2021 saw the eventual relaxation of COVID-related restrictions and vaccine rollouts on an industrial scale. With the UK riding the wave of a sharp, yet unsteady recovery, post-lockdown Britain becomes an interesting climate for insurers – many of whom look back to 2021 as a year of natural disasters, supply chain crises and economic uncertainty. A year of change.
This looming uncertainty for the coming year, evidenced by Deloitte’s 2022 insurance industry outlook and affirmed by the advent of new COVID-variants, begs the question as to what the coming year will bring? What should insurers be focusing on to ensure they are prepared for the next challenge?
This starts at the core of the business – internal systems. COVID-19 accelerated digitisation by several years for every industry and has been essential in enabling businesses to meet growing customer demands, but many insurers do not have systems capable of supporting this rapid change. Coupled with the FCA regulatory reforms introduced earlier this year, it is clear 2022 will introduce another year of threats and opportunities for insurers. They are facing rapidly changing, often unchartered territory in terms of effects on assets and liabilities.
Looking forward, there are four ways insurers can stay ahead of competition.
Getting “customer fair value” right
The Fair Value pricing regulations (GIPP) that end discounting for new policyholders in the UK will push insurers to focus on building loyalty and creating new added-value products. Insurers with better change and technology capabilities will exploit new data insights to quickly inform pricing, product, and customer experience developments in response to regulators. An agile test and learn capability will help them rebalance front book and back book pricing that factors in bottom line and customer growth implications. They will also be able to provide regulators with evidence that they are indeed fairly pricing and providing genuine value to customers. Businesses without these improved capabilities will fall behind the competitive curve or face the risk of regulatory issues and fines.
The year Insurers get savvy about consumer ecosystems
Ecosystem has become a buzzword in insurance but the ability to understand and participate in ecosystems has been sorely lacking. 2022 will be the year this changes. Consumer needs have shifted and not one organisation is able to satisfy all the needs of their customers. Because of this, insurers will need to take an outside-in perspective to rethink their value proposition to determine how they can fit into existing and emerging consumer ecosystems and win new customers. As no single partner needs to build and orchestrate all the components, the ecosystem approach also accelerates product and service innovation — with one company’s efforts furthering all others.
To embed or not to embed (Insurance)
Embedded insurance is a key ecosystem strategy for insurers. Major purchases, such as cars and homes, are increasingly digitally driven with little or no human interaction. Consider companies like Cazoo, the used car marketplace that lets you buy a vehicle online and delivers it to your home. Or Zillow, which applies a similar model to home purchasing in the US. With growing adoption of new technology, insurers will need to capitalise on the opportunity to embed policy purchasing directly into these digital buying experiences. By using open APIs to connect their products to an alternative distribution channel in an adjacent industry player’s ecosystem — such as retailers, tech giants, financial institutions, digital real estate marketplaces, and auto manufacturers, insurers will gain access to new customer pools.
Convergence provides the one-stop-shop experience consumers crave
Insurers will make a sustained effort to broaden their product portfolios across life and non-life to become more sticky with customers. They will increase focus on simplified buyer journeys that make data-driven supplementary product and service offers attractive to customers in an effort to drive revenue growth and customer loyalty. Retention is increased with each additional product customers buy. Full-stack insurtechs like Lemonade and leading incumbents are pursuing this model vigorously.
To meet the FCA’s regulations, build ecosystems and offer consumers exactly what they need, when they need it, insurers must enhance their systems and technology. This is the only way to meet today’s challenges and stave off competition, especially from agile insurtechs entering the market. Cloud-native tech and open APIs are key, enabling insurers to roll out rapid changes and grow their ecosystem.
Eight-in-ten insurer CEOs told KPMG rapid digitalisation, accelerated by the pandemic, ‘turbo-charged progress on the creation of a seamless digital customer experience.’ This is essential to stay competitive in the digital age and to meet evolving customer needs, but legacy systems cannot support it.
If insurers want to be prepared for the unexpected in 2022, and swiftly accommodate market changes, they need to be equipped with the right technology. Only then can they quickly offer new customer-centric products and services at scale when needed.
EIS, a core and digital platform provider for insurers with over 1300 employees globally, helps insurers stay agile in a demanding and ever-changing market. It is currently partnering with esure on its large digital transformation program.