EY: Powerful trends and how to go forward
At DIA Amsterdam 2022, DIA Partner EY presented the key trends it sees for insurers to innovate, lead and grow their business. During the event, Preetham Peddanagari, Partner EY, shared his vision for the market. In a previous editorial, we discussed these trends and in this editorial, we follow up with Preetham’s vision on the way forward.
“With the continual disruption in consumer behaviour, shifts in customer and employee demographics and their key values, climate change, and regulatory changes driving further customer centricity, it is paramount for insurers to be able to not just keep up, but pre-empt the demands of customers, governments and their own employees. As always, there’s a multitude of powerful (and often turbulent) trends and pressures at play – some industry-specific, others universal to financial services – impacting all elements of the value chain and driving the next wave of insurance and how insurers can innovate, lead and grow. In EY’s previous editorial it focused on the four of the biggest megatrends shaping the industry.”
Cost pressures, capital allocation challenges, macroeconomic and structural risks, fierce competition (incl. from non-traditional players and big tech), global disruptions (e.g., climate change, pandemics, geopolitical concerns) – all must be factored into both short- and long-term strategic plans; all intricately related with ecosystems, workforce transformation and sustainability.
As with most things, the earlier mentioned four powerful trends will present both challenges and compelling opportunities for insurers to differentiate and succeed in the market – what should insurers do to respond and/or pre-empt these trends and maximise the growth potential that presents itself?
Accelerated digitisation & Ecosystems and open insurance
Tightly interwoven, the first two trends are best addressed together.
Digitalisation and data analytics are transforming the entire insurance value chain. For global insurers, digital transformation and disruptive innovation have gone from vague futuristic concepts to immediate-term action items on strategic agendas.
But as is often the case, what feels innovative today will become the baseline tomorrow – that certainly will be the case with ecosystems. The winners will be the firms that develop their strategies early, ensure they have the right tech and data foundations to build upon, engage proactively with the regulatory agenda, and take tactical steps to execute on their ecosystem visions. Carriers that fail to act quickly or boldly enough face a real risk of being commoditised.
Despite the clear upside of ecosystems, most insurers are still working to develop the necessary tech and data capabilities, navigate distribution constraints and address organisational and cultural impacts. That is why there is also urgency to define the right ecosystem strategy (securing commitment from the top) and invest in initial pilots and quickly (then iterate and expand those offerings with complementary services). Laggards may discover they do not have the tech capabilities, nor a clear ecosystem vision, necessary to compete in an increasingly digital and sharing global economy.
This will be a long-term journey, and not something to be led exclusively by HR. In the immediate term, leaders across the business must come together to reframe the talent strategy at the highest level – including assessing demand (current talent vs. the “must-have” skills of the future op model) and mastering supply (“build, buy or borrow”) – and take specific actions to instil talent liquidity and enhance the value of people, which remain insurers’ most valuable asset.
No matter if insurers “build, buy or borrow” the needed skills, we believe talent liquidity is the right vision for today’s talent management challenges – it refers to the ability to move skills and resources around the organisation as dictated by business needs and value creation opportunities. The goal is to enhance the agility of core skills (e.g., data science, UX design, product development) needed across the business. HR and business leaders must collaborate to remove organisational barriers that limit visibility into opportunities or prevent lateral movements across the organisation.
Those who keep humans at the centre of their efforts will find ample opportunity to align business goals with the needs of people through values and practical behaviours.
Sustainability and the greening of the global economy
Insurers can take many meaningful steps in the near term to help advance the transition to a greener economy, including:
- Mapping action plans to specific targets and establishing quantifiable performance metrics as a way to connect sustainability to overall purpose and business strategy
- Within a broader ESG strategy, insurers must identify priority focus areas, clarify why they are allocating resources to them, and determine what benefits they expect to achieve
- Engaging with both regulators and peers from other sectors to become part of the solution
- When it comes to ESG, what gets measured will be what gets managed – in tracking performance against sustainability targets, insurers should monitor risk exposures, value creation and progress toward specific goals. As reporting and disclosures become standardised, the most transparent companies will benefit from easier access to capital, increased customer loyalty and better share price performance
The role of insurtechs and other stakeholders
As outlined above, a wide array of insurance, financial services and other technology companies can enable an ecosystem by providing specific services tied to unique value chain links. By plugging into such platforms, incumbents can turn to insurtechs and startups to drive innovation in underwriting, policy, billing and claims functions.
In fact, in the ecosystem era, competition for partners may be nearly as intense as competition for customers. Insuretechs with effective solutions in any part of the value chain are increasingly being targeted for acquisition by both insurance and tech companies.
“Co-opetition” (i.e., competing and collaborating at the same time) will become a mainstay of insurers’ strategies as they build ecosystems and deal with convergence with other sectors.
Many non-traditional players (e.g., tech companies) and firms from other industries (e.g., retailers) will be involved. Finding the right collaborators is critical, but in assessing potential partners, insurers are also assessing potential competitors.
Finally, governments, regulators and academia should all be seen as potential partners in the task of greening the global economy and pursuit of sustainability.
Read EY’s full report to learn more about how insurance leaders can respond to these megatrends with urgency, creative thinking and bold action.