7 Business Models of the Future for Insurers

By 2030, these new business models could deliver $600 billion in revenue growth and 25% to 35% improvements in combined operating ratios.

The insurance industry continues to be an enabler of innovation. Since its creation three centuries ago, it has become an essential part of the global economy — providing security and resilience to businesses and individuals alike. But the fundamentals of how it operates have barely changed.

As we enter a new decade, the industry must reflect the reality of the needs of today’s businesses and society. Large commercial insurers and reinsurers, in particular, have an increasingly urgent imperative to realign their organizations and modify their offerings to include stronger preventive services against new and evolving threats, including climate change and cyber risk.

There is a huge opportunity. Our latest NextWave Insurance report (released March 3, 2020) reveals that, should the industry act now, an unprecedented growth and profitability spike is within reach. By 2030, we project that large commercial insurers and reinsurers could experience:

  • $600 billion in revenue growth
  • 25% to 35% improvements in combined operating ratios

To realize these gains, the industry must become more dynamic and agile.

A range of forces — from technology advancements to a dynamic value exchange — will propel the creation of new business models and the evolution of existing ones.

We’ve identified seven business model trends already emerging across the industry that are pointing the way to what the future insurance ecosystem might look like:

1. Global composites

Market mainstays are evolving by leveraging strong balance sheets, strategic capital investments and new expertise to ignite growth across markets.

In the next decade, modernized technology will enable workers to re-skill while creating a culture that places the customer, process efficiency and operational agility at the center of insurers’ business models.

On top of this, organizations will become much more data-driven and increasingly reliant on productive partnerships and collaborations. These capabilities will be necessary to offset competition from smaller players.

2. Specialty insurers

Boutiques are starting to protect their market share by writing risks others won’t.

In a highly specialized commercial reinsurance marketplace that generally demands either specialization or scale, the most successful boutiques may navigate competitive threats by targeting specific niches where they can operate profitably and where few other firms are bold enough to tread. Boutiques' ability to survive will depend on the quality of their specialist expertise and a willingness to write risks others generally decline.

For these insurers, their strategic priorities for the next 10 years should revolve around expanding and enhancing business origination, loss prevention and other high-value services. These insurers must become smarter and leaner in risk transfers and forge better relationships with partners and suppliers.

3. Global reinsurers

Innovative traditionalists are remixing their talent base and upgrading their technology to provide compelling risk-transfer solutions and access to secondary markets.

Future global reinsurers will devise innovative risk-transfer solutions with smaller teams. By creating partnerships with alternative capital providers, these reinsurers will increase product innovation and boost their market penetration rate. Additionally, they will diversify their offerings to include primary insurance products and new loss-prevention and ancillary services.

See also: New Business Models Are Needed  

Advances in data mean they will employ more data scientists and fewer claims processors. Their ability to match different opportunities and new products for different risk appetites will help them provide access to secondary markets and engage with more stakeholders. 

To fully succeed, their strategies must prioritize growth opportunities and capital risk management capabilities. They must partner with alternative capital providers on product innovation, increase their access to big data and augment their analytical capabilities.

4. Underwriting agents

Future managing general agents (MGAs) are building momentum and capitalizing on market trends to create and capture profitable niches. 

Lean, agile and dynamic, tomorrow’s MGAs will build thriving niche businesses and grow profits faster and at a larger scale than the industry as a whole. Their sole purpose will be providing specialized underwriting services to portfolios and networks of investors and capital providers. Though specialization is key to success, “Mega MGAs” will emerge, reaching $1 billion in revenue through consolidation or by duplicating their success across multiple market segments.

By leveraging defined products and targeted expertise to exploit distinct and profitable market niches, this subsegment may grow to $150 billion in revenue, doubling the current revenue base. The largest may ultimately pivot to become insurers — a further threat to traditional business models.

The MGAs must engage with the most suitable partners, such as capital providers and supporting vendors. They must also strike the right balance between growth and scale as they seek to duplicate success across multiple segments.

5. Capital providers

Lean and agile portfolio managers are driving capital returns by aggregating strong delegated authority and managing general agents/managing general underwriters (MGAs/MGUs) to find profitable niches.

By 2030, some carriers will shift their focus to become experts in capital deployment and management of third parties. These firms will operate with relatively few employees and exceptionally lean in-house models. They will home in on well-defined market niches, customer segments and specific product types. These portfolio managers will excel in managing arrangements with multiple delegated authorities (DA) for underwriting, claims handling and other service providers, such as loss prevention specialists.

Strategic priorities will include identifying and engaging the top-performing DAs and improving operations by strategic sourcing. Should these managers deploy capital flexibly and efficiently, they will have a greater opportunity to develop niche products for target customer segments. 

6. Self-insurers

Customers are beginning to compete with traditional insurers as “super-sized captives” and are developing in-house capabilities to self-insure more of their risks.

Companies that formerly bought insurance are now more interested in selling risk, pushing traditional insurers into new roles and marginalizing some carriers. The absence of appropriate coverage for intangible and virtual assets will push large multinationals to deepen their commitment to self-insurance. Self-insurers may also contribute to the rise of industry associations as they build out capabilities that can be sold on the open market.  

These companies need to get comfortable taking on more risk, as they learn to generate superior insights and develop tools for stronger loss prevention. Deep and granular analysis of their considerable data resources, as well as knowledge of their own operations, will match coverage to risk appetite and eliminate the need to place business on the open market. Self-insurers will also develop the skills and knowledge to navigate increasingly complex regulatory and tax environments. 

Strategic priorities will need to include risk prevention, rather than risk protection only. Self-insurers will need to consider product innovation to map coverage to existing needs, as well as develop new skill sets.

7. Global intermediaries

Brokers are repositioning as underwriting and risk advisers, boosting revenue and strengthening customer relationships. 

Risk placement will always be important to commercial insurance brokers, but it will no longer be their sole focus. Their placement teams will be considerably smaller after extensive re-skilling, and the most successful firms will transform their models to expand and diversify their offerings to include underwriting and risk advisory services.

Of course, it will take considerable effort and significant investment to execute this transition. Brokers must overcome market skepticism about their ability to add value in a primarily digital world. They will also need new skill sets, higher-quality data and modernized technology. Those that transform successfully (and immediately) will be well-positioned to lead the creation of industry ecosystems that connect industry players following variants of all these business models — a traditional strength of brokers. 

See also: Future of Insurance Is Clear (but Hard)  

Their strategic priorities will consist of bringing in new skill sets to help develop new offerings. They will need to effectively use distribution networks to launch and refine services, along with using data comprehensively to identify opportunities to serve a broader range of customer needs.

An ever-evolving insurance ecosystem

Some of these changes are already underway. Yet others are only in the early stages. Some will be easier to turn from vision to reality, while many will involve significant disruption.

As our previous NextWave personal lines and small commercial report found, a business-as-usual operating approach is no longer an option. Changes are already affecting the industry now, and the early movers are seeking out competitive advantages that may become lasting as the insurance ecosystem is reshaped over the coming years.

We know what’s likely to come next — and picking the right business model to pursue will be key for insurers and reinsurers to reposition for what’s to come.

Click here to download the full NextWave Insurance report.

Isabelle Santenac

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Isabelle Santenac

Isabelle Santenac is EY's global insurance leader. She leads a team of over 12,000 industry professionals committed to helping insurers transform and reshape their business models through EY audit, business consulting, tax and corporate finance services.


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