The Road to Resilience: How Insurers are Weathering the Economic Storm

This article was published in The European Financial Review and is shared with the kind permission of the publication.

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The insurance industry has a relatively straightforward role: to build the resilience of society by providing a financial backstop for individuals and businesses if the worst should happen and they need it most. Putting this into practice in today’s landscape, however, isn’t always a straightforward exercise.

From the impacts of economic and social inflation on both an insurer’s financials and the cost of the claims they face, the consequences of the climate crisis, and the insurability criteria of emerging risks such as cyber, there are numerous headwinds that are impacting the outlook for this economically critical sector.

To overcome these challenges, insurers are practising what they preach, and focusing on their own resilience – from operational resilience to financial and regulatory resilience – and there is a concerted drive in the industry to embed the right tools and skilled personnel exactly where they are needed within an insurance operation.

The starting point for any insurer on this road to heightened efficiency has to be that of regulatory resilience, especially in the form of environmental, social and corporate governance (ESG). While ESG has been on the agenda for some time, we are now entering a period of increased scrutiny from multiple stakeholders, where ESG credentials are being likened to that of the historic Kitemark accreditation. Not only do they act as a reflection of your company ethos and culture, but they reflect the behaviours, actions and ethics of your clients and business partners as well.

The talent war
The benefits of adopting ESG measures should not be underestimated. For those seeking to work with the very best companies, not to mention the very best of the talent pool, meeting ESG requirements is critical.

As many will note, encouraging new talent into our industry is an uphill struggle. This is because our world is changing; it has become more complex, more focused on technology, and as a result the traditional insurance model has evolved. Underwriting is now intricately woven with coding, data is now science-based, and risk mitigation is interlinked with predictive analysis.

The rise of technology has also flattened many steps for career progression, not only by removing the need for separate divisions within corporate structures, but by reducing employee numbers as well.

The combination of all these elements means insurers need to do all they can to secure their future workforce, and adopting ESG standards is the most obvious step to achieving this. The fact of the matter is that today’s generation is seeking employment with firms that are ethical and honest. A fancy website won’t cut it anymore; they want substance, transparency and opportunity. And let’s face it, having ESG at the heart of your business operations is simply good practice anyway.

No company is an island
The changing nature of many company blueprints isn’t the only structural shift happening in the industry. The rise of insurtechs and the need for technology to achieve a step-change in customer delivery in a cost-effective way is one of the many battlegrounds the industry still has to master. To succeed, insurers need to be nimble in the face of customer demands, and for this they need the right technology. No matter what size territory you are working in, only those businesses which are adaptable and have speed to market will succeed, and partnering within a digital ecosystem is a tried and tested method to ensure this outcome.

A fundamental part of the industry’s digital transformation – a move propelled by the pandemic, the changing nature of consumer buying habits and the rise of the insurtech – digital ecosystems provide a platform for insurers, tech providers and MGAs to work together, to enable access to new markets, territories, technology and distribution methods that would have otherwise been out of reach.

Unfortunately, the current turmoil surrounding insurtech investment stemming from March’s collapse of Silicon Valley Bank is likely to impact the success of new insurtech start-ups for at least the coming months. However, there are many established insurtech businesses that still enjoy sustainable growth in the market and are committed to remaining crucibles for innovation.

In time, the insurtech sector and its investors will bounce back. But, for insurers and insurtechs navigating the choppy waters ahead, seeking out trusted and established ecosystem partners who know the market and can offer such varied and expert support from different practitioners from both within and outside the industry is key. Whether in pursuit of new products or distribution models for brokers and MGAs, ecosystems essentially allow insurers to be nimble in the face of changing consumer demands.

One such area gaining particular traction in this field is embedded insurance. Made possible by technology and the increasing uptake of smart devices, such as smartphones, watches and vehicle telematics, this product harnesses the power of interconnection, real-time data, and the Internet of Things.

And this isn’t the only way that technology is helping the sector. The adoption of technologies such as automation, artificial intelligence and machine learning are streamlining operational processes, which is helping remove frictional costs. Considering the insurance market picked up a US$120 billion claims bill in 2022, such savings will surely be welcomed, and could eventually be iterated back as a better price for customers.