The past decade’s low growth rates, lack of trust in institutions and declining policy sales are forcing insurers to redefine their value propositions to stay relevant for new generations of consumers. Optimizing costs while investing in the right technologies and talent are also top agenda items. The willingness to take bold action will separate the leaders from the laggards. It will also enable some insurers to convert significant opportunity today into significant value tomorrow.
The unique mix of risk and opportunity is at the heart of the annual EY US and Americas Insurance Outlook. The report represents EY’s perspectives on the issues shaping the US and Americas insurance industry in the near term (next 3-5 years).
A complex environment and challenging fundamentals
The insurance industry is still feeling the effects of a low-growth decade. Economic inequality coupled with lack of trust in institutions is driving more lawsuits, larger jury awards and broader definitions of corporate negligence. For insurers, that translates to more claims, higher loss ratios and the need to raise premiums. It’s not surprising, then, that the number of policies sold has fallen.
Rising expectations for better customer experiences
Consumers expect intuitive, personalized experiences. But many insurers are still playing catch-up compared with digital leaders. Innovative firms will develop full customer lifecycle journeys by incorporating better data and richer insights and applying lessons learned from the most successful tech companies.
Though populations are not changing in the Americas as dramatically as in other parts of the globe, insurers are still susceptible to large-scale socioeconomic change. Mass retirements are looming. And insurers can’t take for granted that younger generations will automatically purchase conventional insurance products – particularly as they delay traditional milestones like marriage and home ownership.
Persistent barriers to growth
Low interest rates remain a big challenge, especially for life insurers. Flat productivity, low inflation and low savings propensity are also dragging down the industry’s prospects. New value propositions, such as those related to financial wellness, and a shift toward fee-based products are two ways insurers should respond.
A looming recession
The current fear of recession and lack of overall macroeconomic confidence threaten the recent run of successful results. A slowdown will affect life insurers as ROI dries up and consumer saving falls. Non-life insurers will be hit as government and private spending drops, affecting trade, consumption and overall economic activity.
Both life and non-life insurers need more “digital people” – that is, those who know how to use advanced technology. Forward-looking executives recognize that the right talent and skills are necessary to generate strong returns on investments in technology and transformation.
See also: Insurtech 2020: Trends That Offer Growth
How insurers should move forward
Insurers have understandably focused on upgrading technology in response to continuing margin pressures. But, technology is just one variable in the equation for successful long-term change.
A more holistic approach incorporates talent and cultural factors, as well as the emphasis on product innovation and new business models. Tomorrow’s market leaders will be technology-enabled, data-driven and operationally efficient – but also people-powered and purpose-led, with strong cultures that are adaptive, engaged and capable of rapid change.
You can read the full report here.