No one will mistake 2020 for just another year. The turmoil caused by the pandemic, lockdowns and social unrest is unlike any other year. Businesses, individuals and governments have all been forced to make dramatic changes and adapt to new realities.
The P&C insurance industry has responded admirably amid the chaos and continues to adapt to the evolving environment. As insurers develop strategies and plans for 2021, the logical question is, where to start? The traditional planning processes may need to be supplemented with new approaches, given the great uncertainty brought about by the events of 2020. One approach to consider is scenario planning.
Scenario planning is most valuable when there are considerable uncertainties regarding the future. By definition, strategic planning always has to deal with an uncertain future. However, a new set of variables is now layered on to the traditional factors that influence strategic decisions. In a new research report, SMA has evaluated a wide range of variables and has developed four scenarios for the future for P&C insurers. P&C Insurance Post-COVID-19: 4 Scenarios for the Future, looks at the implications of different possibilities for economic recovery and the nature of digital transformation in the world at large. The four resulting scenarios that SMA has described are:
- Survival of the Fittest: In this grim scenario, insurers would be forced to adapt to decreased demand and growth by cutting back the workforce, expenses and investments in digital transformation and innovation.
- Digital Prevails: In this possible future, the pandemic would be embraced as a change event, and the lessons learned would be catalysts for finding creative ways to invest.
- Back to the Future: The world of P&C insurance would be similar to what it was like pre-COVID-19.
- Innovation Abounds: A robust economy and an acceleration of digital transformation in the world will require insurers to take innovation to the next level and accelerate their own transformation.
See also: How Risk Managers Must Adapt to COVID
What would each of these potential scenarios mean for the industry as a whole? For individual insurers? For different lines of business and business areas within an insurance company? That is the essence of scenario planning.
I wish I could travel to the future so that I could tell my clients what future they should plan for. But because time travel is not available yet, the next best thing is to engage in scenario planning to help think through the implications and strategic responses for various possible futures, then use that thinking as input into the traditional strategic process.