Insurance providers almost had a quiet year. Almost.
Health insurance claims related to COVID-19 started to taper off. After years of back-to-back catastrophes, there were fewer storms affecting personal and commercial property and casualty (P&C) policies. Payouts for life insurance started to happen less often, following record-high levels at the height of the pandemic.
For many P&C insurers, quantity was replaced by intensity. When Hurricane Ian hit Florida in September, it was the costliest natural catastrophe of the year. Estimated insured losses are around $65 billion — and counting.
And quiet may not be a good thing. Demand for most lines of coverage was lower. Businesses and consumers watched and waited for economic conditions to unfold instead of buying policies. Inflation and recessionary pressures also cooled interest in insurance and lowered investment income.
Economic factors also made it pricier to pay out claims. Everything from building materials to car parts are now more expensive. For now, insurers are covering the higher price tags since they can’t raise premiums and pass them on to policyholders.
Life insurers have more flexibility to match premiums to market conditions. Rising interest rates can also be favorable for insurers and life policyholders. As rates rise, insurers can invest new cash flows and maturing investments into new (higher-rate) instruments.
Luckily, insurers across the industry started the year in a position of strength. But if rising claims costs and market volatility continue, some of their buffer may disappear.
2023 insurance industry priorities
So, what’s next? How can insurers drive down costs and increase demand? Here are five strategic priorities for insurance providers in 2023:
Reduce reliance on human labor
Finding and keeping talent is a big problem for insurers (and everyone else). Insurance companies need innovative programs to find, train and keep their people. And they need to find ways to do more with fewer people.
People are important. Invest in them and equip them with training, tools and support. Build a culture that values and rewards individuals. And augment their responsibilities with automation tools wherever you can.
This isn’t bots vs. people. Automation can eliminate mundane and time-consuming tasks and create a more rewarding workplace. Employees, and younger people especially, want their work to matter. Seek out digital transformation projects that speed up and improve work and reduce the people power needed to get work done.
Model the future
As a byproduct of their work, insurance companies have enormous amounts of data. Use it or lose out.
Data analytics should drive pricing, product development, investment decisions, fraud detection and more. Every inch of the business stands to benefit from good data.
Most importantly, insurers need data and analytics tools to model strategies and manage uncertainty. Would anyone ever have modeled the inflation rates we’ve seen? Probably not. But as conditions change and we enter new uncharted territories, they can. And need to do so quickly.
Insurers need the ability to ask and answer, “What if?” so that they can figure out what’s next. Excel models, assumptions and instinct aren’t enough. Insurers that model and analyze scenarios can proactively address writedowns and manage portfolios better.
Simplify the customer experience
Consumers are demanding simpler processes to buy and use personal insurance. Do you have an app for that?
If you don’t, an insurtech could be encroaching on your territory. Many new competitors are digital-first companies that don’t have legacy systems or processes to work around.
To attract and retain policyholders, insurance companies need stronger digital capabilities. When disaster strikes, policyholders want quick responses and seamless interactions in whatever channel they choose in the moment. If you don’t engage with policyholders on their terms, you risk losing them.
The entire customer journey has to be connected and relevant. That’s pressuring some insurers to upgrade core systems and applications.
Map out the customer journey. Then, prioritize technology plans around your policyholders. To get up to speed fast enough, look for a technology partner or leverage open technologies.
Create an ESG strategy
Policyholders, employees and shareholders expect insurers to have an environmental, social and governance (ESG) strategy — and not just a fluffy statement. There’s more transparency around ESG and operational data and higher expectations for corporate entities to do their fair share.
Insurers that are proactive about ESG can differentiate themselves in the market. ESG is also compelling to potential hires. People want to work for good, socially responsible companies.
Uncertainty abounds. And so do geopolitical tensions, cybersecurity threats, changes in tax law (domestically and internationally), compliance burdens, captive insurance and competition from insurtechs. Many market disruptors are creating headwinds for insurance growth.
Insurance companies need to be creative and nimble to meet policyholders’ needs and invest premiums wisely. When the world feels out of control, policyholders need their insurance companies to be strong and confident. To be one step ahead. To have a plan for that.
Use everything at your disposal — data, people and partnerships — to build agility and resilience.
Wipfli can help you jump on 2023’s biggest trends
No matter your challenges, we can help you meet them head on. We bring decades of experience serving insurance companies and can assist you in everything from automation to data analytics to ESG.
Contact us to learn more.
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