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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.
As they grapple with these challenges, we see four likely ways carriers will respond.
Current and historic baseline scenario for most carriers.
Restructuring business and operating models to put the customer at the forefront.
Orchestrating coverages, services and support for customers as their needs change over time.
Creating unique business and operating models to redefine insurance and avoid risk.
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.
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.
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.
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.
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.