Winning the future: five strategic themes for insurance leaders

Beyond the necessary modifications to accounting and reporting processes required by IFRS 17, insurers are rethinking the strategic role of finance, risk, actuarial and tax as well as how to best organize and operate these critical functions with peak efficiency and effectiveness. Regulatory changes – including Corporate Sustainability Reporting Directive (CSRD) and BEPS 2.0 – along with cost and competitive pressures have put a premium on integrating, synchronizing and optimizing the data and processes that connect these units.

The impact on performance management – how insurers define success, measure their progress against objectives and use data to make decisions – will be profound, both internally and externally. It will take some time for all stakeholders to understand the meaning of IFRS 17 metrics and the new key performance indicators (KPIs) that have emerged. Finance leaders will have to work with their peers across the business (particularly those that have always questioned internal data sources) to help build confidence in data used for decision support. Advancing the sophistication and accuracy of forecasting will benefit both finance and the business as a whole.

For external stakeholders, senior leaders must also rethink how they communicate and explain their performance to investors and analysts. New narratives around growth and innovation strategies, as well as technology, data and transformation plans, should be a priority. Some prominent insurers may need to explain the rationale beyond their tax decisions to authorities, as well as to the media and general public if there is a perception that profitable carriers are not paying their fair share.

Here again, looking beyond the minimum standard of compliance can help organizations generate value from the necessary investments. The key is to use the new KPIs and other forward-looking reporting metrics to bolster internal decision-making relative to resource allocation and strategic investments.

Key actions for senior leaders and boards:

• Deepen the organizational expertise about the subtleties and nuances of new accounting standards and reporting regimes
  
  
• Prioritize the integration and standardization of data sets and the digitization of processes in finance, risk, actuarial and tax
  
  
• Engage investors and analysts to shape their understanding of new metrics and provide context about performance
  
  
• Deploy GenAI-based and data visualization tools to empower users in exploring new data and metrics and to enhance forecasting capabilities

Before insurers have fully settled into the world of IFRS 17, they must prepare themselves for the pronounced regulatory shift – from a focus on prudential and accounting matters to an emphasis on conduct and resilience. The Consumer Duty in the UK has increased the urgency around conduct matters, though similar supervision activities are on the rise in other European markets as well. The duty requires insurers to demonstrate how they provide customer value. Firms may need to adjust their risk management frameworks to make them more fit for purpose and principles-based, reflecting the design of the recent regulations. Conduct risk may increase for those firms that fail to adapt to increased regulatory scrutiny. But the Consumer Duty may also serve as a prompt for innovation for those firms that use it to understand what customers want and find new ways to deliver value.

The Digital Operational Resilience Act (DORA) and AI Act are also forcing firms to examine how they identify, assess and manage risks. Regulators are calling on insurers to clarify how they use, share, protect and manage customer data, and whether consumers are aware and approve of these practices. The same applies to the use of AI; the first priority is fair, unbiased and responsible usage. Looking forward, the Financial Information Data Access (FIDA) proposal and further advancements in Open Banking will also increase the regulatory burden for insurers.

For insurers, the challenges of compliance typically start with rigid legacy systems and standalone data repositories. But rather than focus on minimum standards of compliance, insurers can seek ways to generate business value (e.g., increased efficiency from process automation) from their regulatory investments. For instance, the FIDA proposal emphasizes the need to benefit consumers by offering more data-driven tools that support informed decision making, which could provide a further impetus to insurers’ ability to connect to partners for seamless and secure data sharing and to develop more holistic solutions.

Key actions for senior leaders and boards:

• Enhance data management and sharing capabilities in advance of new regulations
  
  
• Identify opportunities to align compliance investments with those that can benefit the business (e.g., core system modernization, technology transformation)
  
  
• Engage regulators proactively and participate in industry efforts to shape future legislation and regulation
  
  
• Regularly revisit and refine governance models to guide expanding AI deployments across the business

The insurance industry has been struggling to upgrade its talent base and workforce for quite some time. An aging workforce has prompted a gradual shift to younger, more digitally inclined workers – a shift that should accelerate with the advent of generative AI. Actuaries and underwriters remain at the heart of the business and stand to benefit significantly from new AI-enabled processes and toolsets.

To make the most of GenAI deployments across the business, technical agility and digital proficiency will need to increase. Finding in-demand data science and analytics pros, prompt engineers, customer experience designers and beta underwriters is – and will remain – difficult (and expensive). Ecosystems, partnerships and other collaborations can provide easier access to these scarce skillsets. However, those engagements will also require new skills, namely strategic partner selection and relationship management.

Empowering people and teams across the business to experiment with GenAI (within well-defined parameters) and encouraging them to collaborate more openly will boost returns on technology investments. That may require some culture change, however, especially at carriers with rigid organizational charts and hierarchical management styles. Reporting lines and P&L ownership may need to be adjusted to reflect more holistic metrics, such as those that track customer value rather than simply revenue growth.

Culture change can also facilitate the development of external partnerships and ecosystems, as new paths to market and growth strategies require new ways of working and fresh management approaches. Carriers might partner with InsurTechs for tools to support specific tasks and activities in underwriting, digital marketing and other functions. They can work with banks, medical firms, pharmaceuticals and fitness companies to augment their product offerings.

Senior leaders recognize they need the upside offered by GenAI and partnerships. But beyond their bottom-line impacts, they can be used to refresh the organizational culture, foster new capabilities and boost employee engagement.

Key actions for senior leaders and boards:

• Model the impact of GenAI on the overall workforce, including the upside of increased employee engagement and empowerment
  
  
• Assess GenAI governance models to ensure that bottom-up experimentation is possible and encouraged within the context of clear policies
  
  
• Evaluate how alternative sourcing strategies can provide access to the most in-demand skills and specialist expertise
  
  
• Rethink current management practices in light of partnership and ecosystem strategies

The insurance sector remains attractive to capital providers (particularly those in Asia and the Middle East). Though alternative capital is now fully mainstreamed, new models and structures are developed and launched on a regular basis.

Forward-looking insurers continue to get creative with their capital sourcing strategies. In some cases, firms look to divestments to free up capital for investing. Other carriers are exploring unique entity models and partnerships to fund digital transformation, develop new business models (including ecosystems and embedded plays), launch entirely new brands and enhance customer journeys.

The dynamics around capital management strategies vary by line of business. For instance, there has been an uptick in sidecar deals among life reinsurers, substantial casualty buyers and their asset management partners. Sidecars have traditionally been used more frequently by property and casualty reinsurers. But, thanks to a confluence of macroeconomic trends and market forces, point to further expansion for longer-tail risks in 2025 and beyond. Sidecars look like a win-win, given that reinsurers see a need to significantly increase capacity and capital providers want to generate relatively predictable, risk-adjusted returns across longer time horizons.

Sidecars aren’t the only form of alternative risk transfers, of course. Insurance-linked securities (ILS) and catastrophe bonds are poised to continue on their growth trajectory of the last decade. Even more experimentation is to be expected in the future, as climate, cyber and other risks proliferate.

Not all investment will flow to traditional carriers and reinsurers. Other recipients will include InsurTechs and new entities founded by banks, wealth and asset managers, brokers, tech platforms and other players looking to enter or expand their presence in the insurance sector. Carriers have ample incentives to build strong relationships with the full range of capital providers, if only because there are multiple areas of the market and in existing businesses where substantial investment could unlock breakthrough results.

Key actions for senior leaders and boards:

• Evaluate new capital sources for funding necessary investments in digitization, transformation and innovation
  
  
• In evaluating capital partners, look for strategic focus and alignment around common goals, especially relative to bridging large protection gaps in markets around the world
  
  
• Assess the options for structuring entities and refining capital strategies in line with long-term objectives
  

Summary

Fresh thinking and new ways of working. A younger and differently skilled workforce. Purpose-driven cultures motivated by – even obsessed with – customer value and well-being. Advanced technology, extensive automation and digital-first operations. More flexible capital structures and organizations. These will be the attributes of tomorrow’s insurance leaders in Europe, the firms where employees want to work, partners want to engage and customers want to do business. More tellingly, these firms are actively working today and investing boldly to build out the necessary capabilities, establish effective partnerships, and create the necessary operational and technology foundation to execute their growth and innovation agendas.