Over the past two years, the property and casualty insurance industry has faced a number of significant challenges: the pandemic, supply chain management issues, inflation and heightened concern by cyber threats.
Insurers have seen changes in customer perception, a transformation of the workplace with remote working and the “great resignation”, changing customer expectations like digital-only services, changing regulations, as well than the climate objectives brought to the fore.
Demutualization and increased M&A activity are increasingly becoming part of an organization’s strategy. Mutual insurance companies are going public to raise funds in capital markets, large carriers are merging to gain scale, and in some regions cross-border carriers are exiting national markets due to a change in strategy and sell to national carriers.
Before the pandemic, the insurance industry was already going through a period of significant change driven by escalating insurance costs, fluctuating investment returns, and an increasingly digital and self-service-oriented customer base. In the past, some insurers have not reacted to these changes because the “traditional” way of doing business was still acceptable. The pandemic and the industry challenges ahead of us have accelerated innovation and driven much-needed industry modernization.
Potential challenges ahead:
- Inflation – Underlying inflationary trends continue to intensify. Underlying inflation estimates in 2022 between 6 and 10% will focus on the combined ratios, affected by salary increases, rising expenses, rising claims costs due to the fact that the vehicles and properties are more expensive to repair. Litigation is long and expensive, and health care and medical costs are rising.
- Climate change – Weather events continue to increase in frequency and severity, affecting claims settlement as well as reinsurance capacity with rate hardening due to escalating natural disasters.
- Fraud – While fraud has been an ongoing challenge for the industry, increased customer access through digital and self-service channels continues to grow. A larger technological footprint and tougher economic conditions are increasing the type and number of fraudulent activities.
- cyber security – Remote working, digital channels, and an increased presence on cloud and public networks have expanded the security perimeter, providing more entry points for cyber actors and incidents.
Where should insurers focus
Data and analytics
Insurers should continue to invest more in data and analytics capabilities to better identify risks, improve pricing accuracy, and prevent and/or detect fraud. Data-driven risk management is the new normal. Qualitative considerations in underwriting are important, but a more sophisticated and quantitative underwriting process is imperative.
Insurers need to improve predictive modeling and AI capabilities to cope with changing risk profiles. Emerging technologies such as telematics and usage-based insurance will require AI/ML capabilities for behavioral policy pricing. In addition, weather events require machine learning capabilities to forecast weather events and disasters to help identify risk sharing and reinsurance opportunities and create adaptable pricing models to deal with a range emerging risks.
Many insurers have made digital their de facto strategy. Analytics is an important component to the success of the digital insurance experience. Insurers should use data to determine customer value metrics, to better understand customer insurance needs, target high value customers, and recommend bundling to increase sales and discounts for customers.
Digital has further enabled hotspots and self-service has opened up more opportunities for fraudulent activity. As drivers return to the road at post-pandemic levels and severe weather events become more frequent, loss ratios could return to pre-pandemic levels. This will put pressure on the combined ratios. Using analytics and AI to prevent fraud detection and reduction is a key tool in claims management.
Insurers should turn their attention to increasing investment in technology projects with a focus on automation. Most insurers forecast additional growth in 2022, putting pressure to scale without adding operating expenses. Straight-through processing will allow for scalability and, in some cases, improved customer satisfaction (for example, payment of small claims without interaction with an adjuster). Automating menial tasks allows the workforce to focus on higher value work, improving overall employee and customer engagement. Investing in automation could also offset the long-term impact of inflation on operational expenses.
Competition for talent is heating up as the pandemic recedes. Employees’ work needs and preferences have changed. Flexible work arrangements are becoming the norm and, for some, are more important than salary. Numerous employee surveys tell insurers that employees have little incentive to return to a conventional office environment.
Insurers should continue to focus on providing teams with remote working options post-pandemic or another employer will do it, which will result in the loss of key talent, business knowledge and result in some level business disruption.
Integrating climate risk, metrics and targets into how insurers make decisions is becoming increasingly critical. Insurers’ climate plans should cover all aspects of their business, from underwriting, products, claims, investments, operations and their supply chain.
Industry can respond by creating new insurance products and solutions that support the transition to renewable energy, using the asset side of balance sheets to accelerate climate solutions, and working with investors to develop financial models to support the disaster response.
The P&C insurance industry will continue to demonstrate resilience and implement solutions to better manage the changes ahead. As digitalization continues, consumer expectations and needs and employee engagement will continue to shape the industry in 2022. Continued investment in insurtech through partnerships, customer experience and automation of back-office functions will be important.
The challenges and opportunities described above are forcing P&C insurers to find better ways to innovate, automate and use data to stay competitive, relevant and profitable. Insurers that move quickly and define greater clarity between acceptable and uninsurable risks, effectively manage their investments (people and product) and tackle climate issues are those that will be best positioned for accelerated growth in 2022 and beyond. -of the.