Insurance provides people and organizations with resilience, safety and predictability. In a world increasingly characterized by health crises, conflict, devastating climate change and accelerating technological disruption, these elements—and the insurers that provide them—are more valuable than ever.
The insurance industry itself, of course, is also affected by the profound challenges of our time. Change and even radical transformation is needed for insurers to deliver on their vital mission in the net zero era.
The world today is plagued by both new risks and an accelerated intensity of some old ones.
Consider cyberattacks. While nothing new, the threat of powerful, well-executed cyberattacks is intensified amid our increasingly digital economy, public services and even social interactions. Insurance companies themselves may find themselves at the receiving end of a cyber threat, such as a financially devastating ransomware attack.
Insurers are also subject to the impact of the renewed relevance of health crises and geopolitical risk—as exemplified by travel insurers submitting claims in the early weeks of the pandemic, or the question of business interruption coverage during lockdowns. Or consider the work of companies such as AON, which offer political risk insurance in an environment characterized by both geopolitical and global trade disruptions.
Then, there are the cataclysmic risks posed by climate change and the regulatory risk faced by polluting companies. Both of these are contributing to insurance firms increasingly seeing traditional energy as “uninsurable.”
The evolution of risk is challenging conventional methods of modeling, mitigating, covering and responding to threats to our collective safety and financial well-being. Insurers need new skills to meet new ways of working, an ever-growing reliance on data and technology to process it, and consumers’ insatiable appetite for everything digital (from price comparison to policy purchase and activation).
But even while needing to attract a tech- and analytics-savvy workforce, insurers have consistently found themselves neglected by young talent that sees the industry as not a choice but an outcome.
What to look for
Recent years have seen the arrival of a host of insurtech startups seeking to offer customers a simpler, friendlier experience through sleek, intuitive platforms—all at the lower cost made possible by businesses that can avoid the legacy overhead costs (from offices to outdated IT systems) many incumbents struggle with. In recent years, abundant venture capital—with more than USD$10 billion invested in insurtech only in the first nine months of 2021—has fanned the flames of entrepreneurial activity in the industry.
Few companies illustrate these trends as well as Lemonade, which tempts prospective clients with the ability to get insured in 90 seconds and paid in three minutes. So far, though, not many innovators have been able to achieve notable returns by filling in the gaps left by the sector’s giants.
This, in turn, has left vast opportunities for incumbents to explore. Some are creating new standalone divisions, developing their own startups, investing in external insurtechs (German colossus Allianz, for example, is an investor in Lemonade) or inviting them in for innovation competitions, as Zurich does.
Whether established companies or novel challengers, all insurers have been working to boost the quality of engagement through experience-led engineering, which combines human-centric design with the agility made possible by digital technology.
For example, where claims processes have traditionally been manually intensive, onerous and friction-filled, companies are now increasingly using photos, videos, automation and artificial intelligence to make this process far less cumbersome.
How to get ready
Insurers need to embrace change in actions, not just words. The insurance champions of this era will be those that both know how to disrupt themselves and to nudge their people to do likewise. Transforming incumbent businesses is a complex task involving changing technology, processes and culture. Senior insurance leaders, often hired due to their understanding of risk and set in their ways after decades in the industry, may not always be willing to contemplate the wholesale transformation of operating models.
Meanwhile, sustainable career pathways must be built to attract the essential skills needed to gather data and turn it into actionable knowledge. Data specialists, experienced designers, developers and systems architects already work side-by-side with actuaries and risk analysts to determine the direction of their businesses. Insurers must communicate to young talent with the required skills that a career in the industry can be both interesting and purposeful—as well as financially rewarding.
Insurance’s overarching narrative also needs to evolve from emphasizing protection to putting prevention front and center. Vitality, for example, engages with its customers to lead healthier lives, nudging them to improve their diets and exercise more. Success here means both lower premiums for policyholders and a better chance of enjoying longer, less illness-prone lives—which also benefits insurers.
In this vein, embedded algorithms in mobile applications are analyzing drivers’ risk profiles to adjust premiums when the car is being driven safely. Both examples, of course, require the consumer’s consent to share their data in exchange for financial benefits.
Take this a step further, and we begin to see how insurers might develop their businesses by moving from the ledger and into the real world, such as making contributions to subsidize the cost of insulating homes or ridding them of flammable materials. In this way, insurers can play a leadership role in promoting environmental, social and governance issues, using solid commercial strategies.
Climate change itself will also inform the investment strategies of large insurers. This is about rational long-term strategy, not about adhering to the investment fad du jour. As sizable investors, insurers have the fiduciary duty to put their clients’ money to work in a way that, at minimum, does not increase risk to all by financing emissions that, in turn, promote risk.
The path ahead
Insurance is a key part of society, protecting the livelihoods we all aspire to achieve through the resiliency it promises. In this way, it has never been more relevant. Technology, data-driven insights and human-centric design could position insurers to build new operating models based on partnerships with clients, leading to better protection for all. Both new and resurgent challenges make this an urgent case for change.
This article was written by Eduardo Plastino, Director at Cognizant Research, with valuable input from Tim Queen, Cognizant Consulting, Insurance Leader, Americas.