The ongoing evolution of the COVID-19 crisis presented the insurance industry with a unique set of challenges in 2021, highlighting the importance of the role that insurers play when it comes to absorbing risks for businesses, households and governments. This past year, the global insurance market saw above-trend growth across the board, and many companies report that they expect revenues to be “significantly better” in 2022. Much of this growth can be attributed to the pandemic as well as rising frequency and severity of climate catastrophes, both of which have contributed to a raising consciousness of risk as insureds throughout the world seek protection from a more volatile world. The pandemic also forced the industry to accelerate its digital literacy as colleagues and clients alike settled into a work-from-home way of life.
The future looks bright for insurance companies in 2022, but performance will ultimately come down to how well industry leaders can respond to issues that arise, as well as a continued commitment to transformational change that started in earnest in 2019. Here are three key issues from the latest market intelligence that we’re tracking closely as the calendar turns.
The Critical Importance of Updating to Modern Technology
For insurance companies, continued improvements in technology—when used properly—have the potential to transform business. The Swiss Re Institute’s global economic and insurance market outlook for 2022 and 2023 noted that companies that digitalized effectively fared the pandemic more successfully than ones that didn’t. Many companies invested in technological advances in the past year, but what will determine success going forward is how much effort these companies are willing to put into implementing and evaluating new technologies, and aligning them with long-term business strategy.
The modernization of core business systems to make room for the integration of new data and automated systems will remain important, as newer technology increases efficiency and reduces costs for companies across the board. The S&P Global Market Intelligence report on next year’s insurance industry outlook calls out enhancements relating to claims handling and fraud mitigation as the two most important roles for technology in the industry, as innovation in these areas reduces administrative expenses and helps to prevent future losses. However, with an increased reliance on technology also comes concerns about privacy and cybersecurity. With global cyberattacks increasing by 29% in the first half of 2021 as compared to the same period the previous year and with a 93% increase in ransomware attacks, insurers will need to consider additional measures to bolster their cybersecurity. By establishing processes and controls using new technologies, proactively identifying cyber threats and creating a risk-aware culture, companies will have a good head start.
The climate catastrophes of the past year have only further crystallized the reality that we are now living in the era of climate change. The Swiss Re Institute estimates that the world now stands to lose 11% of GDP by 2050 if no progress is made in the mitigation of global warming, and that the private sector needs to work alongside governmental bodies to create an approach to the climate that focuses on multiple drivers of change at once if progress is to be made.
Climate change has already catalyzed many insurance companies to reevaluate their product offerings to match the increasing needs of their clients. Some are using parametric insurance, to close disaster coverage gaps. Others, like Farmers, are offering “green” discounts to their auto insurance customers for using alternative fuel or electric vehicles.
Deloitte’s 2022 industry outlook also argues that more serious attention also needs to be paid to ESG (environmental, social and governance) initiatives. According to their research, which surveyed 424 insurers from around the world, only one in four insurance companies have quantified metrics on climate risk in assessing their own carbon footprint, with fewer than one in five having completed this on their investment portfolios. Moving forward the creation of measurable sustainability goals to mitigate the effects of climate change (i.e., working towards becoming carbon neutral) should be a top priority, as financial losses from these changes will continue to harm insurance industry profitability across the board.
Shifting Consumer Preferences
The last major area insurance providers need to pay attention to is the ever-changing consumer. There are a few key issues for insurers to pay attention to in this area going into 2022—the first of which is knowing when to use digital vs. human interactions to create the ideal experience for each customer. Deloitte notes that while consumer preferences are shifting towards increased digitization and self-service capabilities, insurers should not forget that person-to-person interactions are still vital when it comes to prospecting, sales and customer service. Companies must thoughtfully consider which scenarios call for a digital touch as opposed to those that call for a human interaction — and offer options for both based on how insureds prefer to engage —and be sure to support agents by investing in client relationship management software.
Insurers also need to focus on further expanding their trustworthiness. Insurance as a business is fundamentally about trust: an insured must have confidence that their premiums will pay off should they suffer a loss. More transparency surrounding client data may be a good first step in increasing trust —eight in ten marketing leaders in the industry agreed that they are not doing enough to ensure that their clients feel they have control over their privacy and data. On a larger scale, continuing to build client trust also requires companies to live up to their brand promises, and make necessary changes if they fail to do so.