Risk Transfer to Risk Mitigation: A Journey of Innovation Through Uncertainty

As we all begin to emerge from the haze of a global pandemic, it is undeniable that nearly every industry has been deeply affected, including the Property & Casualty (P&C) market. With such a major disruption to the status quo of micro and macro-operations, the uncertainty of future recurrences, and the rising prevalence of technology, 2020 was a watershed moment for insurers to evaluate their traditional models of client interaction, operational efficiencies, and future investment in innovation to compete in a digital future.

 

Digital Disruption and the Distribution of the Dollar

As the insurance industry has once again shown its resilience in the face of adversity and begins to rebound to pre-pandemic market growth, the battle for the future wages on.

According to a future outlook report by Accenture, the global insurance industry can expect Gross Written Premium (GWP) to increase from $6.1 trillion in 2020 to $7.5 T by the end of 2025. Of that $1.4 trillion increase an estimated $1.2 T is expected to come from existing products.

An estimated $480 billion of the expected 2025 GWP will be heavily impacted by innovation through:

• New risks, offerings and services
• Existing revenues impacted by product innovation
• Shift in placement channels.

To focus more on what that mean for US based insurers, a 20 year comparative analysis of the top 100 P&C insurers conducted by EY and ACORD asserts the average P&C carrier has annual savings opportunity anywhere from $675-851 million dollars. Better yet, the tools required to achieve this are currently available.

However, while these reports offer an optimistic outlook, they come with a stark warning: Reliance on traditional products, distribution channels, and retention rates will act as an impediment for future growth as rates rise, markets volatility remains, and consumer demand for digital services continues to grow.

 

Leveraging Innovation

 Traditionally, insurance service offerings have been closely linked to the cost and

availability of human labor creating the challenge of the breadth and depth of service at scale. As technology continues to advance, so do the capabilities of insurers to scale a high level of service at a fraction of the cost. The following four areas are where executives see technology providing the highest return on investment.

 

 

Operational Excellence and Cost Efficiency

Insurers are leveraging technology to streamline core internal processes through digitization and automation, freeing up resources that progress the overall strategic mission of the company. This creates massive value potential in a myriad of ways by enabling:

• Horizontal and Vertical data distribution throughout internal stakeholders
• More meaningful engagement (physical/digital) with more policyholders
• Hyper-focused allocation of capital
• Faster claim processing
• Proactive mitigation efforts through real-time sensors

 

Improved Customer Experience

Customer experience is the growth engine where incumbents and new entrants alike are focusing their efforts. 20-40% of policyholders will not receive a single communication throughout the policy year, and if they do, 90% of the time it is sales-focused rather than service-focused.

To combat this traditional approach, insurers are implementing ‘outside-in’ strategies to shift the focus from sales to service. Utilizing chatbots and AI, as well as an ecosystem of internal and 3^rd party service providers to drive deeper value and insight shown to increase the lifetime value of the policyholder.

• 66% of policyholders willing to share significant data for personalized service to prevent loss.
• 52% of policyholders ‘likely’ to switch insurers for better access to data and services
• Clients with higher engagement buy more coverage, renew at higher rate, and refer more clients

 

Data and Analytics

As client engagement continues to grow, so does the volume and value of the data. Insurers begin to have a more robust view of their policyholders and their risks. This enables insurers to better write risk, identify upsell/cross sell opportunities, and provide proactive resources based on client needs to help reduce frequency/severity of claims.

 Leveraging AI/ML cognitive abilities to identify underlying trends and opportunities can provide key decision makers the insight to drive large scale underwriting strategy, actuarial models, and competitive strategic decision making.

Hyper-focused investment/divestment of resources from both internal and external stakeholders continues to mature as do the data models.

 

Speed and Scale of Innovation

Large data sets produced by new and emerging technologies are providing insurers the ability to reshape how they operate, engage with stakeholders internally and externally, as well as develop and sell products to improve productivity and profitability.

Combining these technologies to achieve goals beyond just engagement or operational efficiencies is where true success begins to take hold: Improved management of risk while offering unique experiences for policyholders.

Some common trends:

• Modernization of core processes and client management with cross functional resources.
• AI and automation to focus on speed, consistency and optimization.
• Using data streams of digital services to provide predictive and prescriptive analytics to shape future innovation and focus efforts.

 

The Takeaway

By leveraging technology to refocus efforts and capabilities on value creation, insurers can strengthen their foundation of strong service and competitive differentiation but improve the speed and scale to adapt to new and emerging trends and client needs.

While there is no one correct way of implementation, insurers can no longer afford to ignore or incrementally participate in the digital age, and the earlier entrants will be the primary beneficiary of the shifting in the ‘digital dollars’ that will be redistributed over the next few years.

 

If your organization is looking to expand your capabilities in any of the areas listed above, we would love to have a conversation to see if in2vate can be a valuable partner in your digital evolution.