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Insurers, it’s time for a new game plan

14 December, 2020

Matt Adams
Insurance Practice Leader, PwC US

Social, political and economic forces have been stoking the pressure and motivation for change since the coronavirus breakout. 2021 could be even trickier. We think successful companies in the insurance sector will focus on meeting six key challenges.

1. Costs and productivity

Costs are a priority in every economy. In a slower economy, insurers need to realign their cost structure and drive productivity to carve a bigger slice of a smaller pie. We believe the focus should be on holding the line while planning to emerge, ready and resilient, for whatever comes next.

A good starting point: create a simpler menu of products. If, for example, you can meet most customer needs through a few policy modules, the idea of offering bespoke products for each customer makes little sense, particularly in this digital world.

It may be hard to improve productivity in the near term because working from home has been such a dramatic shift for so many. Still, we expect more industry leaders to turn to a hybrid office model that promotes efficiency by giving each person proper supervision and opportunities to collaborate.

2. Digital transformation.

The COVID-19 crisis spurred acceleration of both front-office and back-office innovation. We know of several commercial insurers that had begun implementing before the lockdowns, making it easier to adapt.  In one case, a specialty lines insurer drove laptops to employees’ front doors to keep things moving without a hitch.

We’ve also seen a number of creative responses to the new environment, including digitally enabled sales, direct-to-consumer engagement, automated advice, digital underwriting and automated claims adjudication. But be warned. In looking for innovation, don’t neglect legacy systems. They can be a target for cybertheft and present ongoing security risks.

3. Revenue growth.

Premium growth isn’t necessarily good for insurers confronting fresh catastrophe. Developing new product designs like usage-based insurance, employment loss protection, pandemic business interruption coverage and cyber insurance for remote work can provide more predictable and resilient revenue streams.

Insurers also can extend their growth by entering insurance-adjacent markets. For example, one Asian insurer is active in five loosely related product categories: automotive, health, wealth, smart city and real estate. In fact, a number of Asian insurance innovations offer interesting lessons for the US market. Look to these and take similar steps to help build loyalty, make your company more relevant and better positioned for growth.

4. Workforce training

Ready or not, the workforce of the future has become the workforce of the present. Prior to the pandemic, the insurance industry has been slower than many to embrace working remotely and working from home. Once the crisis forced carriers into remote work arrangements, new pressures emerged. As working parents deal simultaneously with at-home schooling, for example, many professionals found themselves under pressure to leave the workforce.

New hires will come from an increasingly diverse talent pool, requiring insurers to double down on their commitment to equity and inclusion. Ellen Walsh, PwC US insurance advisory leader, advises board members to be realistic about where talent gaps lie and understand how management teams are balancing talent needs. The pandemic has stretched key talent in many organizations beyond capacity.

The pandemic favors existing relationships, and we’ve seen tied agents bounce back quicker than independent agent and bancassurance channels this summer and fall. Still, even though customers have become more comfortable online during the crisis, we don’t expect many to be clamoring for virtual meetings with their agents. Instead, the direct channel looks poised to be the big winner.

5. Capital management. 

It appears that we’ll face lower interest rates for far longer than most insurers expected. Companies could also face higher hedging costs, market and credit risks and tax hikes. The market tends to reward insurers that are best at optimizing their balance sheets, freeing up capital and deploying resources to product design, investment strategy or revenue growth. Some may turn to mergers and acquisitions to find new revenue streams, especially since some targets now have attractive valuations.

6. ESG concerns

Sustainability could take on a higher profile as the World Economic Forum and other groups call for universal disclosure of environmental, social and governance metrics. The pacesetting New York Department of Financial Services asks insurers to identify a management function and board committee to address climate change and disclose key non-financial metrics. We’ve seen two indicators gaining traction in Europe: greenhouse gas emissions per employee and percentage of green energy sources. Insurers might consider shifting reporting duties to the finance function to provide the full assurance of audit checks, giving stakeholders more confidence in this important work.