As the New Year begins, the time for reflection has arrived. After a year that nobody could have predicted, I look to summarize three defining trends that developed last year and give my own prediction about the future of insurance as we begin the journey of 2021.
1. COVID-19 compelling the need for agility
Falling equity markets. Historically low interest rates. Shrinking new-business volumes. Reductions in consumer spending. The impact of COVID-19 within the insurance industry has been pronounced.
Insurers face a cacophony of challenges: new rivals, increased customer expectations, stalling transformation projects – the likes of which have been detailed extensively by market analysts.
However, the impact of COVID-19 was not in bringing these challenges into being but to cast them into the light: accelerating their impact and forcing insurers to re-prioritize their goals in unfavorable market conditions.
And, while many have articulated how we got here and why the challenges happened, few are commenting on what happens next, and the road back to pre-COVID rates of growth for the industry as a whole.
Insurers face a transformation crisis. Many long-term digital projects are stalling. While it is impractical to undertake a capital-expense-heavy program in the era of COVID-19, the demand for digital services continues to grow.
Insurers, therefore, are faced with a contradictory impasse. The solution? Reframing digital transformation as an iterative process as opposed to a one-off wholesale solution.
By undertaking small and agile projects, with a quick time-to-value and low cost, insurers can obtain the short-term benefits that drive growth and deliver agility with low risk.
Using this methodology, insurers can continue to innovate, digitize and build capabilities in applications, cloud or low-code solutions, while not over-committing to any specific long-term objective that could carry high risk due to the volatility of the market.
2. The Continued Rise of Customer Experience
Customer experience is not a new concern. The adage, “the customer is always right,” has been a ubiquitous element of the business lexicon since the times of Harold Selfridge back in the early 1900s.
But, today, customers demand services that are personalized to their every need and prioritize simplicity and performance, so the importance of customer experience has grown. The realization that policy admin systems are not the most valuable systems insurers possess is starting to come to the fore.
In years past, the industry was built around policy. If you were traveling on holiday, you chose a policy that best satisfied your needs. If you bought a home, you chose a policy that provided the level of cover you wanted. If you drove a car, you chose a policy that matched your driving experience. And so on and so forth. The policy was at the center of the equation, and policy admin systems were created to maintain this status quo.
See also: Designing a Digital Insurance Ecosystem
Fast-forward to the modern day. Now the customer is king, and customers want their individual needs satisfied immediately, clearly, just in time, with a personalized service, and they want to only pay for the cover they need. That is a world away from selling a standard policy a million times over to people who might (or might not) need it, either in its entirety or all of the time.
In response to this shift, insurers are attempting to change the focus of the industry and gear it toward customers, but attempting to do this with a policy admin system is the equivalent of trying to fit square pegs in round holes: It simply does not work.
Round Pegs. Round Holes.
Insurers, today, must equip themselves with the right tools to provide an exemplary service. Policy admin systems that are focused on the creation of policy remain invaluable tools but only when used appropriately.
Instead of using a back-end system to provide a front-end service, insurers are realizing that they must focus on implementing two-speed architecture; the back end focused on policy, the front end focused on the customer and each designed to communicate with the other in an open-looped system.
Through this design, policy admin systems are put to use doing what they do best, while a more strategic, adaptable, omnichannel and personalized customer relationship management system can run in the foreground, delivering customers the content and experiences they want and driving up insurers’ satisfaction rates as a result.
3. The Unrelenting Pressure of Digital Disruption
“Disruption” and “innovation” are terms often used interchangeably, but the truth is that they have very different meanings.
Innovation, makes an existing approach better, whereas disruption transforms an existing approach into something new.
For the insurance industry, digital has rapidly moved to the disruption category.
Digital disruption – or digitization – is having such a pronounced impact on the insurance industry that it is radically changing the very essence of what it means to be insured.
Traditionally, in the event the worst happened, insurance would reimburse you to the value of the wrong you experienced, at a cost to the insurer. It was a cause-and-effect relationship.
However, via the process of embedding new technologies into their everyday operations, insurers are moving the needle away from reactionary tactics.
Using AI-driven technology and big data in real time to more closely monitor insurance products and predict and manage claims events before they even happen, insurers are no longer merely responding to when something goes wrong; they’re helping their customers avoid it.
From Reactive to Proactive
This disruption is having a pronounced impact on the industry as a whole – as a growing number of consumers demand this protection and insurance package.
Today, insurers understand that technology holds the key to delivering this differentiated value to their customers. But acknowledging new technologies and implementing new technologies are very different propositions.
While digitization is a foregone conclusion for insurers wishing to compete in the world of tomorrow, understanding how to deploy the right technology for the right purpose is no small feat. And those really willing to compete in this new dynamic must be prepared for significant change to the systems, processes and people within their business.
See also: How Will Strategies Change in 2021?
A Complex Equation
It is, perhaps, underwhelming to describe 2020 as memorable. The term era-defining might yet serve a more accurate purpose. For insurers, the year was unpredictable at best and unmanageable at worst; a string of disruptive and unforeseen events combining to create a pressure cooker of complexity.
Today, insurance stands on the precipice of profound change, and this piece has articulated a handful of the defining trends that brought us here. But as we look to the future of the industry, my prediction is that customer experience will become the single greatest definer of success, and those insurers that best find the balance between policy and customer will reap the rewards.
To learn more, check out these insurance success stories.