2021 Global Insurance Outlook: Accelerating change to create value

Insurers must prioritize purpose and transform their operations to be more agile, digital and customer centric to succeed in the near-term.

In brief

• Purpose-led transformation, increased customer-centricity and agility, and cost and capital optimization are top priorities for insurers.
• To capitalize on widespread economic recovery and rising demand insurers must be ready with new solutions and personalized experiences.
• More merger and divestment activity are likely as alternative capital proliferates and market players pursue tangible returns and sustainable growth.

The global insurance industry faces a truly unique moment in its long history. The fundamental disruption caused by the COVID-19 pandemic is an opportunity for the industry to remake itself in line with new societal realities and market needs.

EY’s 2021 Global Insurance Outlook report, the latest in our annual thought leadership series, focuses on where the industry is today and how to navigate the strategic horizon of the next 18-24 months. While much remains uncertain in this market, more disruption and rapid evolution are inevitable.

To rebuild the positive momentum that COVID-19 interrupted, bolder and more creative thinking is necessary at an organization's highest levels. As insurers look to initiate growth in a new era, they must view their core value propositions, distribution approaches, workforce strategies and data and technology infrastructure as one unified environment. They must continue their pandemic-inspired shift to digital, retain their focus on new and ever-evolving customer needs and become more agile in their thinking and operations. 

However, in this complex and dynamic market, the most significant risks and largest growth opportunities are closely intertwined, requiring new strategies and approaches to transformation. The impacts of macroeconomic conditions, geopolitical developments, technology advancements, demographic changes and rising customer expectations must be viewed holistically. The same is true of industry convergence, as the insurance industry is increasingly affected by trends and shifts in other sectors, and vice versa.

Top strategic and tactical imperatives are intrinsically connected. Purpose-driven strategies cannot be separated from enhanced customer experiences and digital transformation initiatives, nor investment plans from cost optimization efforts. Insurers must establish a lean, flexible cost base that boosts margins and ratios in the near term and sets the stage for scalable innovation and sustainable growth. To put this concept into management terms: adjusting one lever may move all the others.

We believe the following three imperatives are critical for insurers to create value for themselves and society as a whole.

1.  Redefine and refine purpose in setting the strategic direction

There’s never been an era where the world was more in need of a high-performing insurance industry. But to meet the moment and return to growth, insurers must rationalize and rethink their core strategies —  from what products they offer to how they operate to which markets they serve.

We believe purpose and long-term value are the best lenses for this critical task. Purpose is a useful framework for insurers to increase their relevance in customers’ lives and develop new solutions that align with changing needs. A clearly articulated and fully authentic purpose statement provides a strong strategic foundation in a time of uncertainty.

Beyond new protections against pandemics, climate change and cyber threats, purpose can inspire and inform strategies to address social concerns and equality, as well as retirement savings and protection gaps. In addition to informing board- and C-level decision-making, a focus on long-term value (including Environmental, Social and Governance considerations) can help measure the impact of purpose-driven strategies.

Imperatives for insurers:

• “Stress-test” your existing purpose in light of the pandemic, social issues and climate change
• Develop targeted product offerings to address savings or protection gaps for specific customer segments
• Define metrics to guide capital allocation and monitor the impact of purpose-driven policies and actions
• Engage with industry groups to refine and drive adoption of insurance-specific performance indicators and reporting standards for ESG and long-term value
• Navigate underwriting challenges to design policies for commercial customers transitioning to lower-carbon operations

2.  Transform the business to be more agile, digital and customer-centric

While purpose should guide strategy formation and refinement, transformation efforts should focus on making the organization more agile, digital and customer centric. Many in-flight initiatives were accelerated dramatically by the pandemic. Longstanding concerns and debates about digitizing distribution were resolved because digital was the only channel available.

Now is the time to build on those initial gains and expand transformation efforts to provide streamlined and personalized experiences to more customers. Everything insurers do, from product portfolios and organizational models to marketing and sales programs, should be designed around deep insights into customer needs. This is not simply to optimize enterprise architecture, but rather to meet customer needs and drive better outcomes.

Processes should be digital by default. More agile operations and robust digital capabilities can help insurers eliminate frictional costs at key touchpoints and meet customer expectations for speed and personalization. Those attributes are also critical to boosting performance across the value chain and developing new business models that hold the key to long-term success.

Imperatives for insurers:

• Dramatically expand the intake of third-party data to enhance underwriting and marketing
• Identify steps in the application and purchase processes that can be eliminated or simplified
• Create digital services, platforms and ecosystems that lead to stronger customer engagement and generate new demand
• Develop new features that allow customers to personalize standard products
• Handle the majority of claims via no-touch or straight-through processing
• Embed more insurance offerings within retail and ecommerce purchases of different types of products (e.g., consumer goods, travel) through partnerships with non-insurers
• Deploy robust application programming interfaces (APIs) to create an environment for data passporting and access, digital payment and other Open Finance innovations
  

3.  Create value by optimizing cost management and capital allocation

While balance sheets across the industry were in strong shape before the pandemic, insurers must generate greater shareholder returns and more customer value. By simultaneously optimizing cost structures and strategically prioritizing investments, insurers will be able to meet both goals.

However, serious economic pressure, low interest rates and significant strain on capital reserves and liquidity necessitate hard choices. All options should be on the table — automation, divestment, restructuring and outsourcing. Cost efficiency should be viewed as an operational design principle that liberates funds for ongoing transformation and opens new paths to growth. For instance, prudent partnerships with InsurTechs can produce innovation without significant capital expenditures.

Even as cost pressures mount, the need to invest in product innovation and expanded digital capabilities is only increasing. The time has come to rationalize portfolios and books of business fully. The goal is lean and agile operations, with a flexible cost structure that can easily scale up or down as business expands or contracts. Rather than tactical cost-cutting, insurers need to manage a strategic cost agenda.

Imperatives for insurers:

• Expand cloud adoption exponentially in the next 24 months
• Quantify the economic impacts (e.g., cost savings, ROI) of alternate sourcing models
• Refine your alternative capital strategy and identify plans for targeted growth investments
• Develop and apply new productivity metrics for people and teams
• Rationalize product and business portfolios and geographic operations to free up capital for innovation investment
• Examine the mix and structure of capital resources to support both organic and inorganic change

To learn more about the opportunities, risks and critical imperatives for insurers, read our full EY 2021 Global Insurance Outlook (pdf) report.