Next in insurance 2023

Scenarios for the next year and beyond

The stability that insurers have long relied on for predictable risk pricing and consistent growth is disappearing. There's been a succession of short-term crises so far this century. In the past three years alone, the world has experienced a pandemic, sometimes violent political unrest, severe supply chain disruptions, global conflict, high inflation and multiple historically extreme weather events. Only 20 years ago, most of these events would have seemed unlikely - for all of them to occur simultaneously, almost unthinkable.

These short-term crises are part of longer-term trends. In the recent past, we referred to five factors that profoundly affect the insurance industry: social, technological, economic, environmental, and political (STEEP). Their impact is only increasing. If anything, social instability, technological disruption, demographic shifts and climate change are leading to a fractured world in which insurers have to cover a greater array and frequency of intensifying risks.

In turn, these developments have resulted in major changes to the very fabric of the industry.

Market reconfiguration: The increasing growth of digital channels and wider distribution points via partnerships and embedded options are disintermediating markets. Policy options and access are only increasing and barriers to entry are easing, challenging established carrier primacy.
Operational disruption: Prior to the pandemic, insurers were managing significant change in practically all their operations. In several successive PwC annual CEO surveys, in fact, insurance respondents were most likely to cite disruption as their main challenge. Then, during the pandemic, the workforce and customers went wholly virtual, stressing various functions already in flux (notably IT, HR and sales) and upending many managerial assumptions and behaviors. In response, the industry has successfully experimented in novel ways, but remains wary about more unwelcome surprises.
Technological reinvention: Insurers are attempting to be tech-enabled, mastering data and its many sources in order to quickly assess and price risk, as well as serve customers when they need, learn about and purchase insurance. As they’ve seen in other industries, this is possible with a flexible technological base and strategic IT function. But most carriers still have a long way to go to be truly tech-enabled, as opposed to just “digital.”
Environmental and social destruction: ESG is vital to continuing relevance. This is about more than just meeting reporting requirements and maintaining a positive brand. It extends to helping clients and society mitigate — even prevent — natural and human catastrophes, cybercrime and other loss incidents, thereby reducing claims, increasing profitability and enabling carrier viability.

Depending on how insurers adapt in 2023 and the rest of the decade, we see four different scenarios unfolding:

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As they grapple with these challenges, we see four likely ways carriers will respond.

Incremental change

Current and historic baseline scenario for most carriers.

The customer first

Restructuring business and operating models to put the customer at the forefront.

Pragmatic evolution

Orchestrating coverages, services and support for customers as their needs change over time.

Radical reinvention

Creating unique business and operating models to redefine insurance and avoid risk.

Incremental change: Strategy and investment choices limit growth

This is the current and historic baseline scenario for most carriers. They’re adapting, usually in pockets and reactively, even though STEEP developments challenge many of their attempts to keep up.

Modernizes and enhances some key operational (e.g., claims) and customer service areas (e.g., autopay and self-service options) but often lacks an enterprise-wide vision how cloud/digital transformation can enhance the wider business and operations
Defends or takes market share in and enhances brand with targeted segments, typically by competing on price
Refines loss mitigation and prevention at the margins
Lowers expenses typically through short-term cost-cutting
Is slow to use data to drive better service experiences
Strategy often lacks full funding and consistent C-suite support

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Pragmatic evolution: A more forward-looking approach to technology, customers, partnerships and employees

Most forward-looking companies are moving in this direction. Their progress varies depending on their priorities and investments, but they're earnestly trying to create a customer-centric business that orchestrates coverages, services and support for customers as their needs change over time.

Powers cloud and digital innovation by reimagining the customer experience, creating a positive feedback loop between tech enablement, distribution and client service
Accelerates transformation by streamlining key operations and managing risk to drive revenue, business innovation, growth and resiliency
Experiments with integrated, multichannel interaction points, including ecosystems and embedded insurance
Personalizes coverages and provides convenient (self-)service by leveraging consumer and market data to create appropriate, AI-informed offerings for distinct segments
To enhance AI’s effectiveness from inception and beyond, has an automated infrastructure that measures AI bot effectiveness
To retain customers, makes it easy to renew policies and is thoughtful about communication type and frequency

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The customer first: Quick configuration, better outcomes

A common — and still largely aspirational — end goal of pragmatic evolution is restructuring business and operating models to put the customer at the forefront, facilitating genuinely personalized solutions. The ideal end game is to center product design around the customer, creating personalized, holistic insurance packages at the point of sale and removing friction by integrating service and support across offerings.

Carrier and customer success are one and the same, and business and operating models fully support this mantra
Embraces the full variety of consumer and risk data from sensors, telematics and unstructured data to personalize coverage, provide seamless service, reduce risks and win customer trust
Offers easy-to-use and informative, AI-powered insurance/financial tools and platforms for employers and employees (group), businesses (commercial and personal lines), and direct customers (all coverage types), as well as agents (all business lines)
Shares throughout the organization and with relevant partners data from the above and other applications to maintain real-time understanding of customer needs, behaviors and risk profiles
Helps policyholders and society preemptively avoid loss by moving from probabilistic to deterministic risk management, thereby reducing payouts and increasing profitability

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Radical reinvention: The very notion of insurance changes

Building directly on the customer first, the boldest carriers are determining how to create unique business and operating models that redefine the very nature of insurance, helping stakeholders avoid risk in the process. This is a long-term goal for most of the industry, stretching through the end of the decade and likely beyond.

Partnerships are a strategic tenet because lower barriers to entry and a greater variety of consumer touchpoints, coverages and coverage options necessitate branching out from traditional business and operating models
As a result, coverage is seamlessly embedded at the point of purchase in practically any transaction via partnerships and ecosystems
Uses advanced AI that operates in the background, proactively detecting customer needs to the point it can right-size policies with little to no buyer input
Uses the knowledge at its disposal to work closely with policyholders, communities, government and private organizations to actively ameliorate the causes of and prevent natural catastrophe losses and cyber attacks

While determining the best ways to grow, attract customers and operate more economically and efficiently, most insurers will exhibit various traits across this spectrum. However, the companies that most effectively cope with disruption will be ones that reinvent themselves by focusing intently on the customer.