Many of us were lucky enough to relax at the end of 2021. The insurance market also seemed calm at the time: growth in 2021 was flat at 2%, and the dreaded decline in profits due to the COVID-19 has not fully materialized. Insurtechs may be innovative, but they still represent a relatively small share of the market. And while the A-to-Z list of insurers has grown considerably, covering not just “Allianz in Zurich” but also “Amazon in Zhong An”, the industry has so far been spared a real upheaval.
A deceptively calm market
But the apparent calm of the insurance industry is deceptive. The polarization between winners and losers is ongoing whether you are looking at gross premiums, earnings or cost ratios. Digitization plays a central role in this development. Customers who are accustomed to digital convenience with other products and services in their lives also expect it from their insurers, and a digitized value chain is essential for competitive pricing, efficiency and speed. Opportunists from other industries and regions have realized this and are taking advantage of their advantages in these areas to enter the market.
In addition, the start of the new year was filled with uncertainty. How will COVID-19 evolve? What changes will we face as we move into more variants of Greek letters, and what will our evolving response mean for health insurers and commercial insurance? How will the continued low interest rate environment and regulatory changes shape the future of life insurance? What impact will inflation, the chip crisis and weak auto activity have on auto insurers?
A series of clear starting points
Despite the uncertainty, there’s good news: there are many positive steps insurers can take to pave the way to a more prosperous future, no matter what that future holds.
Be truly customer-centric: Everyone talks about having a customer focus, but few implement it successfully. Across the industry, customers say their top concerns are getting value for money (54%), convenience (48%) and, especially among Gen Z respondents, fairness. (24%). Insurers need to focus more on solving the relevant issues: insuring customers against life-changing circumstances; recognize these circumstances during the sales process and advise customers appropriately; and resolve complaints quickly, easily and fairly. And a hybrid approach is the key to customer centricity. Even before the arrival of COVID-19, 84% of respondents in Germany said they used digital insurance channels.
Rigorously develop analytics and automation: Big technology trends are changing the world. In five years, the average insurer will have reduced costs by 25%, while savings for those in the top quartile will reach up to 40%. Insurers must also use analytics and automation to tap into attractive market potential by providing customers with the right product for their situation in the right channel at the right time. The road to the future leads in this direction and beyond to ambitious destinations such as the personalized insurance engine.
Develop true product innovation: Standardized products are all the rage, creating easier ways to bundle more complex life insurance products for today’s low interest rate environment and making new approaches possible. But other factors also drive innovation: environmental, social and governance (ESG) factors that take into account climate change; extensive coverage of damage caused by natural disasters following major floods in the summer of 2021; the effects of “long COVID” on health and disability insurance; COVID-19 Travel Protection Cover; battery coverage in car insurance; and cyber insurance in a more digital world. All of these considerations shape not only the products themselves, but also prevention and assistance services and new approaches to pricing innovative technologies.
Occupy an optimal position in the ecosystem: It is an open secret that large international technology companies are lining up for a share of the insurance market. And the percentage of customers who are willing to buy insurance from tech companies has grown from just 7% in 2016 to 44% in 2020, thanks in part to the challenges of COVID-19. To be competitive, traditional insurers must act quickly to rigorously optimize their digital services from the customer’s perspective and seamlessly integrate the digital customer interface into the relevant ecosystem.
Shaping the new world of work: The COVID-19 crisis has changed the nature of everyday work. Hybrid work models are emerging across industries, with many decision-makers reporting that getting staff back to the office is a “difficult road” and nearly half saying they struggle to attract new talent. Insurtechs, which received more than €10 billion in funding in the first three quarters of 2021 alone, offer digital pioneers plenty of career opportunities. Insurers need to find a new balance between offering flexibility to employees and having them on-site, as well as between recruiting people with the necessary skills and broadly building capacity.
True transformation takes time, and insurance companies must now set their sights on a secure future. What they tackle in 2022 will determine their direction for the entire decade to come.
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