The world may have looked like it 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, the event partner of Insurance Business for the insurtech stream at the upcoming IB Tech Fest Australia, 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 – the latter being an initiative that Insurance Business has borne witness to in the Australian market, in particular.
Meanwhile, the Sydney-based insurance leader went on to note: “Balance sheets are generally pretty strong in Australia because of the good COVID situation that we’ve had. A couple of our insurers have already raised capital on equity markets here just to get ahead of the curve, and that’s done them well. But balance sheet management will continue to be a focus.
“Then the broader trend around more flexible and simple products and more customer segmentation – that’s been definitely an observable acceleration through this COVID environment, and we’re going to see more of that happen and it’s going to bring some more competition into the market around the customer value propositions.”
Other areas of focus for Australian insurers cited by Peters are the business interruption test cases and the continuing regulatory change agenda following the Hayne Royal Commission. Generally though, for Australia, he believes the outlook is positive.
“I think the insurance industry in Australia has weathered COVID pretty well and is in a good position, as long as they do the imperatives,” declared Peters. “There’s an opportunity for the industry around purpose and refocussing on their customers more explicitly. I think they’re set up well to do that.”
The EY-backed insurtech stream is part of this year's Insurance Business Tech Fest taking place on May 13 in Sydney. Register now.