Insurance rests on three primary pillars: Risk, Capital and Customers. Risk is measured and managed by using capital to protect customers.
In recent years the industry has gone through a major focus on risk and capital, driven by regulatory directives that are predominantly applied in Europe with far reaching global implications. Solvency II was almost the blueprint in upgrading the risk regime in insurance with ESG emerging in recent years, capturing risk management for the benefits of long term investment as the asset management element of insurance is factoring both sustainability and the long term hunt for yields.
If we look at the latest news and activities in the insurance industry, risk and customers stand out. These two elements drive the evolution around the use of technology, reengineering business models, realigning strategy and commercial differentiation.
COVID-19 has had an unprecedented impact on scale of damages and insurers capital positions in a post Solvency II world — and the current state of affairs would indicate that risk measurement and management are still evolving as data sets around spread of pandemic, mortality, policy wording adequacy etc. are still evolving, and some may require new thinking. An obvious case in point is around ESG and questions raised around the challenges to some existing models with accuracy called to question given impact of pandemic risk on macro economics.
Most importantly, the customers:
This is no longer about just “treating them fairly”, to use some regulatory lingo but goes deeper into areas such as :
- Ease of communication
- User driven experience
- How to create a unique proposition
- How to retain them
- How to protect their personal details and privacy
- What is the value we deliver to them
Some of these may not be as mundane as they sound in an economic environment where growth isn’t the most obvious thing and where definition of normality and time scale are unclear.
But if anyone should benefit from COVID-19 crisis from an insurance standpoint — it is primarily customers and as a result the industry as a whole.
Accelerated digitisation, sharper focus on claims, higher awareness of cyber threats and their mitigation are all transforming the industry to be significantly more customer centric. Talk is now being converted into action.
Digitisation means more accuracy around data consumption, speed to market and communications with clients.
Sharper focus on claims (by also using AI and associated technology) means better customer experience at critical moments. This then elevates the trust people put in insurers when they sign up with them to protect their assets.
Cyber security refocuses and gives customers not only the ease of mind that their data is safe, but also provides them with solutions to protect their assets in the 21st century. This enhances the alignment between risk and industry solutions.
Where is all of this heading as the industry evolves?
Regardless of when this ends and how normality is defined, we can already see several emerging trends. These trends emphasize resilience:
- Business model evolution as firms take more control over costs, working culture and use of technology without sacrificing commercial competitiveness. Do more with less.
- Capital preservation is a key element in current insurers’ strategy — either organically or by dipping into financial markets, also enhancing ALM in the process.
- Refocus on asset management performance by adjusting to current macro and financial markets performance while hunting for yield and enhancing risk/return equilibrium. (via ESG, investments in private markets and others)
- Risk — understanding, qualifying, measuring and managing is going through evolution — driven by the industry as well as regulators.
- Doing what’s right for customers — whether refunding some policy fees for car insurance, evaluating policy accuracy and others and in general taking a much more commercially proactive approach in a competitive landscape where fighting for clients isn’t mundane but rather an imperative.
From an insurance perspective we need to acknowledge the positive changes that will be borne from this crisis. The industry needs to continue to embrace change for the benefit of all of our stakeholders.