Analysts at EY believe that the COVID-19 pandemic represents an opportunity for the global re/insurance industry to “remake itself in line with new societal realities and market needs.”
In a new report, EY argues that more creative thinking is necessary within re/insurance management to rebuild positive momentum across the market.
This should include the continued shift towards digital capabilities, a focus on evolving customer needs, and more agility in strategies and operations.
However, in this complex market EY warns that the most significant risks and largest growth opportunities are becoming closely intertwined, requiring new strategies and approaches to transformation.
Analysts recommend three imperatives as critical for re/insurers to create value for themselves in this climate, starting with redefining and refining their purpose.
“There’s never been an era where the world was more in need of a high-performing insurance industry. But to meet the moment and return to growth, insurers must rationalize and rethink their core strategies — from what products they offer to how they operate to which markets they serve,” EY explained.
“We believe purpose and long-term value are the best lenses for this critical task. Purpose is a useful framework for insurers to increase their relevance in customers’ lives and develop new solutions that align with changing needs.”
Next, EY says that re/insurers should build on initiatives that were accelerate by the pandemic to become more agile and provide more streamlined experiences to customers.
This will optimize business structures, deliver better results for customers, and help to remove unnecessary costs, the firm argues.
“Everything insurers do, from product portfolios and organizational models to marketing and sales programs, should be designed around deep insights into customer needs,” EY said.
“Processes should be digital by default. More agile operations and robust digital capabilities can help insurers eliminate frictional costs at key touchpoints and meet customer expectations for speed and personalization. Those attributes are also critical to boosting performance across the value chain and developing new business models that hold the key to long-term success.”
Finally, EY believes that re/insurers should focus on creating value by optimising their cost management and capital allocation in light of the considerable losses sustained due to the pandemic.
“Serious economic pressure, low interest rates and significant strain on capital reserves and liquidity necessitate hard choices. All options should be on the table — automation, divestment, restructuring and outsourcing,” analysts concluded.
“Even as cost pressures mount, the need to invest in product innovation and expanded digital capabilities is only increasing. The time has come to rationalize portfolios and books of business fully. The goal is lean and agile operations, with a flexible cost structure that can easily scale up or down as business expands or contracts. Rather than tactical cost-cutting, insurers need to manage a strategic cost agenda.”