2020 Insurance Outlook: Insurers adapting to a volatile economy

Insurers are likely to face fundamental challenges in the decade ahead as many strive to reinvent products, technologies and business models.

Many carriers are still struggling to satisfy consumers who have grown accustomed to online shopping and self-service, especially in personal lines. (Photo: Shutterstock)

Each year, individual threats and opportunities come and go. But looking at the bigger picture, insurers are likely to face several fundamental challenges in the decade ahead as many companies strive to reinvent their products, technology systems, and business models to cope with emerging exposures and changing customer expectations.

Deloitte’s 2020 insurance outlook, “Insurers Adapt to Grow in a Volatile Economy,“ primarily focuses on four key drivers likely to dominate C-Suite strategy sessions and budgetary decisions  in terms of how to grow and run insurers more efficiently and profitably.

They are:

Here’s a closer look at them all.

Enhancing customer experience:

Many carriers are still struggling to satisfy consumers who have grown accustomed to online shopping and self-service, especially in personal lines. But that doesn’t mean most customers won’t want human interaction at some point in the process. For example, agents and brokers are unlikely to be eliminated in the sale of more complex insurance products — including commercial insurance for middle market accounts, or for individuals buying complex annuities or advanced life insurance products. Even small commercial and many auto and homeowners insurance buyers will at least want the option of working with a live person.

As a result, more carriers are likely to move towards a hybrid model, allowing consumers to choose whether to self-serve, work through an agent or advisor, or enjoy some combination of the two. That means in addition to improving online and robo-advisory capabilities, insurers should be helping their agents and brokers raise their game to compete in the digital age.

Insurers also should be better prepared to take advantage of expanding connectivity in servicing customers — especially in terms of how to leverage all the alternative data for pricing and claims generated by wearables, smart cars, and sensor-equipped homes and commercial buildings.

Continuous connections provide insurers with an opportunity to engage more frequently and proactively with policyholders, but more advanced analytics and predictive models as well as more agile core systems will likely be needed to make practical use of new types of data. At the same time, privacy regulations and consumer sensibilities about use of personal data will have to be addressed.

Bolder innovation required:

Chief innovation officers at insurance carriers are often fighting a dual battle for funds and authority, according to those interviewed by Deloitte for a recent  report, “Accelerating insurance innovation in the age of InsurTech.“ Our research found that 10% or less of innovation resources are generally going towards reinventing the business, with the rest dedicated to making incremental improvements in status quo operations. A more balanced approach is likely needed over the next few years if insurers are to keep up with changing consumer demands and new InsurTech-driven competition.

To meet this challenge, we’re likely to see a change in thinking among many carriers when it comes to the business objectives behind projects to upgrade existing operations. Core transformation to modernize legacy infrastructure should therefore be increasingly driven by a carrier’s future digital ambitions. For example, insurers developing new products to cover those using vehicles or homes for both personal and commercial purposes may need to be able to start, pause, and stop coverage at the click of a button on their policyholder’s mobile apps. Providing agile functionality will likely only be possible if core functions are equipped to handle such advanced requirements.

Many insurers are also shifting gears when it comes to cloud strategies, with conversations transitioning from IT-centric topics (such as where to more efficiently house data) to business-driven considerations (such as how cloud can enable system modernization and business model transformation).

A maturing InsurTech ecosystem may help legacy carriers jump start and accelerate their innovation efforts. Venture Scanner data analyzed by Deloitte shows that while the number of new InsurTechs launched has plummeted over the past couple of years, the amount of money invested set a new high of $3.26 billion in 2019, with fourth quarter figures yet to be determined, as investors focus on later stage funding of those showing the most tangible progress and ability to scale.

However, the majority of InsurTech investment continues to come from parties outside the industry, meaning that most insurers remain passive spectators and consumers of InsurTech, rather than actively engaging in their development. That has begun to change, with more carriers becoming investors and collaborators with InsurTechs to innovate and take control of their own digital destinies.

Bridging the generational and skills divide:

Insurers are coping with three pressing, concurrent talent challenges:

Many Baby Boomers are rapidly nearing the traditional retirement age of 65, including as much as one-third of agents and one-quarter of underwriters. To buy time and keep valuable institutional knowledge and experience in house for as long as possible, insurers should look to retain older professionals with more flexible staffing arrangements — such as encouraging  semi-retired employees to keep working at least on a part-time basis, allowing them to work offsite or even out of state if they choose, or engage them as independent contractors for short-term assignments.

Still, while such efforts may help stem the tide and impact of retirements, they will only postpone the inevitable departure of Boomers. Insurers should therefore also step up efforts to raise awareness about the changing nature of the insurance business among students and young job seekers. Outreach programs should emphasize the high-tech, data-driven work insurers are doing to engage connected customers, especially to attract those with the technological and data science skills insurers will increasingly need, and who are often entering the industry through the proverbial back door via InsurTech startups.

Carriers also should be reshaping job descriptions and training programs to reflect the evolving nature of insurance work. Actuaries, for example, are among those seeing their jobs redefined by technology, leveraging the power of automation and artificial intelligence to move beyond the role of data steward and model builder and become business strategists, according to Deloitte’s report on “The Rise of the Exponential Actuary.” The day-to-day work, skill sets, and technological capabilities of underwriters, claims managers, and agents are similarly evolving.

Changing the industry’s culture:

Last but not least are the organizational and cultural obstacles that could inhibit insurer innovation, growth, and profitability over the coming decade. Adopting new technology is one way to spur and enable change, while upgrading skills and capabilities among the talent pool is another. However, the effectiveness of such initiatives is likely to be blunted unless accompanied by more fundamental shifts in insurance company strategy, operating models, and culture.

For example, even if insurers manage to convince younger, more highly skilled data and technology enabled recruits to work in the legacy insurance industry, the bigger challenge may be integrating newcomers into what has often been a change-resistant culture. This is akin to the potential for tissue rejection in a transplant: Will legacy personnel wedded to how insurers have historically conducted business accept the different attitudes, approaches, and ideas of more forward-thinking newcomers, and work together to create the insurer of the future?

Despite all the talk and emphasis on emerging technologies, insurance is likely to remain a people business, both in terms of how it is sold and bought, as well as how insurers are managed. Resolving this ‘synthesis challenge’ — how to integrate new tools, technologies, and techniques with legacy systems, while reconciling bold new ideas from InsurTechs, ecosystem partners, and new hires with time honored status quo practices — may be the biggest success factor for insurers in the decade ahead.

Click here for a copy of Deloitte’s “2020 Insurance Outlook.” You may also click here to register for Deloitte’s Jan. 8, 2020, outlook webcast, or to listen after that date on our archive.

Sam J. Friedman (samfriedman@deloitte.com) is insurance research leader at Deloitte’s Center for Financial Services in New York. Follow Sam on Twitter at @SamOnInsurance, as well as on LinkedIn.

Gary Shaw (gashaw@deloitte.com) is vice chairman and US Insurance Leader for Deloitte LLP in New York.

These opinions are the author’s own. This piece is published with permission from Deloitte. Visit www.deloitte.com/about to learn more about Deloitte’s global network of member firms.

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