2021… respond, recover and thrive

Looking at the financial services industry, and how organisations can remain resilient, a report from the Deloitte Center for Financial Services titled ‘2021 Insurance Outlook… Accelerating recovery from the pandemic while pivoting to thrive’, explored key issues that could have a significant impact on the market and your business in 2021, with 200 industry leaders weighing in on their companies’ COVID-19 recovery efforts.

1. Where insurers stand in 2021

According to the report, the COVID-19 pandemic severely disrupted insurer operations, prompting an overnight shift to remote work and virtual customer engagement, while exposing gaps in digital capabilities and raising cybersecurity concerns.

But while most of those in the industry adapted quickly, insurers are still likely facing lingering obstacles to growth and profitability in the year ahead.

Many insurers, according to the report, know they still have their work cut out for them, even after spending most of 2020 adapting to the outbreak’s impact. Forty-eight percent of 200 responding insurance executives agreed the pandemic “showed how unprepared our business was to weather this economic storm,” while only 25% strongly agreed their carrier had “a clear vision and action plan to maintain operational and financial resilience” during the crisis.

The pandemic and its aftermath are expected to continue hitting some property-casualty lines harder than others. Workers’ compensation insurance sales, for example, were undermined by massive job losses, and Deloitte’s US premium projection suggests volume may not return to pre-pandemic levels until after the fourth quarter of 2022. In addition, small business premiums, battered by shutdowns and bankruptcies, may also be slow to recover.

Life insurance premiums may have declined 6% globally through the end of 2020 and by 8% in advanced economies, while a recovery of 3% growth is projected overall for 2021. Emerging markets once again will likely lead the way while advanced markets continue to struggle.

Growth and profitability in both annuities and many non-term life insurance products will likely be impacted through 2021 and beyond by persistently low interest rates. This could pose challenges, particularly for insurers with increased exposure to lower-rated, less-liquid investment-grade securities. The same goes for annuities, as lower interest rates historically prompt a reduction in benefits offered, which could make them a harder sell this coming year.

2. Expense management front and center

The report found expense management more strongly emphasized than before the outbreak. However, rather than cutting costs across the board, most insurers are likely delaying or scaling back pre-pandemic investments in part to free up capital for higher priority projects and talent that can help them adapt sooner rather than later.

New types of coverage may be spurred in part by the pandemic, such as the launch of more parametric policies. Insurers also may have opportunities to innovate more in personal lines with the pandemic-induced change in driving habits and work environments.

Many insurers are in the early stages of underwriting transformation projects going well beyond automating routine, labor-intensive data gathering and processing tasks. The ultimate goal is to better leverage artificial intelligence (AI), alternative data sources, and more advanced predictive models to augment an underwriter’s capabilities and eventually transition them to higher-level, multifaceted roles.

Trends prompted by the pandemic have likely required insurers to contend with much more remote claims handling. For claims to become a more reliable retention driver and even a competitive differentiator, carriers will likely need to not only adopt new technologies and alternative data sources, but “establish a connected partner ecosystem and talent model that values technical claims handling and data science skills.”

Regulators have focused on multiple areas of concern during the pandemic, but there are many other compliance issues for insurers to address that have nothing to do with the pandemic including how insurers artificial intelligence systems should operate, social unrest, climate change risk and cybersecurity and data privacy.

3. Technology could play a crucial role, but most feel digital capabilities come up short.

The need to accelerate digitization and enhance virtual operations, according to the report, turned headwinds into tailwinds at many insurers, driving faster action to deliver within the coming year what might originally have been three-to-five-year transformation plans.

Cybersecurity tops the list among those surveyed in terms of an expected increase in investment. The shift to cloud computing appears to be an even bigger priority now as insurers look to shed fixed expenses. Cloud transformation projects are likely to accelerate in 2021.

Privacy is a growing board-level priority for insurers. Insurers may have to increase spending if they expect to move beyond their traditional focus, thereby making privacy management a competitive differentiator. Insurers should keep modernizing outdated legacy systems that could prevent carriers from extracting value and making new data actionable.

4. Insurers reevaluate talent strategies by balancing return-to-office plans with a hybrid workforce.

As most insurers are likely to at least offer remote work options until mid-2021 or beyond, they should therefore rethink “return to normal” talent strategies. Insurers should consider moving beyond traditional structures and build a road map to thrive virtually. Insurers should also not take their eyes off long-standing, longer-term talent objectives, such as attracting more millennials and Generation Z workers.

Meeting financial reporting deadlines in a virtual environment is one key concern. What should be on the insurance industry’s tax radar in 2021? Continue reading the report here.

2021 and beyond

There are many additional challenges facing insurers in the year ahead… policymakers and industry leaders will likely seek public-private solutions to provide affordable coverage for future outbreaks, social issues are also expected to be front and center, coping with “the unknown of unknowns”, etc. 

Businesses, according to the report, must concurrently manage three key phases of the COVID-19 crisis—respond, recover, and thrive. As they head into 2021, insurers should consider a mix of offensive and defensive actions to accelerate longer-term recovery efforts and pivot to the thrive phase when growth is reemphasized, despite challenging economic conditions. 

Writer’s thoughts
Having explored some of the key issues that could have a significant impact on the market and business in 2021, like the report conveyed, it is clear that how insurers respond not just to the pandemic’s impact but to longer-term shifts in technology, the economy, and consumer preferences will be critical. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts myra@fanews.co.za.