Understanding the future is all about signals – and we have lots of them.

We are facing new challenges including the market economics of inflation, supply chain issues, rising interest rates, and low unemployment. We are grappling with the increased reality of societal, climate, and technology risks and their potential impact on our lives. We are experiencing declining profitability, rising loss ratios and claims costs, increasing demand for reinsurance capacity, lower disposable incomes, and a growing talent loss with a projected high percentage of retirements within the insurance industry.

At the same time, we are seeing a changing market landscape. The year 2023 is poised to deliver some game-changing scenarios that will impact insurance. Amazon is re-entering insurance in the UK.^[i] Apple could enter health insurance in 2024^[ii]. Google is bringing data and analytics at scale through increased partnerships with insurers like Travelers.^[iii] Insurers will continue to acquire new distribution channels or InsurTech technology, like American Family did with Bold Penguin^[iv] and Travelers with Trov^[v]. And the InsurTech space will change and consolidate due to higher interest rates, tightening access to capital and lack of profitability.

With all of these signals in play, 2023 will demand insurers to respond by strengthening business fundamentals and foundation, while meeting the challenges of a changing market.

Risk – New, Shifting, and Increasing Complexity

Risks increasingly capture our attention.

Environmentally-influenced catastrophic events, such as the latest hurricanes in Florida, caused significant losses. Reinsurance prices are rising and access to capital is tightening, highlighting the impact of environmental risk. We also see increased societal risks, risks associated with governmental policies that are influencing crime rates, and more. And the increased use of technology and digitalization in our daily lives is increasing the risk of cyber incidents. These layers of risk are on top of the traditional view we have for underwriting individual policies that now require us to look at portfolio risk.

This complexity of risks will continue to reshape P&C and L&AH insurers’ product offerings, underwriting capabilities, and the use of broader data and analytics. All of these will, in turn, influence customer relationships.

Digital Underwriting

Underwriting is at the heart of the insurance business. With rapidly changing risk factors from weather, climate, societal, technology, and more, it is increasingly crucial to evaluate individual risks and the exposures to an entire portfolio, to assess the risk and risk appetite, and, ultimately, profitability. The underwriting discipline is making major moves not just to automate the workflow, but to change the way underwriting is done by providing access to more data sources to gain new risk analysis insights while creating significantly enhanced agent/broker and customer experiences at the same time.

Operationally, this requires a combination of digital business solutions including next-generation core, digital underwriting workbench, AI/ML models, digital loss control, and the ability to ingest a range of data sources to create real-time risk management and insights.

Large gaps exist between today’s operations, business capabilities, and technology and those required to compete and drive profitable growth in an increasingly complex risk world. Exploring the gaps requires an assessment of today’s reality and the opportunities for not just operational improvement, but strategic innovation. Expanding opportunities met with innovative strategies will establish a new set of leaders that can adapt to our complex world of increasing risk.

Shifting from Product-Centric to Customer-Centric

The future is all about the customer. Being ready for the future is all about understanding the customer signals that should shape business strategies. From COVID to historic inflation, to severe weather events, customers are enduring an ongoing string of challenges that have shaken their sense of financial security in how they can protect their homes, autos, life, financial well-being, and more.

While insurance’s traditional products have always been pivotal in creating peace of mind for the customer — new and expanding risks require new ideas and approaches. Market dynamics, and the evolving needs and expectations of insurance buyers (particularly the younger generation) encourage insurers to break free from traditional operational and technology constraints. The new customer judges the insurance experience on an entirely different scale.

The rise of individualization and personalization is rewriting the customer experience and the insurance process: from the products offered and their pricing and underwriting, to the channels recommended, and to the services provided. Customers are seeking simple, humanized experiences that demand a shift from product-centric to customer-centric design and implementation.

Risk Management and Risk Resilience

The old adage of “control what you can control” is now front and center for insurers as they look at new risk management strategies as a crucial component of their underwriting and customer service strategy. They are increasingly focusing their time and resources on how they can better assess risk and prevent losses to improve underwriting profitability and customer experiences.

Today’s increased risk, market environment, and pressure on profitability demand a greater focus on preventable losses and better outcomes. Insurers must focus on underwriting profitability, proactive risk mitigation to minimize or eliminate claims, and enhanced customer experiences.

Resilience is essential to living in a world filled with change and uncertainty. It will give insurers and insureds the ability to avoid or minimize risk and decrease the stress of recovery. Building resilience into insurance will make it more relevant to customers. Resilience deserves a seat at the discussion over customer experience. Leading insurers will leverage technology such as IoT devices, smartwatches, and value-added services to assess and monitor risk, with the goal to proactively respond, to avoid or minimize the risk through value-added services. Not only will customers embrace this, but insurers will create new revenue streams that provide customer value, enhancing loyalty and trust.

Channels – Multi-Channels Meeting Customers on their Terms

In the traditional distribution model, insurers fight for share of mind, so customers think of them when they need insurance. Many large insurers spend hundreds of millions of dollars on advertising and others spend significant dollars in the traditional agent/broker channel, to keep them “top of mind” when insurance is being considered.

With the increasing competitive challenges to attract and retain customers, insurers must develop and utilize a broader distribution ecosystem that engages customers when and how they want … putting the customer first.

Today’s interconnected world requires insurance to play across a broad distribution spectrum of channel options, expanding reach to customers when, where, and with whom they want to buy insurance. These options form a distribution ecosystem that expands reach, but requires a partnership approach, particularly for embedded channels. Embedded insurance completely changes this paradigm. With it, insurance is no longer sold, because it is bought as a part of something else.

Today’s buyers do not necessarily associate with traditional channels and will look to buy insurance through other channels or entities, as we have highlighted in our annual consumer and SMB research. In addition, buyers have other trusted and loyal relationships with entities like Gig Economy groups, health, and fitness organizations, large retailers, auto manufacturers, big tech, and more, demonstrating that partnerships and embedded insurance make sense.

The bottom line … if distribution channels are easy to use with products that are easy to understand, then insurance has an opportunity to grow through a friction-free multi-channel distribution.

Technology Investment Accelerates

Technology provides a foundation to adapt, innovate and deliver at speed to execute on strategy and market shifts. The rising importance and adoption of platform technologies, APIs, microservices, digital capabilities, new/non-traditional data sources, and advanced analytics capabilities are now crucial to growth, profitability, customer engagement, channel reach, and workforce change.

From the front office to the back office, next-gen SaaS platforms are reshaping the business focus from policy to customer, from process to experience, from static to dynamic pricing, from point-in-time underwriting to continuous underwriting, from a historical view of data to a predictive and prescriptive view, from traditional products to new, innovative products, and so much more. An insurer’s ability to create and grow an ecosystem of partners to deliver increased value to the customer relationship gives it the power to deepen and differentiate customer loyalty.

The slow and steady investment in technology, which averages around 3-4% of DWP, is at best incremental and is not sufficient to keep pace with the expanding challenges in the industry. Given the pace and multi-faceted nature of digital transformation, leading insurers will focus on their business strategy and the investments needed to adapt to the multitude of changes.

Even with the macroeconomic headwinds and other market challenges, every aspect of insurance is being redefined in the context of the future, and next-generation technology is foundational for that future. Recent history has proven that pulling back is a big mistake. The dot-com crash in 2000-2001 and the financial crisis of 2007-2008 proved this strategy to be short-sighted.

Those leading will accelerate their investment rather than pull back, even during challenging economic conditions, “putting the pedal to the metal.”

And they will be prepared for the next major disruption, leaping forward from the competition.

The question is … are you prepared for 2023? For 2025? For 2030?

Join our webinar, 2023 Signals Shaping the Future of Insurance, with myself and a number of leading InsurTech influencers where we will discuss and debate these topics and more areas of change and opportunity in the insurance industry.

[i] Amazon UK makes cautious move into insurance sales – BBC News

[ii] https://www.forbes.com/sites/barrycollins/2022/10/18/apple-will-launch-health-insurance–in-2o24-says-analyst/?sh=a83e30162db8

[iii] Google Cloud and Travelers to Create Connected Data Ecosystem to Enhance the Commercial Insurance Underwriting Process (prnewswire.com)

[iv] A done deal: American Family, Bold Penguin come together for small businesses (amfam.com)

[v] Trōv Technology Assets Acquired by Travelers (prnewswire.com)