted reputation that can date back decades or even centuries. Your buyers are rooting for you, and you can draw on that reservoir of goodwill as long as you’re seen as part of the solution. If we can help you with any part of this process, from strategy to execution, please reach out.