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COVID widened insurance innovation divide: AM Best

28th March 2022 - Author: Matt Sheehan

Analysts at AM Best have argued that the COVID-19 pandemic has widened the ‘innovation divide’ among nonlife re/insurers, with a clear link to better top-line growth for insurers with more-developed innovation initiatives.

innovation-lightbulbIn a new report, the rating agency found that global nonlife insurers with higher innovation assessments had a five-year average net premium written growth rate of 11.9%.

Meanwhile, those assessed in the bottom two tiers – moderate and minimal – had growth rates of 9.1% and 7.9%, respectively.

Companies with higher innovation assessments also reported lower loss and expense ratios, as well as less-volatile underwriting results, analysts reported.

According to AM Best, the divergence in premium growth rates became particularly acute in 2020, as more-innovative companies leveraged their digital operating models to continue business as normal, while less-innovative companies struggled to retain existing customers or attract new customers.

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To fully capitalize on emerging technologies and capture operational efficiencies, AM Best believes less innovative insurers need to address legacy systems.

“The costs and risks associated with migrating to new systems can be daunting,” said Edin Imsirovic, associate director, AM Best.

“Still, due to shrinking payback periods and proliferating efficiencies, the issue of legacy systems may well become a key priority for insurers.”

The report concluded that innovation leaders in the insurance industry have proven the competitive advantages of innovation as tool in the strained underwriting and investment environment of the pandemic.

As a result, insurers that have not transitioned to a more automated process or modernized their IT systems have paid the price with higher expense ratios, while earlier adopters of digital transformation initiatives have been able to translate their innovation efforts into concrete results, bolstering their financial strength.

And as some of the pressures in the underwriting environment ease, AM Best expects that innovation leaders will further cement their expense optimization.

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