The insurance industry is no longer predictable
The business of insurance, which once was stable and predictable, isn’t that way anymore. Growth without sacrificing profitability is challenging, climate change is irrevocably impacting certain risk profiles, distribution needs have become truly omnichannel and customers expect products tailored just for them. All the while, technology has continued its relentless advance and an emerging player ecosystem is threatening to shake up customer acquisition. As a result, industry executives now have to make an array of deliberate and aggressive strategic choices to succeed. Incremental change or hoping to avoid change altogether are no longer viable options.
Compounding the difficulty of addressing these challenges is how the COVID-19 pandemic accelerated them. Customer and employee expectations changed more in 18 months than they did in the previous two decades. This has put immense pressure on the industry and carriers have had to adjustpractically—in some cases, literally—overnight. Even though the pandemic has ebbed and flowed, the pace of change has remained relentless.
Commitment is an act, not just a word
Despite disruption and the new entrants trying to take advantage of it, the good news for many carriers is that they still have a competitive advantage that others can’t easily replicate. There’s room in most market segments for multiple players, but because not all competitive levers are fully or equally available to everyone, insurers typically focus on one of the following five areas:1 - digitization, data and integration; 2 - brand and distribution; 3 - superior, innovative products; 4- strategic partnerships; 5 - effective structuring.
Unfortunately, while most insurers do try to focus on their strengths, they also typically underinvest in these areas and fail to act with urgency, resulting in a race to the middle. We tell clients that they need to fully fund and support their way to play and hold themselves accountable for the results. In other words, commitment without action won’t get you very far.
While carriers may have been able to get away with a fuzzier approachin the past, that is not the case today. Private equity, asset managers and other new entrants are moving quickly, with great focus and discipline, to capitalize on industry disruption. Companies that continue to work from three- to five-year timelines that are vague and lack strategic focus are likely to lose market share and perhaps even wind up as someone else’s acquisition.
Companies that continue to work from three- to five-year timelines that are vague and lack strategic focus are likely to lose market share and perhaps even wind up as someone else’s acquisition.
Real-life examples: Ways to play
Leading carriers aren’t relying on past success. They’re defining new ways to remain relevant and grow.
Data & Integration: Digital Simplification Operator
Leverages advanced tech and data capabilities to create a seamless, digital-first experience from quote and sale all the way to claims. Features simplicity and competitive prices.
Distribution: Ecosystem Orchestrator
Creates an integrated ecosystem (typically via partnerships) that offers customers “more than just insurance,” focusing on distribution and product offerings to winat the point of sale.
Products: Unmet Needs Customizer
Develops innovative differentiated, and customized products to address unserved / underserved segments or new, emerging risks via advanced analytics and pay-as-you go pricing.
Partnerships: Platform Services Innovator
Extends core capabilities by offering products and services to other carriers, distributors or other adjacentbusinesses.Creates scale by funding differentiatingcompetencies and experiences.
Structuring: Economic Value Creator
Employs a lean operations focus to compete competitively on price and enable investments in key strategic areas.
What makes a winner?
Based on our experience working with all segments of the industry, we’ve observed that most successful insurers in today’s environment have a few key traits. In particular, they:
Say “no” to what doesn’t fit
Define a strategic direction and say “no” to what doesn’t fit. Simply setting financial goals isn’t enough. Committing to a way to play, then continuing to do everything you did before while funding whatever else comes along, isnota strategic direction. Leaders know how to prioritize.
Fully fund their strategy
They don’t shortchange big bets or dilute key investments with allocations to less vital areas. Of note, they’re typically able to make these investments because they’ve implemented structural, financial and tax approaches that minimize their cost ratios.
Get creative with products
They’re able to identify new product categories (as opposed to just adding new features) and have the brand strength to deliver them. For example, early movers are designing products that take into account two increasingly important issues: Stakeholders’ environmental, social and governance (ESG) concerns and the still overlooked employer as distributor market for a wide variety of financial and service needs, particularly retirement and college savings and paying for childcare or elder care.
Get involved in partnerships and make deals
Get involved in partnerships and make deals to meet strategic goals. Inorganic strategies have a long history in the industry but have picked up steam recently as carriers focus on core competencies and enhancing technology. In fact, partnerships and deals have become a necessity for most carriers to enable their chosen ways to play. They take part in ecosystems and invest in InsurTech. Although most of these kinds of investments aren’t game-changers on their own, when they get the acquiring company closer to a strategic goal, they’re worth it.
That said, the best ecosystems and InsurTech innovations in the world aren’t going to help you if they don’t align with your strategy or if you’re not executing your strategy properly. As carriers find new partners, technologies and business models that align to their core principles or strategic growth plan, they can test their value and determine whether or not to adopt the innovation or maintain the partnership.
60% of consumers don’t feel they’re financially confident or covered across their long-term security and emergency needs.
Technology platforms that drive strategy
Even a clear and consistent strategy is going to founder if your technology can’t enable it. We haven’t spoken with a single business leader who doesn’t recognize that investments in new technologies are the best way to facilitate market access, risk selection and management, quality financial information and customer service capabilities. However, we’ve seen many carriers fail to stick to a coherent strategy beyond “digitization.” There’s often a lack of clarity and correspondingly nebulous goals about how these substantial investments relate to the business. The above discussion of funding a competitive advantage also applies here. Carriers should fully invest in ways that build on their strengths and hold the organization accountable for the results. At the risk of repeating ourselves, we’ve seen time and again that many carriers simply don’t do this. Customers (and employees) increasingly expect insurers to be as easy to work with as anonline retailer—and new entrants are giving them exactly what they want. If you can’t, you’re going to lose business and employees.
A truly strategic technology platform features:
- A core processing system
- Digital data and integration capabilities
- Customer and user-facing systems
- Reporting and compliance platforms
- Cloud
A core processing system
A core processing system that efficiently issues policies and contracts, enables payments and keeps track of finances. You don’t need bells and whistles for their own sake, but you do need something that does the essential job of helping you achieve scale faster.
Digital data and integration capabilities
Digital data and integration capabilities that enable access to and understanding of your own data and from third parties to inform management decisions and enable new capabilities.
Customer/user-facing systems
The absolutelyvital customer and user-facing systems that support your call centers, customer chat and walk-in locations. They enable carrier representatives to immediately determine client identities and service histories to quickly solve customers’ problems. Moreover, an effective integration layer facilitates quick incorporation of new partners and solutions into your digital capabilities.
Reporting and compliance platforms
Reporting and compliance platforms that provide high-quality data, facilitate accurate financial reporting and accounting and enable effective compliance.
Cloud
Cloud, because no insurerneeds to—and, more importantly, probably shouldn’t—support its own infrastructure anymore. Those that do risk it being an impediment to operational flexibility. Practically everything in insurance eventually becomes a margingame, with the advantage going to the carriers that can scale effectively, drive out cost and achieve broad price competitiveness. Carriers with adaptable cores that can be quickly configured for newinnovations—a key advantage of cloud technology—can achieve this scale faster.
Changing customer expectations 2018 to 2021
Source: PwC 2018 and 2021 surveys of 6,000 insurance customers.
The path forward
None of this is easy, and no single company has mastered all of these ways to win. But, we’ve never seen a truly competitive insurer that didn’t at least:
Set and stick to clear goals.
Support business goals with a technology strategy that’s built on and integrates proprietary and third-party data.
Fully invest in and hold itself accountable for achieving 1 and 2.
Whatever your businessfocus—data and integration, brand and distribution, products, strategic partnerships or structuring—these three are absolutely essential.
The ‘Next in insurance’ series
- The war for talent
- ESG considerations
The war for talent
The workforce, which brings your strategy to life and holds the key to the future of the business
Insurers feel insecure in the war for talent. They think — often rightly so — that they lag behind other “sexier” industries in attracting and retaining the best people. However, recent changes in what employees expect of their employers and the nature of work itself offer insurers a great opportunity to level the playing field. Companies that proactively and convincingly demonstrate flexibility and offer meaningful career paths with ample room for development are showing that insurance can be as professionally and personally rewarding an industry as any. In other words, it’s time for insurers to play offense instead of defense.
Read more
ESG considerations
The increasing breadth and importance of ESG considerations, from investment strategy and underwriting to public perception
The insurance industry has long paid close attention to environmental issues because they directly affect how carriers evaluate and price risk and pay out claims. But sustainability and governance are becoming equally important. For the former, insurers are experiencing increased scrutiny of their business models. For example, what’s the right balance between covering climate-related risks and underwriting initiatives that could increase those very same risks? Such sustainability concerns relate directly to governance issues. Insurance leaders now have to meet formal, increasingly detailed ESG reporting requirements covering everything from their investments to how they underwrite business. And investors, customers and the workforce are paying close attention.
Read more
Jim Quick
Insurance Leader, Consulting Solutions, PwC US
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Marie Carr
Consulting Principal, PwC US
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Francois Ramette
Principal, Insurance Consulting, Strategy&, PwC US
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