Library: Capgemini – Top trends in life insurance 2023

May 2023 featured report:

Life insurance saw significant premium growth in 2021, but there was a slowdown in 2022. This year, the sector faces what the authors call a “complex macroeconomic environment”.

Life insurance down in 2022, but not out – expect a full recovery   

What they mean is that interest rate hikes, make life insurance propositions more attractive than investing directly in equity. However, disposable income is under pressure from inflation and volatility in the financial markets is likely to have a negative effects.

But in such an environment, those organisations most focused on the future will look to achieve “operational excellence and accelerate digital transformation to maximise personalisation”.

Things are difficult, right now…

You’ve got to face facts. The only thing that’s not in short supply at the moment is uncertainty. The International Monetary Find (IMF) reduced its global growth forecasts to about half of 2021’s 6%. As a result, insurance, which is linked to GDP, is likely to fall back as well.

Global inflation almost doubled in 2022 over 2021, putting claims under pressure.

Central banks are trying to control inflation by raising interest rates, which is good for life investment returns against equity investment pressure. At least in part.

The authors anticipate life sector profits will rise slightly for 2023, but this will depend upon underwriting discipline being a key performance driver.

They also think the return on operating revenues is likely to reach 5% across all major regions (4.3% in 2022 and 3.5% in 2021).

Research from Swiss Re says this is supported by investment gains, even though there have been higher mortality claims. Global premiums fell slightly by 2% in 2022, but the Swiss Re data suggests that premium growth will recover to 1.9% in real terms for this year as economic conditions start to improve and inflation reduces.

Size isn’t everything, unless performance is also down

Despite the largest 15 life insurers being worth nearly US$825.5 billion in 2022, this indicates a 21% dip in capitalisation compared with global markets, which only “underperformed by 14%”.

Insurtech funding fell sharply throughout 2022, though life specialists were less affected than other sectors, raising US$918 million in Q2. That was, still, a 35% fall on Q2 in 2021, according to data from Gallagher Re.

People started getting picky last year, wanting to see progress and even a return on investment, as covered by TDI at the end of last year.

Despite all the uncertainty from the various things going on around the world, a Gartner report says that IT investments are on track to reach a 6.4% CAGR over 2021 to 2025 (US$271 in 2025 against US$210 billion in 2021).

Finger on the pulse

The author’s are keen to share that some of their crystal ball gazing was accurate for 2022.

They said that distribution channels would continue to be digitised and now agents have been empowered with many more advanced digital capabilities.

Embedded solutions are also in rapidly increasing in number, where seamless customer experiences are boosting growth among underserved customer segments.

Alternate data sources and the cloud being adopted in order to gain operational agility and generate actionable customer insights, say the authors, and these have been put to use to automate and streamline critical internal processes such as underwriting.

Do you know where you’re going to?

But where do they think the market is moving for life insurance in 2023? Well, they’ve identified 10 key themes, the first four of which are customer based, the next three concerned with intelligent use of digital technology to impact revenue streams across the value chain and the final three being about managing the enterprise and identifying strategic organisational priorities, to focus on new and evolving insurance risks. This includes sustainability, cyber threats, and “metaverse frontiers”, whatever they turn out to be.

The matrix above shows how these trends will be prioritised within an operating environment still dealing with rising inflation interest rates alongside stagflation trends, geopolitical instability causing disruption to operations.

There will be an increased focus on customer centric models from new players, high capital lock in and  operational cost overruns and dynamic regulatory activity to be managed.

Within the matrix, “adoption priority” on the y axis indicates the urgency to adopt a trend in order to maximise value creation and because it’s important to the sector.

On the x axis, the business impact reflects its importance to customer experience operational excellence regulatory compliance or profitability, say the authors.

A very good read

There’s plenty of good detailed information and infographics in the report. But ultimately the authors see insurers continuing to modernise operational systems and speed up digital transformation customer needs as being the key focus, by leveraging the demand created by risk awareness heightened during the COVID 19 pandemic.

New business models should lead to product innovation, say the authors, however that relies on “next generation technologies to offer a comprehensive digital experience optimise costs through streamlined IT operating models and build a resilient enterprise prepared to seize new opportunities quickly”.

The insurers going somewhere fast will leverage ecosystem collaborations, and will prioritise operational resilience to include wellness within their strategies.

Agents will receive better digital tools and products that target segments of customers that are currently underserved to help bridge the protection gap. This relies on insurers building technical capabilities across cloud, AI and predictive analytics.

Customer experience will continue to be enhanced as insurers seek to become policyholders lifestyle partners. If they can increase customer trust and loyalty there will be many more opportunities to up and cross sell.

For more on the 10 themes identified by the Capgemini paper, see the full report.

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