Insurance in 2023: against the odds

Insurance in 2023: against the odds

A challenging economy, inflationary pressures and rising claims and premiums means 2023 will not be an easy ride. Yet, the insurance industry is ready to yield its new-found resilience to take the year in its stride.

The insurance industry has faced a myriad of challenges over the past few years. FinTech Global spoke to industry executives at the end of last year to discuss how the sector fared in the face of rising interest rates, inflation, pressure on consumer and businesses finances and a looming recession. Now, what can we expect from 2023?

According to Michele Trogni, chair and CEO of Zinnia, in the face of these challenges, life and annuity carriers need to look at what will create sustainable growth for their business models in the coming year.

The industry is at a pivotal point, Trogni said, where it can play a significant role in the financial wellbeing of individuals and families in tough circumstances. However, much of the industry is still built on complex and costly, inefficient systems.

“Instead of veering away from investing in digitisation due to inflationary pressures, insurers need to double down on technological infrastructures, such as a system of record, to eliminate the fragmentation that policyholders experience,” she said.

Moreover, Trogni said that the insurance industry is in the midst of a digital transformation shift making the adoption of these technologies even more important to integrate products, enhance customer experience and improve distribution models.

“During this time, it is imperative for advisors to ask themselves: do I have the right tools to continue to innovate and service my clients more efficiently and effectively? Consumers want a modern and intuitive buying experience that helps identify opportunities in this market environment.”

Adapting to “shifting sands”

Presented with much of the same, or similar challenges of the year previous, 2023 may be a year in which organisations continue to build on the progress they have already made.

For Eileen Potter, VP insurance marketing at Smart Communications, 2023 is likely to be a year that will see a continuation of trends and strategies from last year. “In some ways 2023 will be the year that organisations will build on the progress that they have made with respect to creating a culture of continuous innovation, but with a more targeted focus on speed to value and business outcomes.”

Potter added that the difference now is that the industry seems to have settled into a more normal – though changed – rhythm with respect to operations. “Those insurers who have made definitive decisions about a remote or hybrid workforce, cloud deployment, and a digital communications strategy,” she said, “are likely better positioned for success moving into the new year.”

One such trend that is expected to progress into this year, is an increased collaboration between InsurTechs, insurers, brokers and insureds.

KYND’s chief marketing officer, Melanie Hayes, hopes this trend is going to accelerate in the coming year. “Changes in the global economic landscape demand new and smarter solutions to solve persistent challenges and help the industry adapt to the shifting sands of the economy. The role of InsurTechs and the emerging technologies and capabilities they bring to the table can’t be overstated.”

For the cyber insurance industry in particular, in which KYND is a key player, comprehensive cyber threat intelligence, continual risk profile monitoring, prioritised remedial actions and overall risk information transparency provided by InsurTechs such as KYND help promote better, more effective risk engagement for insureds. Hayes said this is an advantage to the entire cyber insurance value chain and also lays the foundation for the market’s sustainable growth in coming years.

Also staying with the industry into the new year and beyond, is the rise of embedded insurance. Paul Richmond, product and change manager at Novidea said this is particularly true of the use of embedded insurance in e-commerce. “This isn’t completely new, but Amazon’s recent partnerships offer a range of policies to small and medium-sized businesses, backed by three insurers, this is likely to pave the way for followers. Maybe Apple and Google,” he said.

Doing more with less

No discussion about what 2023 will bring would be complete without acknowledging the volatile and tough economic climate in which the industry is operating.

Indeed, Smart Communications’ Potter said the uncertain global economy, the continuing hard market, and increased competition from new entrants in the industry will challenge organisations in the coming year. “Ultimately, insurers need to focus on ensuring that the investments they make, whether in technology, product development, or new communication channels are going to deliver the value they expect. And the only way they can do that is to be very deliberate about defining the expected value of any project before it begins,” she said.

This climate may force insurers into “doing more with less”, she continued, and will be challenged to demonstrate ROI of new technology purchases.

“Shorter projects that drive improved business outcomes throughout the policy and claims lifecycles, along with continued investment in both digital customer experience and more efficient internal processes will go a long way in terms of driving profitable growth, along with improving employee recruitment and retention.”

Price pressures

As consumers tighten their belts in the face of a global cost of living crisis, it might be expected that this would create an opportunity for insurers to make insurance more accessible and affordable. However, those same pressures facing consumers also impact businesses, and hence the opposite may in fact occur.

During times of economic downturn, KYND’s Hayes noted that it is likely the industry will see a rise in claims as a result of businesses attempting to recoup as many losses as possible. As a result, premiums will also go up, Hayes said, meaning that insurance will not be more affordable and more accessible, the opposite in fact.

Peter Gregory, sales manager, Novidea agreed that “every facet” of claims has become more expensive. “Many insurers are struggling with how to accurately price risk in order to continue creating good ratios. Rating will need to embrace greater complexity seamlessly, to generate very personalised offers and pricing.”

Moreover, Gregory added that recent studies have suggested that there will be a large increase in household premiums over the next 12 months, up to around 30%. This will drive insurers to have to look at new areas to add value and force consumers to research more before committing to a policy. “This could well lead to a bumper year for price comparison businesses,” he said.

In terms of the cyber insurance market, rising claims means that ongoing effective cyber risk management has to be businesses’ top priority, Hayes said. “As premiums are related directly to how risky a business is. This is where cyber risk management technology comes in – to significantly simplify and speed up this process.”

To this end, KYND has been promoting the use of continuous risk monitoring long before it became a trend or necessity. “We’ve learned a lot over this time and incorporated those learnings into next-generation risk management technology,” Hayes said. This trend of proactive prevention is one that is expected to persist.

Disaster response

Last year saw some devastating natural disasters take place, which sparked a discussion about the role of insurance and InsurTech solutions in disaster response, as well as how climate change is presenting new risks.

Novidea’s Gregory noted that, with the recent dry summer for example, it is forecast that there will be an increase in subsidence claims in the UK – by a staggering 69% (Ernst & Young).

In a bid to combat the effects of climate change, Gregory said insurers are increasing their usage of third-party data to improve underwriting accuracy and manage loss ratios. The data points are many and varied and can range from flood and fire to hurricane data.

“Whilst the usage of data for enrichment purposes is nothing new, the technological challenges of being able to ‘properly’ use the data still persist, with many insurance businesses yet to properly develop digital transformation strategies.”

Another element insurers are looking at with regard to their ability to respond to disasters is their customer experience. Smart Communications’ Potter said insurers are looking to foster a more empathetic communication style, especially when a loss occurs.

“This is a critical piece of any solution to disaster response. The technology exists that enables interactive conversations to ensure that customers feel heard and taken care of, and insurers understand that this is critical to their success with respect to both customer retention and industry reputation,” she added.

The outlook for 2023

Generally speaking, in spite of the turbulent past few years, the mood in the industry is a positive and motivated one. In fact, much of the curveballs and challenges thrown to the sector recently have equipped it with a level of resilience and adaptability we may not have otherwise witnessed.

KYND’s Hayes agreed that over the last few years, the InsurTech field has demonstrated remarkable flexibility and resilience in overcoming numerous obstacles, particularly in the aftermath of the global pandemic and the turbulent economic climate.

“Whilst it’s difficult to see what exactly the future holds for the market participants,” she said, “we firmly believe that the InsurTech industry should continue building upon the momentum it has achieved to maintain and enhance an ongoing culture of collaboration and innovation between InsurTech providers and insurers.”

If the industry keeps its foot on the gas, all constituents of the insurance value chain will benefit despite the multiple hurdles and will also enable InsurTechs to successfully identify opportunities for growth in 2023 amidst significant economic uncertainty, Hayes added.

Smart Communications’ Potter is also optimistic for 2023. She said that when the pandemic caused an immediate shift to remote work and virtual engagement, gaps in processes were exposed that pushed insurers to think outside of the box so they could continue to perform critical policy and claims functions.

In 2022, Potter continued, organisations worked to find more permanent solutions to filling these gaps, as the shift towards hybrid work has continued to drive customer, agent, and employee demand for omnichannel communications.

“The pace of change will only continue to increase, and insurers must remain agile in order to successfully compete, both today and in the future. But ultimately, the resilience shown by the industry during the pandemic has evolved into a positive force to drive continuous innovation in 2023.”

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