The world may have seemed to have stopped because of COVID-19, but the coronavirus pandemic has in fact accelerated certain areas such as innovation and technological adoption in industries like insurance.
EY has released its 2021 Global Insurance Outlook report in which the company outlines what it believes are the three strategic and tactical imperatives for insurers in the next 18- to 24 months if they wish to grow amid this new era.
According to the 32-page report, these critical imperatives are: redefine and refine purpose in setting the strategic direction; transform the business to be more agile, digital, and customer-centric; and create value by optimising cost management and capital allocation.
Speaking with Insurance Business, EY’s Asia-Pacific and Oceania insurance leader Grant Peters (pictured) explained why a clearly defined purpose is now more important than ever.
Peters, referring to the global health and economic crisis, said: “Whenever these big systemic-wide risk events occur, it always reminds society of the purpose of insurance and the role that insurance has to play in supporting the community. So it’s a good opportunity for insurers to step back on the purpose of insurance.
“There’ll be some learnings, definitely, from the pandemic around the types of insurance solutions that can be refined for the community. Some of the broader thematics that were occurring before the COVID pandemic around digital adoption and simplified product offerings come into this as well.”
More broadly, added Peters, issues surrounding sustainability and climate change also loop back to the purpose of insurance and insurers.
“It’s a good chance to step back as an insurance industry – given this event and taking all that into account – to relook at purpose, and that will re-inform a refreshed strategy and set of priorities for insurers,” he stated.
On the topic of agility, the EY executive said being agile as an insurer spans not only a company’s product terms and solutions but also how it interacts with customers. Noting that insurers have been quick to adapt, Peters cited a “much stronger focus” on this front.
He told Insurance Business: “We’ve definitely seen that in all markets, and we expect that trend to continue post-COVID. That includes insurers spending more time on customer segmentation, understanding the needs of different customer segments more than in the past, and targeting their solutions more to those customer segments.”
As for the third imperative, Peters pointed to the continued pressure on balance sheets amid fairly uncertain economic conditions globally that he believes will persist for a number of years.
“We think insurers, in facing into that economic environment, will need to take a more strategic view to how they manage their cost base,” he asserted. “And that’s for a number of reasons, but particularly one around freeing up capital, to build out more digital capability and those new product sets and offerings that they want to do.
“And we’re calling it strategic cost management, so it’s stepping back more strategically and looking at which parts of the business remain a priority and which parts don’t. So we are seeing some M&A (mergers and acquisitions) activity already off the back of companies either wanting to scale up in important areas, or to divest areas that are less important.”
Strategic cost management also includes increased focus on productivity and simplifying business models.
Meanwhile, particularly among insurers in Asia, one common theme observed by EY during the pandemic relates to the blurring of the line that separates life insurance from health insurance in terms of products and coverage offered because of the COVID-19 implication.
Peters explained: “So, we’re seeing those two market segments come together in a number of countries, and that’s partly because of different health systems that the countries have and their reliance on private sector coverages from a life and health insurance perspective.
“So, convergence between life and health insurance is a theme we’ve seen across Asian countries.”
When it comes to digital adoption, the insurance leader highlighted that, to begin with, a number of countries in Asia moved quickly in this space but that there’s been even further acceleration, with regulatory backing providing a boost.
“Face-to-face selling and advice in the insurance industry has always been a big part of the Asian insurance market,” said Peters. “Obviously that got pretty hard during COVID through lockdown, so we’re seeing acceleration around the use of technology and digital tools to help agents and brokers interact with their customers differently than before.
“And that has been incentivised by some of the regulators – in Hong Kong and Singapore, for example – to make those advice processes easier to do through digital platforms. So, that’s probably happened quicker than it might have happened without COVID.”
Another illustration, according to Peters, is the reinforced use of mobile tech capabilities to provide solutions and services in countries like China and Korea.
Finally, he stated: “I think the ‘purpose’ imperative comes out even more so in parts of Asia when you look at the size of some of the insurance protection gaps and retirement savings gaps in the region, because the growing middle classes across Asia are becoming more affluent and they’re demanding more insurance protection for their assets and for themselves.
“Also, their post-retirement expectations are going up more and more. And many of the governments won’t be able to afford it without private sector products and solutions that help with that. So, this environment of ‘the importance of insurance’ just brings those topics to the fore even more across the population.”