(Image credit: Ahmed Zayan/Unsplash.)
A recent exchange between IIR and executives at EIS, a San Francisco-based core system provider for life and property/casualty companies, extended beyond matters strictly related to the company’s activities and into the realm of the challenges that the insurance industry was likely to face in 2023. We began with a more spontaneous discussion of what was ahead, and then EIS offered a more polished “top 10” list. We thought the initial discussion was worth our readers attention, so we begin with that.
Rory Yates, Global SVP of Corporate Strategy, saw 2023 as continuing some of the tumult of the previous year. “With the myriad headwinds facing the sector, digital transformation will remain a key focus for ambitious insurers in 2023,” he said. “Sustainability, fairness, and transparency will continue to drive innovation and growth. Automation will enable employee-centric transformation, freeing human capital to focus on the customer.”
“While continued competition both from within and without the sector, will see insurers move away from compete-on-price strategies to value-driving metrics,” Yates concluded.
Troubled equity markets are causing a follow-on effect of constrained access to capital markets by tech firms, cautioned EIS CEO Alec Miloslavsky. As a result, he elaborated, “Many are entrenching away from growth and toward conserving cash. People who had swung for fences are in a difficult position and for sale. That will trigger a consolidation. Businesses that might not have had the right to exist, masquerading as businesses.”
There are things to buy, Miloslavsky affirms, but there will be fewer quality firms to invest in, which will accelerate the trajectory of the front runners.
Miloslavsky also stressed continued activity—and possibly a bit of a bubble—in the area of data analytics, and data science applications in particular. “I think the potential for growth there is unbound,” he said. “It’s yet to be determined precisely what that means, because the carriers are the ones that own the data. It’s impossible to be a technology company without having that access unless your business is based on open-source data. Unless the carriers are willing to show the crown jewels, you don’t have a business.”
All of this considered, and despite economic issues, carriers are continuing to buy or invest in technology, Miloslavsky insisted. “It’s anyone’s guess as to why,” he said. “I’m not sure there’s a single smoking gun, but I think fundamentally drivers have changed, ball is rolling downhill. In some segments expense ratios have been affected by inflation, and so they look worse. On the other hand, lthere are many opportunities to reduce operating costs and open up channels—which requires technology.
Here’s EIS’s Top Ten:
- Insurers Will do Well in the High-Interest Rate Environment ⎼ While consumers will cut back on other expense areas, insurance for home, car, health amongst others is essential and will remain a steady source of income for investors.
- 2023 is the Year of Innovation & Experimentation for the Insurance Industry ⎼ Against the backdrop of less competition due to funding issues, traditional insurers have the opportunity to step in to advance innovation & experimentation.This will manifest itself in particular around improved customer experiences where the aim is to catch up with the precedents set by consumer finance organizations.
- The Trifecta Hits Home ⎼ Over the course of 2023 and peaking in 2024, a combination of automation technologies (RPA, ML, low/no code), analytics technologies (AI, predictive analytics), and connected insurance (IoT, usage-based) will result in more targeted insurance products and increased loyalty.
- ESG Will Dominate the Board Agenda ⎼ Net Zero goals, investment focus, and the rise of data-driven sustainability with intensifying headwinds in risk exposure will put this at the very top of the CEO’s list. i. There will be complexity to overcome, and the road ahead at this stage is far from clear.
- New Growth Through New Business Models ⎼ Embedded Insurance has an estimated $3.7 trillion dollar market potential, and new approaches to customer engagement and risk removal see similar potential. These new areas will help redefine insurance and its role in people’s lives.
- The Continued Rise of InsurTechs & Neo Carriers ⎼ Compounding the issues plaguing incumbents, but also creating greater motivation for incumbents to adopt true ecosystem models and take advantage of this emerging marketplace.
- Regulating Trust ⎼ Increasingly, regulators are tackling the need for insurers to act more fairly. They are demanding that in a digital age, customers need to be more informed, clearer on their coverage and have fewer barriers to make choices with their provider. This switch can create a “CX pioneers win” paradigm – especially for those that see this as an opportunity rather than an obligation.
- The Ecosystem of Insurers ⎼ With the outperformance of the more “tech-enabled” insurer, we will see core technology adoption finally shift the goalpost of agility, allowing movers to adapt faster, enter new markets, and develop new business models to outpace the competition.
- The Proliferation of Distribution ⎼ It never ends, and will continue to cause underequipped insurers to either lose market share or adapt high-cost point solutions to access & manage new channels.
- Underwriting Transformation ⎼ Developing a fully-automated or data-driven program that accelerates the underwriting approval process will be a big focus of 2023. Slow underwriting programs prevent life insurance carriers from having a modern agent/customer experience that is fast and self-service. Many legacy systems limit the ability to turn data into useful information for initial and ongoing (continuous) underwriting making this transformation a challenge.