Library: Oliver Wyman – Thriving in the Age of Acceleration

January 2023 featured report:

If there was a word that summarised what we could expect in 2023, it would probably be uncertainty.

We are in the ‘age of acceleration’

The continued war in Ukraine, the highest levels of inflation we’ve seen for more than a generation, and the after effects of COVID-19 all point towards the possibility of a recession.

On top of that, the insurance industry must deal with the effects of climate awareness on environmental, social, and governance (ESG) frameworks, and the consequent regulatory oversight that brings, as well as pricing cycles driven by the macro economic environment, all while trying to remain competitive.

These are all issues for insurers to manage in what the authors of this report call the ‘age of acceleration’.

The report highlights 10 things that the leadership of insurance companies should be doing over the coming year to help their organisations make the best of the current situation.

1) Be resilient

Resilience is one of those ever present words on management jargon bingo cards these days. But, following the pandemic, it has been etched on the consciousness of all business leaders that the only way to survive is to have a resilient business model.

With everything going on from war, through supply chain problems, uncertainty around pricing, the impact of climate change, and general turbulence within markets, 2023 is looking as volatile as last year.

The old fashioned way of dealing with uncertainty was to draw in your horns, cut costs and ride out the storm. However, COVID-19 has demonstrated that businesses need to be ready to come out fighting and cutting back on resources can often limit the potential for future growth – or even survival.

Macro resilience programmes are identified as a way for CEOs to focus cost and capacity allocation decisions, so they have the “strategic headroom to weather whatever 2023 brings, while preserving important long term investments”.

2) Create risk fluidity

This point suggests insurers need to focus less on their obstacles and rather more on what the reports refers to as ‘the best of times’. This means “the rapid innovation in products, new distribution channels, flourishing customer engagement and significant profitable growth in revenue volume through new areas” that we have seen insurers pivoting towards, if not necessarily successfully deploy, in recent years.

This means changing how risk and capital flows within an organisation across product channels, business lines and geographies, say the report’s authors. Risk fluidity requires rapid assimilation of market signals and speed of execution. So, getting up to speed, understanding the problem or opportunity and acting fast enough to be able to make the most of it.

Basically, it needs to see everything that the digital transformation process should have delivered into a an insurance business.

3) Build a platform based modular ecosystem

The boundaries between insurers, infrastructure providers and data companies is blurred and becoming less distinct.

The authors say insurers should take the opportunity of “modularising growth” by focusing on their own “crown jewel” capabilities and building an ecosystem of partners.

This one requires some honest soul searching about where you actually add value and should, therefore, stick to what you know best, rather than trying to be a jack of all trades.

4) Be the smart climate player

The net zero transition relies in some crucial areas to the role of insurance. Yet, many sectors are simply slashing exposure to carbon intensive sectors, despite the fact that society will remain heavily dependent on carbon for the foreseeable future.

The authors of this report suggest that CEOs can be the masters of a sustainable energy strategy by “dynamically providing capacity to ensure an orderly transition”.

5) Leave legacy behind

This is a simple message and the goal of insurance leaders the world over. This is because all the things that are required to be successful in this next uncertain period – modularisation of growth, risk fluidity and macro resilience – all require modern technology infrastructures. So, make use of rapid transition solutions and quit hanging on to the past, because it’s not going to help you survive in the future.

6) Evolve beyond risk transfer

Risk prediction, prevention and response are natural evolutions for the P&C industry, which is rapidly developing digital assistants to help customers with insurance and service offerings integrated into home, health and travel products.

Sensors and home maintenance services can drive customer retention and lower claims costs. These businesses can be highly profitable, or at least not as capital hungry as traditional insurance products and complement existing offerings very well. Those who are successful at delivering a predict and prevent strategy to markets that are currently underserved will prove to be very successful.

7) Move forward by integrating backwards

The report shows that in dealing with repairing damage, almost half (44%) of every dollar of premium walks out the door through claims management, in particular to medical, auto body, manufacturers and data providers.

There are high returns to be made on this business if insurers are prepared to integrate downstream activities within the lifecycle of a claim. If done well, it can enhance the customer experience thereby strengthening market position.

8) Become an asset management lead insurer

The last decade has seen a split in mindset between traditional insurers who see liability origination as their primary business and private equity owned businesses that are focused on pulling together and managing assets.

Traditional incumbents should consider which of these models suits their future structure best, and if they wish to preserve a more traditional model, how they can develop strategic partnerships. Whichever way it is requires a lot of work, particularly on organisational culture.

9) Where being a specialist can work…

New areas of insurance tend to develop slowly as providers tip toe into emerging risk and exert caution due to a lack of historical data. But using emerging solutions such as parametric insurance allows insurers to manage their exposure and service their own growth gaps through services beyond risk transfer without affecting their own appetite for risk.

This will not only improve underwriting for them, but generate better data which in turn improves underwriting. What could be more sustainable than a virtuous circle?

10) Digitised customer first

Despite all the overtures made to digital transformation, very little has so far been done about focusing everything on the customer. Technology has been used to right the wrongs of previous administrative errors.

The authors suggest insurers should focus on the customer’s desired experience using an innovator’s mindset rather than worrying about their own processes. Start with the problems that the client has, not products you can sell them, and then invest in technology that will enhance the value proposition without just costing extra money.

For more, see the full report.

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