As if our lives and the world in which we find ourselves aren’t confusing enough, for those of us working in the insurance industry there are also less obvious threats that we should understand clearly in order to plan and succeed in an uncertain future.
Executive SummaryIt’s not entirely correct to say that the insurance industry is doing well in the face of a global pandemic, writes industry consultant Stephen Applebaum. Here, he explains that when it comes to continued innovation and transformation, there is a divide between large well-funded industry players and the rest of the pack.
With permission, Carrier Management is republishing this edited version of an article that Applebaum originally posted on his LinkedIn page.
There is a general perception that the insurance industry is doing surprisingly well in the face of a global pandemic. It’s true that the redeployment of thousands of employees from physical offices to work-from-home was accomplished very quickly and with minimal loss of productivity or gaps in customer service. It is also true that insurers, specifically auto insurers, have enjoyed an earnings windfall from the dramatic and sudden drop-off in vehicle use and the accompanying reduction in auto claims (even after premium reductions).
And so, one might also conclude that industry innovation and transformation continues apace—but that’s only partially correct.
The Twin Realities
A closer examination of the evidence reveals that there are actually two extremely different states existing within the insurance ecosystem, essentially comprised of the larger, high-profile, well-funded participants and then all the rest. The pervasive media coverage and general market buzz focused on acquisitions, IPOs, funding and consolidations involving the former group is obfuscating the deteriorating rate of progress among the more numerous and much smaller companies—the very lifeblood of meaningful innovation and transformation on which a very large number of Americans are dependent for their livelihoods.
Compounding this dichotomy, longer-term costs of new work-from-home models include increases in mental health issues and anxiety among this latter group. Overlaid on this is the large and growing talent and human resource drain from an industry now more focused than ever on cost reductions, primarily through staff cuts, hiring freezes and early retirement offers. Unfortunately, once the pandemic passes and workloads return to normal, this lost talent and expertise will not quickly or easily be repatriated.
What the Latest Metrics Reveal
According to the July 2020 Pulse report published by insurance executive search specialist The Jacobson Group, the fifth month of the coronavirus pandemic in June saw unemployment for insurance carriers and related activities rising to 4.6 percent in June—”the highest unemployment rates the category has seen since 2013. The insurance industry historically lags behind the overall economy in terms of impact and there are still predictions for a second wave of layoffs that will more directly impact white-collar roles.”
Willis Towers Watson states in its Q2 InsurTech Briefing that “we are in both pause mode and fast-forward mode…The strength and reliance on technology has never been greater, and yet poor market investment performances and focus on COVID-19-related priorities could see a downturn in technology investments from [insurance and reinsurance] industry players over the next few years.”
Beyond these revealing investment activity metrics are the subjective observations from our own consulting practice. We are receiving a record number of personal outreaches and résumés from middle management up to executives from within the insurance industry. These inquiries reflect a large, industrywide outflow of expertise and talent that no amount of technology will replace anytime soon.
Signals Beyond Metrics
Consolidations between startups are on the increase, reflecting their need to create synergies, eliminate redundant overhead and conserve cash in order to survive.
To be sure, there are exceptions. Fueled by pandemic-driven demands, carriers are redoubling efforts to quickly implement telematics-enabled insurance programs, virtual and “touchless” claims inspection tools, AI-enabled photo and video estimating, as well as fraud solutions along with digital claims payment capabilities. But the attention and energy required to investigate and adopt these valuable solutions is at the expense of the much greater number of worthy startups and innovations that have been put on hold.
Other Looming Challenges and Risks
There are additional risks looming for insurers that will further impact the broader ecosystem, preoccupy insurers well beyond the end of the pandemic, and continue to impair innovation and the health of the InsurTech community for even longer.
Business interruption lawsuits are mounting and will weigh on insurers of all sizes but particularly smaller, less well-resourced carriers in defense costs, management distraction, negative public opinion and, in the worst-case scenario, costly settlements and possibly judgments.
Further, a tidal wave of deferred personal lines auto and property claims will surface once lockdowns are eased and will swamp claim departments whose staff has been depleted by layoffs and infrastructure reductions. While virtual and digital claims processes will help cover a portion of this claims volume, more complex or difficult claims will stretch already thin claims resources and expertise.
And finally, even though new automotive technologies should gradually make transportation safer and reduce accident and claims frequency, those savings will be more than offset by rising complexity and costs associated with repairing these vehicles, driving auto severity to record heights.
However, I am not pessimistic about the future of insurance. In fact, I look forward to seeing and helping the industry regain and even accelerate the previous momentum gained by leveraging technology to fuel its inevitable and critical transformation. This quote serves us particularly well today: “Opportunity and risk come in pairs” (attributed to Rwandan writer and blogger Bangambiki Habyarimana).
One of the surest ways to minimize risk is to recognize it and plan accordingly. Let the planning begin.