How to Rise Above Disruption in 2023

Insurers started 2022 in a position of strength and still are in a good spot to drive down costs and increase demand, unless rising claims costs and market volatility continue.

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Looking back at 2022, insurance providers mostly had a quiet year that ended in turmoil. The $132 billion in insured losses from natural catastrophes in 2022 was 57% above the 21st century average. On the other hand, health insurance claims related to COVID-19 tapered off, and there were fewer storms affecting P&C policies. Life insurance payouts occurred less frequently, as well, following the record highs of the pandemic. 

But 2022 was an intense year for insurance providers. Hurricane Ian devastated Florida in September, and, at $65 billion insured losses and counting, it was the costliest natural disaster of the year. The year’s relative quietness also meant demands for most lines of coverage were lower, and consumers, rather than buying policies, cautiously waited for economic conditions to unfold. Inflation and recessionary fears cooled interest in life insurance products, lowered investment income and contributed to increased prices when paying claims. Supply chain issues even hurt the insurance industry; building materials, car parts and everything in between are much more expensive, and insurers are covering that cost directly. Life insurers were able to manage more of these pressures than most; they have flexibility to match premiums to market conditions and take advantage of rising interest rates. 

What does this mean for insurers in the year ahead? Luckily, they started 2022 in a position of strength, and still are in a good spot to drive down costs and increase demand, unless rising claims costs and market volatility continue. 

Leverage technology to adapt for disruptions

Insurance, like all industries, is dealing with a tough labor market. Investing in people to keep them trained and equipped to handle all necessary processes can be a lot, but it’s crucial. Insurance companies also need to find ways to do more with even fewer people. The best way to do so is to augment employees with automation. Automation can eliminate mundane and time-consuming tasks to create a more rewarding workplace. As insurance companies step into the future, this will be key.

As a side effect of insurance work, many insurers have more data than they know what to do with. They need to capitalize on their analytics in more ways than one. Data analytics should drive investment decisions, product development and pricing and help with fraud detection. With deep analysis of data, insurers can manage uncertainty and better model predictions and strategies. Data analytics can allow insurers to be prepared to answer “What if?” to figure out what’s coming. Assumptions, instinct and Excel models aren’t enough. 

Moreover, insurers have to anticipate disruption to their models and to the world economy and prepare for it. Uncertainty is rampant, and so are cybersecurity threats, geopolitical tensions, changes to tax law globally, compliance burdens and rising competition from insurtechs. Insurers have to adapt much more quickly than before, and automation and using the data they’re generating will allow them to be nimble and anticipate market pressures before they become issues. With good data and augmented workforces, insurers can be more resilient and agile to face coming challenges. 

See also: Risk Barometer for 2023

Create a better customer experience

In 2023, insurers will have to balance improving their internal processes and improving their customer experience. Consumers are demanding simpler processes to buy and use insurance, and traditional insurance companies are often left in the dust by digital-first companies that aren’t hindered by legacy systems or traditional ways of doing business. To stay relevant, insurance companies will need to adopt digital capabilities to stay apace with nascent competitors. By doing so, they can help customers much more quickly when disaster strikes and reach their policyholders effectively on their own terms. If the customer journey isn’t fully mapped out, it won’t have technology in place to communicate with policyholders when they need assistance quickly. On top of that, customers are expecting insurers to be socially and environmentally conscious, not just paying lip service to their causes, with true ESG strategies. Insurers that are aggressive about ESG can differentiate themselves in the market for both consumers and for employees.  

These fundamentals of adopting new technologies, using data effectively, augmenting workforces, simplifying customers’ experience and fully integrating ESG strategies need to be instituted if insurers are going to stay competitive in 2023.

Greg Foster

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Greg Foster

Greg Foster is a partner at Wipfli with over 35 years of practice in public accounting.

His experience includes providing insurance, banking, credit union and securities clients with various services including financial statement audits, public and private securities registrations and mergers and acquisitions. Foster oversees a variety of services to insurance companies, including traditional insurers and reinsurers, as well as captives, risk retention groups, reinsurance pools and similar arrangements.

Gregory Domareki

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Gregory Domareki

Gregory Domareki is a principal at Wipfli, a top 20 accounting and business consulting firm.

He has 20 years of insurance tax experience. He advises clients with complex tax planning and modeling needs.

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