What Insurance Innovation Will Look Like in the Post-COVID-19 Era
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Brought to you by WBR Insights.
The COVID-19 pandemic and its resulting economic consequences dramatically shifted the needs and expectations of insurance customers. Insurance companies themselves were forced to adapt to rapidly changing market conditions, adopting increased levels of virtualization.
Although most of the industry adapted quickly, insurers are still facing significant challenges to growth and profitability. According to PwC, among a list of other concerns, 71% of insurance organizations are primarily concerned about the resultant financial impact of the pandemic on their organizations, including the ongoing effects it might have on operations, future periods of operation, liquidity, and capital resources.
As with any market, the biggest challenge for the insurance market is likely preparing for the unknown. Here are some insights into what innovation in the insurance industry might look like after COVID-19.
Digitization, Virtualization, and New Technology Tools
Insurance organizations were actively pursuing their digital transformation efforts before the pandemic struck. Some aspects of those transformations were likely accelerated by the pandemic, in part because employees worked from home and customers switched to digital channels to engage with the organization.
Launching new digital capabilities would help insurance companies meet customers' increasing demands for digital tools like mobile apps, automatically filled digital forms, electronic payments, and real-time status updates. According to Ernst & Young, "For younger generations of consumers, digital interaction with financial service providers was already well entrenched. COVID-19 and the resulting social restrictions have forced many other consumers to adopt digital out of necessity and it is doubtful they will revert back to old habits."
But insurance organizations were already realizing significant benefits through the digital transformation of both internal and customer-facing operations.
For example, McKinsey & Company found in 2019 that automation can reduce the cost of a claims journey by as much as 30%. The same report suggested that insights technology, such as AI-driven analytics, can give insurance brands a competitive edge in the market, especially in terms of pricing and passing savings to customers: "Digital technologies that give rise to ever-increasing amounts of data and ever more penetrating insights might make for more accurate pricing of risk, but they also help mitigate risk, reducing premiums."
There are other, more practical technologies in the works in the insurance space. For example, telematics technology that transmits data about the speed and status of vehicles is increasingly attractive to auto insurers. Not only does this technology have the potential to lower costs to insurers, but it could also help insurance companies reward safe drivers with lower premiums or other benefits.
Similarly, property insurers can use drone technology to collect data about risk before issuing a policy, or even to inspect the damage after a disaster. Each example could save the insurer valuable time and prevent costly inspector visits.
Liquidity and Flexibility to Meet Demand
Of course, individuals and other types of businesses are facing challenges in the post-COVID-19 economy as well. Now, more than ever, they're depending on insurance companies to assist them with claims, which means insurance brands must be able to provide.
According to Insurance Business Magazine, "Organizations also need to ensure that they have average adequate coverage ratios and liquidity to pay claims, and, on the capital management side, considering that many insurance companies have had their capital base stressed due to COVID-19, insurers should make sure that they have the flexibility to be able to absorb that stress and maintain rating agency confidence."
Over the year, insurance companies may install more governance in liquidity management and invest in a robust liquidity risk management infrastructure to meet these demands. With the right strategy, they can ensure they have enough liquidity without overexposing themselves to risk.
Rethinking Risk Tolerance for Financial Stability
Finally, after a tumultuous year, insurance organizations may reorganize their balances to focus on financial stability, at least in the near-term. Reduced tolerance for risk could result in fewer short-term profits for stakeholders, but it has the potential to see the organization through the reverberations of the COVID-19 crisis and into a space where more risk is warranted.
Cost reduction will also play a role in this strategy. According to Deloitte, 68% of insurance companies expect to reduce costs by 11 to 20% over 2021. Another 11% expect to reduce costs by 20% or more. However, Deloitte notes, "Most insurers are not looking to cut across the board. They are more likely resetting priorities, reducing nonessential expenses, and postponing less critical investments to free up capital for areas needed to recover and thrive."
Don't Miss the Next Digital Insurance Event
Thriving in the Post-COVID insurance market will require new approaches to customer service and financial governance, but it will also require insurance organizations to stay focused on their digital transformations.
Predicting the path of the insurance industry in the Post-COVID-19 economy will be an important topic at the next Digital Insurance virtual event. Claim your spot at the event right now.