(Image credit: Adobe Stock.)
Technology plays an increasingly prominent role in almost every phase of insurance company operations, changing how insurers market products, manage networks, plan and execute strategies. Disruption has been the overarching theme, and that trend is likely to continue. Here are four trends to watch in 2017:
- Regulation drives demand for advanced data and analytics capabilities: The insurance sector has experienced a heavy increase in regulation over the last few years, inspired in part by the surge in banking regulation in response to the 2008 financial crisis. Examples include NAIC’s Own Risk and Solvency Assessment (ORSA) requirements affecting capital, risk management ,governance, etc., which recently came into full effect. The new regulatory framework requires highly flexible data models, and that will continue in 2017 as insurers prepare to keep pace with new changes. In 2017, expect finance and actuarial leaders in insurance to operate a convergence process, demanding technology solutions that enable business-as-usual-finance forecasting and regulatory scenario planning and stress-testing as they prepare for an uncertain future.
- Cost reduction pressures require balance with compliance demands: In the next year, look for cost reduction to become even more of a priority as insurers seek ways to shore up margins. Competition from new market entrants, including online providers, combined with new rules on capital and solvency make it more crucial than ever to identify savings opportunities and allocate capital to generate the highest returns. Some major insurers have already announced cuts, including MetLife Chief Executive Steven Kandarian, who said the company will reduce costs by $1 billion by the end of 2019. In 2017, insurers will balance the need to comply with regulations with the requirement to maximize returns, conserve resources and generate high margins.
- Exponential growth of data drives new opportunities: A huge data influx has created new opportunities for insurers. Those who embrace technologies to identify opportunities and create revenue and cost models will thrive. Telematics are becoming a standard tool for auto insurance companies, with underwriters gaining access to data on individual driver behavior such as speed, distance, acceleration, hard braking, air bag deployment and more. Finance and sales leaders can leverage the exponential growth of data to make better decisions and improve data quality by more effectively reconciling operational and corporate data, leveraging platform solutions to handle scale and speed. Health insurers can also benefit from data, but they’ll need to be extraordinarily careful about how they handle privacy concerns.
- Digitalization affects consumer behavior and demands insurer adjustment: Digital communications capabilities and marketing have a profound impact on consumer behavior, and insurers will need to adjust by adopting a multichannel strategy. Many major industry players have lagged behind their peers in other sectors (such as banking) in adopting digital tools, so they’ll play catch-up in 2017. Established companies will be up against new industry players like the digital-first, peer-to-peer insurer Lemonade, which raised seed funding last year, and launched in Sept. 2016. To survive and thrive in the digital age, insurers will need to be more agile, factoring in the shift in distribution channels and becoming more collaborative in revenue planning.
Disruption was a common theme across the insurance industry in 2016, and that trend will continue in 2017 and beyond. As the new year unfolds, watch these four business trends in the insurance sector. The companies that embrace change and move toward more collaborative, agile operations will succeed in the months and years ahead.