After the dramatic developments of the last few years, insurers have shown they can undertake large-scale change at a faster pace than many industry veterans thought possible and can deal with unexpected developments.
This is the revelation of the 2022 Global Insurance outlook report released by EY, a leading global professional services firm.
The 2022 edition of EY’s annual Global Insurance Outlook series reflects the dynamic and purpose-driven moment for the industry, focusing on open insurance and ecosystems, workforce transformation and sustainability.
Though these three especially powerful trends are currently shaping the market, there are also other areas where insurers are encountering compelling opportunities and, potentially, severe risks.
According to the report, insurers must continue to address their technology by digitizing core processes, migrating to the cloud and embracing flexible sourcing models. The current landscape is also notable for its fragmentation; convergence and intense competition, including from a mix of non-traditional players; and widespread collaboration.
Carriers will look to partner with or acquire the most promising InsurTechs, and banks and asset managers will offer more protection products and seek to differentiate on holistic financial wellness value propositions, forcing insurers to choose between collaboration and competition.
The report also states that the insurance industry must seek to lead with purpose and live up to its highest aspirations, particularly in the wake of the COVID-19 pandemic. Insurers had to be there for customers and undertook large-scale change quickly to make sure they could serve people in need – and they must continue to do so, particularly if they are to help the world prepare for increasing climate risk.
For Rotimi Okpaise, EY Insurance Leader for West Africa, our Global Market report aligns with expectations in West Africa. Ecosystems(Banks, Telecoms, Insuretecs) are gradually developing in our region, aimed at expanding the Insurance customer base and increase our low insurance penetration levels.
Efforts are being made to engage customers better, know their needs, segment the customer base and, develop, market, and sell affordable relevant products and in the process, increase the sectors Revenue base. There are data-sharing regulatory hurdles to scale, but these are broadly deemed surmountable.
On COVID-19 and its multi-faceted disruptions, Rotimi says: “The Covid 19 triggered new Workforceneeds. The Industry adapted reasonably well through investing in technology and adjusting terms of employment.
Needs are however continuously changing and the dearth of skills across many industries has led to a war-on-talent and more flexible employment terms. The Industry will need to be agile and flexible in these regards if it is to retain and attract good talent. WhilstESGactivities are not dominant in industry deliberations, the Industry was visible at the height of the Covid era leading us to expect some companies to soon develop Purpose led statements”.
The Report further spotlights the below:
Open insurance and ecosystems: a new, customer-driven basis of competition
The rise of open finance, along with the ecosystems of financial solutions that it enables, has emerged as one of the defining financial services trends of the 2020s, primarily in response to changing customer needs and expectations. Across all lines of business, there is increased demand for more affordable, transparent and customized insurance that better suits evolving conditions and can be easily adjusted as the needs change.
Insurers must retool their platforms around APIs and microservices to enable secure and seamless connections among partners. Based upon current trends, we expect ecosystems will become a major business model in the relatively near future. As is often the case, what feels innovative today will soon become a baseline. And rather than waiting for regulators to define the rules, insurers should join the discussions about open insurance to ensure a level playing field as they seek to engage consumers in new ways.
To succeed, ecosystem business models need strong leadership from the top and a clear and executable ecosystem strategy based on their current market position, brand value, business models, talent pool, and level of technology sophistication. Despite the clear upside of ecosystems, most insurers are still working to develop the necessary tech and data capabilities, navigate distribution constraints and address organizational and cultural impacts.
Workforce transformation: the promise of a human-centered, tech-enabled enterprise
Not that long ago, the conventional wisdom in insurance held that workers would lose their jobs as insurers adopted more technology and automated more processes. Yet a profound shift was underway even before the COVID-19 pandemic, with business leaders working to address skills gaps, update their talent practices and instill more dynamic and agile ways of working. Now, competition has intensified for the most talented workers, who are more empowered to work when, where and how they want.
Today, a more nuanced and interdependent human-tech dynamic has emerged. The consensus among forward-looking executives is that human talent is every bit as important to future success as AI, machine learning and modernized processing platforms. Yet the scarcity of key skills and “the Great Resignation” mean that insurers must address the traditional view of the industry as slow-moving and dull if they are to become employers of choice.
Insurers will have to take stronger positions on the social issues that matter most to rising generations of workers (e.g., diversity and inclusion, sustainability) and provide meaningful work, as well as enhance their benefits, performance recognition and compensation models. Younger workers are also looking for more purposeful work, which gives an advantage to insurers that can articulate a clear story about how their products and services benefit society as a whole.
Sustainability: a historical opportunity to lead, innovate and grow purposefully
Climate change and sustainability have re-emerged atop board and C-suite agendas as the direct impacts of the COVID-19 pandemic have receded. Previous discussions about sustainability were largely theoretical and centered on making public pledges of support. Today, however, leading insurers are taking tangible steps and adopting hard metrics to address the full range of environmental, social and governance (ESG) issues and opportunities.
For most insurers, the focus is squarely on the “E” in ESG, as climate change will have the biggest and most immediate impact on the industry’s financial performance. But social issues are now nearly as urgent.
Insurers can take many meaningful steps in the near term to help advance the transition to a greener economy. Mapping action plans to specific targets and establishing quantifiable performance metrics relative to sustainability are two ways insurers can live their purpose. Within a broader ESG strategy, insurers must identify priority focus areas, clarify why they are allocating resources to them, and determine what benefits they expect to achieve.
A clear road map must also reflect the impacts on different parts of the business and how ESG strategies will be executed. In tracking performance against sustainability targets, insurers should monitor risk exposures, value creation and progress toward specific goals. As reporting and disclosures become standardized, the most transparent companies will benefit from easier access to capital, increased customer loyalty and better share price performance.
We believe that sustainability, workforce transformation and open insurance are three of the most powerful forces reshaping the market in the near term. Read the full report to learn how insurance leaders can respond to these megatrends with urgency, creative thinking and bold action.