Although the insurance industry seems to have aggressively and (mostly) successfully shifted toward digital interactions during the pandemic, an even trickier transition lies just ahead as part of what is being called "the Great Reset."
That transition to a post-pandemic world requires insurers to not just understand the internal workings at their companies, or even the new preferences of that fickle beast known as the customer; it means figuring out what the world of work and home life will look like after the universe resets, so insurers can revise products and revisit sales and marketing tactics. Maybe, for instance, some insurers will want to deemphasize small businesses, in general, as long as so many may go out of business and migrate toward "ghost kitchens" (which only offer takeout or delivery).
To try to help as we all sort through the complexity, I've pulled together the smartest thinking I can find on what comes after "the Great Reset." (Warning: McKinsey provides some serious pessimism at the end of what follows.)
In this article, the consulting firm lays out the broad parameters of what comes next for the economics of home life, including these predictions:
"A 12% drop in private consumption is anticipated in the United States over the next two years, with recovery to pre-crisis levels only by 2023–24.... The explosion of small brands, underway before the pandemic, has given way to a strong preference for global A-brands. After years of growth, out-of-home consumption has almost disappeared; many of us have stopped going to stores entirely....
"Zoom’s daily user base grew from ten million people to 200 million in three months.... At the same time, there has been an enormous rise in unemployment, which is expected to reach approximately 15% when 2020’s third-quarter results for the U.S. are complete."
Those predictions, if true, suggest not only that insurers will face headwinds with consumers because of a diminished appetite for spending but could also adjust policies and marketing/sales tactics to account for changes in how people use their homes and cars.
Of course, consumer buying behavior spills over into the businesses that serve them. Target, for instance, recently said that while it will hire 130,000 temp workers for the holiday season, the same number as last year, a far greater percentage will support e-commerce. Target, whose e-commerce sales tripled in the second quarter, says twice as many workers as last year will be assigned to help customers with onsite pickup of online orders; Target says that 90% of its online orders are now picked up at stores.
Small businesses have much bigger issues than big box retailers like Target do. How big? A recent headline in Crain's New York Business said of small businesses, "60% See Survival Past Six Months." That means, of course, that 40% don't see survival past six months, yet Crain's described the outlook as "Less Apocalyptic."
A new federal rescue package could throw a lifeline to small businesses, but I wouldn't want to have bet on anything getting through Congress until after the election settles which party has the upper hand -- perhaps until after a new Congress is seated in January.
The mix of businesses that are thriving will surely change, too, at least until a vaccine begins to kick in next summer or fall (the time frame that currently seems most likely, though hardly assured) and old habits can begin to reemerge. Movie theaters will have a hard go of it. Inside dining will, too, though those "ghost kitchens" seem to be doing a good business with takeout. Anything associated with tourism will stay muted. Visits to doctors' offices will remain far less frequent, while telehealth continues to take off. Cushman & Wakefield projects that the vacancy rate for commercial office space will rise from 11% pre-crisis to nearly 16% in the second quarter of 2022 and won't return to pre-crisis levels until 2025. And so on -- all kinds of habits are changing, and new ones are getting plenty of time to take hold.
There will be a good deal of variation by country in terms of what new habits form. McKinsey reports, for instance, that, while 60% of consumers in Italy have shopped online during the crisis, only 10% enjoyed the experience -- suggesting that the switch isn't permanent (or that online stores need to improve a bunch). New behaviors will also depend greatly on the sector involved. McKinsey again: "While use of e-pharmacies... has doubled or tripled in the U.S. over the course of the crisis, only 40% to 60% of consumers express an intent to continue using those services."
A wild card for all businesses is that the pandemic seems to have thrown brand loyalty out the window. McKinsey finds "an astonishing 75% of U.S. consumers trying a new shopping behavior in response to economic pressures, store closings and changing priorities. This general change in behavior has also been reflected in a shattering of brand loyalties, with 36% of consumers trying a new product brand and 25% incorporating a new private-label brand. Of consumers who have tried different brands, 73% intend to continue to incorporate the new brands into their routine.... The beneficiaries of this shift include big, trusted brands, which are seeing 50% growth during the crisis."
While the change in brand loyalty seems to apply mostly to retail products, I suspect that "the Great Reset" is making customers more open to changing insurance carriers and agents, too. You can either see that as a threat to your customer base or as an opportunity to poach from others.
The bad news -- and I warned there'd be bad news -- is that McKinsey projects in this article that the prospects for the entire insurance industry are under pressure.
I know far too much about this work because I was the ghost writer for "Strategy Beyond the Hockey Stick," the book that three of the article's authors published in 2018. The simple version of their warning goes like this:
A massive amount of analysis that they've done on the profitability of companies and of industries found that the results fit on a power curve: If your company or industry falls in the second, third of fourth quintiles, your results are pretty much the same as all the others in those quintiles. But, if you fall in the top quintile, well, lucky you. Your results are far, far better than those in the middle quintiles. Unfortunately, there's a tail, too; if you're in the bottom quintile, your results are far worse. And the McKinsey research for this recent article found that the pandemic is making the rich richer and the poor poorer. So, those industries in the bottom quintile, like insurance, have even more of a mountain to climb than they did before.
The good news is that the changing landscape creates opportunities for smart insurers. Life insurers have clear opportunities because COVID-19 has raised awareness. The trend toward telehealth offers big opportunities for not only health insurers but for those involved in workers' comp. And "the Great Reset" opens the way for all sorts of insurers if they adapt quickly to how consumers and businesses will operate.
P.S. Here are the six articles I'd like to highlight from the past week:
The seafood supply chain, for instance, can become transparent and trustworthy, while blockchain automates location updates.
Will the dramatic change to work and life patterns unleash innovative startups and new rounds of funding?
With the pandemic throwing historic data out the window, more algorithms and AI are being used in what might be called bionic decision-making.
AI is still very new to insurance, and claims teams are only scratching the surface on how it can be applied for the betterment of all constituents.
Insurers must rethink their scope, away from a policy transaction and to a broader lifestyle experience across health, wealth and wellness.
The only way forward is building an effective risk culture and teaching everyone in the company radical risk management skills.