How might insurers break free of chronic challenges?

One suggestion: Shift focus from being an industry that primarily detects and repairs to one that predicts and prevents.

Deloitte’s 2023 Insurance Outlook suggests insurers should operate more proactively than reactively. (Gajus/Adobe Stock)

Given the persistence of many long-time challenges facing insurers, the overriding theme of the 2022 Property-Casualty Joint Industry Forum held in December might’ve been a much-quoted quip from Yankee Hall of Fame catcher Yogi Berra: “It’s like déjà vu all over again.”

Whether in terms of renewed calls to emphasize risk management over risk transfer or the chronic challenge in attracting and retaining talent, insurers were urged to change their approach to overcome many of the same issues hindering top- and bottom-line growth raised in prior-year forums. What might the industry do to break this logjam and reinvent itself for competitive differentiation?

One of the key messages at the forum was that insurers should consider pivoting from simply selling policies and paying claims to helping policyholders throughout the policy year to identify and mitigate exposures. That could keep losses from occurring or might at least contain the damage if they do. The focus should therefore be shifted from an industry that primarily detects and repairs to one that predicts and prevents. (This echoes a central message conveyed throughout Deloitte’s 2023 Insurance Outlook, in which we suggested insurers should operate more proactively than reactively.)

In a panel on climate risk, personal lines insurers were urged to adopt more of a commercial lines mindset by emphasizing risk engineering in loss control. For example, in bracing against the threat posed by wildfires ravaging large areas of California, insurers could make greater use of drones or satellite imagery to assess insured properties and help policyholders spot potential vulnerabilities in landscaping. With the permission of homeowners to avoid any privacy concerns, policyholders could be pinged to remove excess brush or trim trees overhanging roofs that can exacerbate spreading of wildfires.

The same types of preventative steps can be taken by insurers to help educate those facing wind or flood risks. The benefit to policyholders could be a home that’s less exposed to natural disaster risk. If that alone isn’t enough incentive to prompt significant uptake, insurers could offer premium credits to reflect the extra loss control effort.

Insurers have been trying to do their part to enhance risk management, individually and collectively, noted speakers at the forum, both on their own as well as through the efforts of numerous industry-supported organizations devoted to loss control testing and education —such as the Insurance Institute for Highway Safety and the Insurance Institute for Business and Home Safety.

Even though there appears to be plenty of information already out there about how to prevent severe losses, why is getting adoption of such common-sense risk management steps often so difficult? On an individual level, why aren’t most policyholders doing more to protect their own properties? And on a societal level, why is there still so much construction and development in areas prone to wildfires, floods, and windstorms?

Altering behavior is one of the industry’s biggest challenges, according to several forum speakers — whether individually (by implementing loss control measures at specific properties) or collectively (by convincing communities to upgrade and enforce risk-adjusted building codes and zoning laws). Lack of adoption is often an issue in part because mitigation can be costly for property owners, while restrictions on development may clash with community expansion plans.

Therefore, the question becomes how insurers might effectively incentivize more robust and long-standing risk management efforts. A start might be expansion of rate modifications for individual properties and the surrounding community. Insurers could also enhance predictive models to bolster risk assessment and awareness. One example cited at the forum was factoring in “ember projection” to account for and prevent the potential spread of wildfires.

Cyber insurers should also pivot to loss prevention.

Another familiar challenge cited by panelists involved burgeoning cyber risks, with insurers encouraged by speakers to go beyond issuing risk-transfer policies for an ever-evolving exposure. That would entail creating a more comprehensive cybersecurity ecosystem that rates coverage based on loss control capabilities, while providing services to help raise a policyholder’s risk management maturity level. (This echoes a main point Deloitte made in a research paper on “Overcoming challenges to cyber insurance growth,” in which insurers were advised to upgrade their value proposition by making stand-alone cyber policies the centerpiece of a much broader risk mitigation program.)

Speakers called upon cyber insurers to emphasize education in the basics, such as having viable backups and multi-factor authentication, while providing ongoing training on good cyber hygiene as part of their coverage package. Such a message should resonate even with smaller businesses, which are being increasingly targeted for cyberattacks.

Policies could also be more dynamic, with prices, terms, and conditions adjusted during a coverage year as insureds adapt and demonstrate improvement in their risk management maturity. For instance, policyholders could be incentivized to report suspected breaches earlier and work with insurers to fortify their systems before a hacker’s reconnaissance mission becomes a full-fledged attack. Such services could be provided directly by insurers or through a network of cybersecurity providers available at “member” discount rates.

New approaches urged for a post-pandemic talent environment.

This notion of being proactive rather than reactive could also likely serve insurers well when it comes to talent development. For years, we’ve been hearing about the challenges many insurers face in retaining and recruiting employees, both to fill the gap left by retirements in a generally aging industry workforce as well as add the advanced skillsets to generate innovation and sustain profitable growth.

Hiring and retaining those with high-tech and data skills was cited at the Forum as a rising priority, to support and maximize the value of investments being made by most insurers to enhance their capabilities and improve customer experience with automated systems, artificial intelligence, and advanced analytics. Speakers noted the long-time challenge of competing with major technology companies for talent, but given the recent wave of layoffs among high-profile organizations in the tech field, perhaps insurers now stand a better chance of recruiting such highly skilled individuals — both those with experience and just entering the job market.

Another layer to the talent challenge is meeting rising stakeholder expectations to broaden diversity and inclusion across the industry. The forum assembled a diverse panel in terms of race and gender to share their experiences in insurance and urge more proactive initiatives to enhance diversity in the rank and file, middle management, and senior leadership. Suggestions included earlier recruitment (starting in high schools) as well as expanded internships and enhanced mentoring programs.

Meanwhile, forum speakers acknowledged that longstanding talent challenges have been exacerbated in this post-pandemic environment. Deloitte also called attention to this phenomenon in our 2023 Insurance Outlook, noting that “forced virtualization of work…has fueled revolutionary changes in employee expectations and upended many traditional employment models.” The emphasis for recruitment and retention efforts going forward, our report added, should therefore be on “flexibility, quality, and relevance of work, career path, financial wellness, and inclusion.” As a result of these changes in attitude and habit, a hybrid workplace model is likely to be the rule rather than the exception, which calls for long-term adaptations to insurers’ traditional workplace models.

Yogi Berra once said, “When you come to a fork in the road, take it.” It seems many insurers are facing a clear choice — either stick with established norms and hope these systemic problems somehow work themselves out, or reinvent their business model, workplace structure, products, services, and underlying culture to adapt to an evolving society and marketplace, and thereby take charge of their own destinies.

For more details about the outlook for growth, talent, technology, finance, and sustainability in the year ahead, please download Deloitte’s full research report: “2023 Insurance Outlook: Global Insurance Industry at a Crossroads to Shaping Long-Term Success.”

Former NU Property & Casualty Editor in Chief Sam J. Friedman (samfriedman@deloitte.com) is insurance research leader at the Deloitte Center for Financial Services. These views are the author’s own.

This piece is published with permission from Deloitte. See www.deloitte.com/about to learn more about Deloitte’s global network of member firms.

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