A Challenging Year
2020 was a challenging year for insurers who were looking to capitalize on the momentum gained in 2019. A positive premium and investment income growth were observed in most countries and according to iii, the US insurance market size reached an all-time high of $1.32 trillion in 2019.
The COVID-19 outbreak knocked out financial markets severely affecting the investment performance of insurers. According to ARPA Quarterly Results, the net investment income fell to about 30% of the 2019’s income. According to data analytics provider Verisk and the American Property Casualty Insurance Association (APCIA), net income for the private US P&C insurance industry dropped 26% in the first half of 2020. Net underwriting gains declined to $4.6 billion in the first half of 2020 from $5.4 billion a year earlier. There was a steep contraction in life premiums in 2020 as rising unemployment and dwindling incomes dragged demand for life insurance, and lockdown measures slowed distribution activities.
Additionally, low interest rates remained a big challenge to growth, especially for life insurers exacerbated by the pandemic. According to Deloitte Insurance Outlook, life insurance premiums have declined to 6% globally through the end of 2020 and by 8% in advanced economies, while recovery of 3% growth is projected overall for 2021.
2020 also proved to be a two-edged sword. The pandemic and other catastrophe losses hit many insurers hard in the first half of 2020, especially those writing events cancellation and workers’ compensation. Insurance industry losses from natural catastrophes and man-made disasters globally amounted to $83 billion in 2020, according to Swiss Re Institute’s preliminary sigma estimates. This makes it the fifth-costliest year for the industry since 1970. Nevertheless, with an unusually high aggregation of smaller events, analysts expect the distribution of losses to impact insurers marginally more than reinsurers.
Lessons from 2020
For insurance companies, 2020 had a significant effect on how insurers plan their risk management and operationalize their business functions. Digital adoption is not considered a luxury but rather a necessity for business continuity.
Unsurprisingly, one of the outcomes of COVID-19 has been an enormous increase in customers contacting their insurer. This underscores the flaws in the insurance company’s customer service that was unable to cope up with a large number of queries. This has led insurers to adopt digital customer service tools such as cloud telephony, AI-powered chatbots, and interactive voice response, etc., and act as a catalyst for unlocking greater levels of customer experience and personalization that had long been overdue.
With widespread lockdowns in place, the pandemic has clearly shown that insurers need to have alternative measures to collect customer data for underwriting. This has brought the use of computer vision technology, geospatial analysis, and other techniques of remote monitoring into mainstream use.
Not only in terms of insurance distribution but also concerning product design, loss assessment, and processing of claims, COVID-19 has been a catalyzing force for a digital revolution and the road ahead demands greater innovation
2021 Insurance Outlook
Businesses must concurrently manage three key phases of the COVID-19
crisis—respond, recover, and thrive. When the pandemic emerged, insurers
responded by taking immediate steps to ensure business continuity, and help customers and their communities cope. Now in 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.
Swiss Re Institute forecasts that the total premiums written will return to the pre-pandemic level in 2021.
The emerging insurance industry trends of 2021 highlight the desire for bespoke insurance products and tailored policies, and the need for insurers to be open-minded about just how much value AI and other new technologies can bring to the table.
Cloud transformation projects are likely to accelerate in 2021, as building the cloud foundation would allow insurers to rapidly and cost-effectively implement advanced analytics and automation tools. COVID-19 has driven a fundamental shift in business-architecture assumptions. Overnight, many organizations have had to shift their cloud infrastructure strategies. In fact, in a Logic Monitor survey, 87% of global IT decision-makers agree the pandemic has caused organizations to accelerate their migration to the cloud, anticipating a decline in on-premises workloads by 2025.
That accelerated adoption has started already.
AI and Analytics
It was reported in 2020 that more than 80% of insurance leaders think that AI technologies will drive better customer engagement and create better employee experiences. Adoption of AI for customer engagement has been the talk in the insurance sector but the other value chains like underwriting and claims also have a huge scope to implement AI to streamline the operations. This adoption is further fueled by the explosion of data from connected devices, rise of open source protocols, and advances in cognitive technologies. Consequently, leading to rise of more personalized pricing, increased real time service delivery and better risk management for carriers.
Changing Demands of the Customer
Customers will be more focused on the premium price given the state of the
economy. Customers will be even more likely to begin their search for insurance online. Customers will be more wary of carriers and will want a deeper understanding of what is and isn’t covered. 40% of the insurers surveyed by Deloitte expect to increase investment in direct online sales, which is not surprising since most customers likely didn’t want to meet face-to-face with insurance salespeople during the pandemic—a trend that may continue long term.
Tailored Products and Services
Generating continuous innovation in insurance policies, sales strategies, operations, and customer experience could turn out to be the biggest differentiator in 2021 and beyond. Customers today are so accustomed to e-commerce websites like Amazon, eBay that they expect a similar customer experience from their banks and insurers as well. Owing to this, the industry is forced to tailor products and services based on the customer’s needs and preferences to retain the customer and maximize the lifetime value.
In such a scenario, insurers need to improve expense management to offset added costs incurred to respond to the outbreak, fund faster innovation, spur quicker recovery, and fuel growth. Companies must also ramp up digitization efforts to ensure a smooth transition and stay ahead of the curve.