Ecosystems, open insurance, workforce transformation, and sustainability define near-term prospects for the insurance industry.
- Ecosystems, open insurance, and customer-driven competition are driving profound business model shifts.
- In the age of AI and automation, human capital is a differentiating source of value for insurers with the right talent and an attractive employee experience.
- Climate-related threats present a huge risk to the industry, but the sustainability agenda is an opportunity for purposeful growth.
After the dramatic developments of the last few years, insurers have shown they can undertake large-scale change at a faster pace than many industry veterans thought possible and can deal with unexpected developments. We believe the industry is poised for a period of purposeful growth, despite daunting macroeconomic and structural challenges, fierce competition, and ongoing tech-driven disruptions.
COVID-19 demonstrated why the insurance industry is essential – not only to global economic health and increased financial wellness, but also to protect what people value most. The decisions and actions leaders take today can meaningfully influence the future of the industry and the lives and livelihoods of billions of people around the globe.
The 2022 edition of EY’s annual Global Insurance Outlook series reflects the dynamic and purpose-driven moment for the industry, focusing on open insurance and ecosystems, workforce transformation, and sustainability. Though these three especially powerful trends are currently shaping the market, there are also other areas where insurers are encountering compelling opportunities and, potentially, severe risks. Cost and capital optimization remain imperative, as evidenced by recent strategic divestments of many leading insurers. Life insurers must shrewdly invest the gains in premium growth in recent years, while P & C insurers should take advantage of a hardening market.
Insurers must continue to address their technology debt by digitising core processes, migrating to the cloud, and embracing flexible sourcing models. The current landscape is also notable for its fragmentation, convergence, and intense competition, including from a mix of non-traditional players and widespread collaboration. Carriers will look to partner with or acquire the most promising InsurTechs, and banks and asset managers will offer more protection products and seek to differentiate on holistic financial wellness value propositions, forcing insurers to choose between collaboration and competition.
Finally, the insurance industry must seek to lead with purpose and live up to its highest aspirations, particularly in the wake of the COVID-19 pandemic. Insurers had to be there for customers and undertook large-scale change quickly to make sure they could serve people in need – and they must continue to do so, particularly if they are to help the world prepare for increasing climate risk.
1. Open insurance and ecosystems: a new, customer-driven basis of competition.
The rise of open finance, along with the ecosystems of financial solutions that it enables, has emerged as one of the defining financial services trends of the 2020s, primarily in response to changing customer needs and expectations. Across all lines of business, there is an increased demand for more affordable, transparent, and customised insurance that better suits evolving conditions and can be easily adjusted as the needs change.
Insurers must retool their platforms around APIs and microservices to enable secure and seamless connections among partners. Based upon current trends, we expect ecosystems to become a major business model in the relatively near future. As is often the case, what feels innovative today will soon become a baseline. And rather than waiting for regulators to define the rules, insurers should join the discussions about open insurance to ensure a level playing field as they seek to engage consumers in new ways.
To succeed, ecosystem business models need strong leadership from the top and a clear and executable ecosystem strategy based on their current market position, brand value, business models, talent pool, and level of technology sophistication. Despite the clear upside of ecosystems, most insurers are still working to develop the necessary tech and data capabilities, navigate distribution constraints, and address organisational and cultural impacts.
2. Workforce transformation: the promise of a human-centered, tech-enabled enterprise
Not that long ago, the conventional wisdom in insurance held that workers would lose their jobs as insurers adopted more technology and automated more processes. Yet a profound shift was underway even before the COVID-19 pandemic, with business leaders working to address skills gaps, update their talent practices, and instil more dynamic and agile ways of working. Now, competition has intensified for the most talented workers, who are more empowered to work when, where, and how they want.
Today, a more nuanced and interdependent human-tech dynamic has emerged. The consensus among forward-looking executives is that human talent is every bit as important to future success as AI, machine learning, and modernised processing platforms. Yet the scarcity of key skills and “the Great Resignation” mean that insurers must address the traditional view of the industry as slow-moving and dull if they are to become employers of choice.
Insurers will have to take stronger positions on the social issues that matter most to rising generations of workers (e.g., diversity and inclusion, sustainability) and provide meaningful work, as well as enhance their benefits, performance recognition, and compensation models. Younger workers are also looking for more purposeful work, which gives an advantage to insurers that can articulate a clear story about how their products and services benefit society as a whole.
3. Sustainability: a historical opportunity to purposefully lead, innovate, and grow
As the direct effects of the COVID-19 pandemic have subsided, climate change and sustainability have resurfaced at the top of board and C-suite agendas.Previous discussions about sustainability were largely theoretical and centred on making public pledges of support. Today, however, leading insurers are taking tangible steps and adopting hard metrics to address the full range of environmental, social, and governance (ESG) issues and opportunities.
For most insurers, the focus is squarely on the “E” in ESG, as climate change will have the biggest and most immediate impact on the industry’s financial performance. But social issues are now nearly as urgent.
Insurers can take many meaningful steps in the near term to help advance the transition to a greener economy. Mapping action plans to specific targets and establishing quantifiable performance metrics relative to sustainability are two ways insurers can live their purpose. Within a broader ESG strategy, insurers must identify priority focus areas, clarify why they are allocating resources to them, and determine what benefits they expect to achieve.
A clear road map must also reflect the impacts on different parts of the business and how ESG strategies will be executed. In tracking performance against sustainability targets, insurers should monitor risk exposures, value creation, and progress toward specific goals. As reporting and disclosures become standardized, the most transparent companies will benefit from easier access to capital, increased customer loyalty, and better share price performance.
We believe that sustainability, workforce transformation, and open insurance are three of the most powerful forces reshaping the market in the near term. Read the full report to learn how insurance leaders can respond to these megatrends with urgency, creative thinking, and bold action.