December 9, 2020
2021: The Great Reset in Insurance
A shift toward greater corporate and social responsibility and empathy in general is underway, and 2021 will bring a great global reset.
More than enough has been written about the global pandemic of 2020, and now the end is within sight during 2021. But what is not nearly as clear is how different the post-pandemic world will be as a result – in the insurance industry and beyond. These differences will not only be numerous and significant, but many will be permanent. This fundamental change will transform corporate, individual and societal thinking and behavior for the better. A subtle but powerful shift toward greater corporate and social responsibility and empathy in general is underway, and 2021 will be the year of a great global reset.
New Thinking — New Behavior
Everyone is familiar with the voluntary rebates and discounts that auto insurers have issued to policyholders as personal automobile use dropped dramatically as a result of lockdowns and work-from-home edicts. It is widely anticipated that a significant portion of those employees will opt to continue working from home post-pandemic. Longer-term shifts such as noticeable migration from urban to suburban living will permanently alter transportation patterns, which will affect the insurance industry. The rise in new and different flavors of connected vehicle telematics programs also illustrates the change in consumer preference for dynamic and contextual auto insurance coverages and costs.
The digitization of the insurance process was well underway before 2020, and adoption has been supercharged by the pandemic and the changed landscape. Health-conscious consumers have embraced contactless everything: virtual claims adjustment, digital payments, online car shopping and more. Life insurance applications hit an all-time record in March 2020 as the spread of the coronavirus acted as a catalyst, prompting people who have put off getting coverage to finally sign up. A percentage of these changes will be permanent as a result of their positive economic impact to carriers and policyholders.
But funding this accelerated digitization and innovation will require severe expense management to offset the new costs. In its new “2021 Insurance Outlook” report, Deloitte Insights’ research states that 61% of survey respondents expect to cut costs significantly – between 11% and 20% – over the next 12 to 18 months.
Crises create a sense of urgency in business, a necessary focus on fewer priorities and more tolerance for experimentation. This allows organizations to foster and sustain a more innovative culture. To compete with digital players, traditional insurers will build their own new digital businesses. Even after the crisis passes, much of this transformation will have been institutionalized. and the benefits will be permanent.
In a new report titled “Global Technology Governance Report 2021,” the World Economic Forum and Deloitte examine key applications of Fourth Industrial Revolution (4IR) technologies for thriving in a post-pandemic world and identify governance challenges that these technologies could help to address. These include five 4IR technologies: AI, mobility, blockchain, drones and IoT.
A Global Community
We now more clearly understand that what happens in one part of the world can affect all 7.8 billion of the world’s inhabitants. That includes not just the global spread of the coronavirus in under 90 days but also man-made causes of climate change, including the use of fossil fuels, the deforestation of Brazil’s Amazon rainforest and many more such tragic examples. This realization will result in a greater sensitivity overall and changing decisions and behavior of individuals, governments, investors and corporations.
See also: 2021’s Key Technology Trends
The financial services sector, including the insurance industry, are at the forefront of adopting new principles that were gradually emerging before 2020 but will move into the mainstream in 2021 and beyond.
- Impact investing refers to investments made into companies, organizations and funds with the intention to generate a measurable, beneficial social or environmental impact alongside a financial return. Impact investments provide capital to address social and environmental issues.
- In a July 2020 Milliman report titled “ESG considerations in the insurance industry,” Milliman reported that some insurers are setting standards for their investment managers with respect to how they take ESG factors into account, including Standard Life and AXA.
- Environmental, social and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments.
- When announcing its Ambition 2025 plan, Munich Re announced an extensive decarbonization strategy, shifting away from coal, oil and natural gas and aims to reduce net greenhouse gas emissions in its investment portfolio by 25% to 29% between now and 2025, before achieving net-zero emissions by 2050. The firm has already ceased to invest in companies that generate more than 30% of their earnings from coal or by extracting oil from oil sands.
- Diversity, equality and inclusion (DEG) refers to the traits and characteristics that make people unique. Inclusion refers to the behaviors and social norms that ensure people feel welcome. Not only is inclusivity crucial for diversity efforts to succeed, but creating an inclusive culture will prove beneficial for employee engagement and productivity. Equality addresses injustices and discrimination and is manifested in gender pay gap, racial discrimination and discrimination based on sexual orientation.
- Munich Re also shared its ambition that 40% of managers below the board of management are to be women by 2025.
- Northwestern Mutual, through its foundation in partnership with its diversity and inclusion team, announced a 2020 commitment of $1.6 million to All-In Milwaukee to fund its new Talent of the Future program for Milwaukee-area high school students over the next four years.
Early signs are emerging that we are becoming more concerned and caring about the well-being of our fellow man, beyond just our immediate circle of family and friends. Have you noticed how many virtual business meetings typically open with questions about how the participants and their families are doing? It’s a welcome development and a small but important reflection of how our focus and values are changing, and it portends even greater change as the great global reset emerges.