Five strategic themes defining the near future of insurance

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

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

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

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

Summary

As subscription models become more common across industries, insurers must take stock of the opportunities and risks – from greater growth and stronger customer relationships, to the potential downside of new competitors. As with any transformation effort, developing the right data and technology capabilities is vital to effectively implementing such models.