A new report from Deloitte Insights looks ahead to the challenges and opportunities facing risk managers in 2023.
Deloitte Insights’ 2023 Insurance Outlook offers a colorful overview of the issues that the Deloitte Center for Financial Services considers most likely to transform the insurance industry in the coming year – including the challenges already being faced of these, threats looming on the horizon and, happily, areas of potential opportunity and growth.
Intended to provide guidance to senior-level decision makers in the risk management industry, the report examines everything from “macroeconomic and geopolitical challenges” to the finer points of building cloud infrastructure.
Threats and Challenges
Many risks that Deloitte expects to cause in 2023 are very familiar: the volatility of the global economy, the Russia-Ukraine conflict and its effects on the supply chain, and the long-term impact of the COVID- 19. , not to mention climate change and the resulting outbreak of catastrophic weather events.
Some emerging risks are intensifying. Cybercrime, for example, is still a growing concern: “The frequency of Ransomware increased by 235% in 2021 compared to 2019,” the report says, and “the average ransom payment increased by 370% in the same two years stage.”
Inflation, now the highest in three decades, will continue to make some things worse (such as labor, operational and other costs) while barely holding back others (such as more favorable investment yields and annuity spreads ).
Recent increases in P&C rates have shielded many insurers from the worst effects of inflation, especially commercial lines, and growth has returned to the European and North American markets. But inflation is pushing the cost of loss at least as fast, which is holding back profits (by May 2022, “the average cost of replacement has increased by 16.3%,” the report says – almost double the increase in the index at the consumer price.)
Additionally, premium growth may slow.
Global life insurance premium growth is actually predicted to contract slightly in 2022 – by -0.2%, the report suggests – in line with demographic trends: Younger potential customers are less familiar with the features and value of life insurance, while older potential customers feel less comfortable buying coverage online, as it is quickly becoming the norm.
Rising rates related to inflation may also make it more difficult for the insured to obtain or change coverage, or force them to reduce their spending or even allow coverage to disappear entirely.
Traditional insurers may also face new competition from the rise of Insurtechs (investment in Insurtechs is expected to reach a record $17 billion by 2021, a figure just shy of the combined investment of the previous four years), and even “non-insurance entities such as e-tailers. and manufacturers.”
Finally, the insurance industry (like many others) faces a shortage of experienced staff as the most experienced employees near retirement age and a constrained talent pipeline struggles to fill. in the void.
Growing Areas
As many risk and insurance executives know, when there’s change, there’s opportunity.
Even as inflation tightens the market, there is still potential for “organic growth,” the report says — particularly in the small business insurance market, where businesses surveyed by Deloitte are looking “new kinds of policies”; “greater flexibility in terms, pricing and payment”; and “more holistic loss control services” in addition to increased cyber coverage.
Speaking of cyber: While the NFT bubble may have burst, at least as far as high-priced digital art goes, the potential of crypto and NFT tied to virtual activities set in the metaverse has yet to be fully realized, and what the digital assets. are still largely uninsured.
It remains to be seen how much consumers expect or demand for their digital assets, but as offline activities slowly migrate into the digital space, we should expect to see people looking for more security.
Green energy is another area ripe for growth, according to the report; globally, buyers are expected to spend an additional $125 billion in insurance costs related to the transition to green energy by 2030.
According to the London & International Insurance Brokers’ Association, “The London insurance market could double in size just by covering the global transition to green energy for policyholders seeking to achieve net zero carbon emissions.”
Similarly (albeit operating on a longer timetable), autonomous cars will eventually shift billions of dollars in premiums away from personal auto insurance and into “products and professional liability coverage” as the blame shifts from the drivers to the makers of the technology and software that operate their vehicles.
While this transition will take time, insurers need to plan ahead, perhaps by designing hybrid policies that can accommodate vehicles that switch back and forth between autonomous and human-operated modes.
Opportunities for Insurers
Some areas where Deloitte anticipates growth are specifically in risk management.
Embedded insurance – that is, coverage purchased at the point of sale of a product or service, such as travel insurance, rental car insurance and extended product warrantees – is expected to grow sixfold by 2030, to a total of $722 billion, as buyers come. expect these services as part of a more seamless customer journey; China and North America are predicted to account for about two-thirds of that growth.
While the loss of life and short-term disability ratios are still elevated as a result of the global pandemic, they are slowly returning to the expected baseline (dental claims, on the contrary, fell during the pandemic but now rising. ).
As these long-term fluctuations return to a more predictable pattern, “more holistic employee benefit packages” may be appealing for insurers looking for long-term organic growth, may work with third-party vendors. Paid family and medical leave in employee benefits packages are now required in some states, which can be a challenge for small employers but could spell an opportunity for insurers to address the their needs.
In other words: Some Insurtech platforms constitute a direct competitor to traditional insurers, but others may present valuable opportunities for collaboration — especially in the development of new services and methods for those customers to interact with them, or to use the data available to them.
As Deloitte’s report says, “Many carriers often treat data as an infrastructure cost to manage, rather than a strategic asset that helps them learn more about customer needs and wants.”
Rebuilding your legacy offline cloud infrastructure is a wasted opportunity; instead, a move to the cloud should “be the beginning of an ongoing transition that encompasses many data, systems and processes.”
Emerging third-party providers of scalable “industry cloud” solutions with preconfigured capabilities tailored to users’ needs make it possible to “plug and play segment-specific functionality into a more general cloud formation” – that is, decentralizing your data architecture and adding an interface layer may allow potential clients to reach new, more user-centric services in new, more function-oriented methods.
Home Management
Deloitte’s report also includes a more general set of priorities and principles to keep in mind as we approach 2023.
It noted that the industry was remarkably successful in adapting to the pandemic – made possible by investing in technology and talent that began before the pandemic began, and fully realized because the pandemic proved their value to stakeholders – and that this momentum is precious. resources.
Insurers, it said, should continue to invest in more virtual and distributed ways of engaging with consumers, to take full advantage of the “more agile digital infrastructure” required by the first day of the pandemic – to “pivot from laying the foundation … to fully realize the value and benefits of infrastructure and technological progress.”
This need to “prioritize greater levels of experimentation and risk-taking” extends beyond infrastructure to include proactively introducing new products, services and distribution options that customer-centered – and even cultural changes that affect the recruitment, (re)training and retention of top talent.
Indeed, the search for customers and talent highlights the growing importance of DEI and ESG, the report says. A company’s position on diversity, equity and inclusion, and environmental, social and corporate governance is more likely to be a determinant in the fight for talent, investors and market share.
A shortcoming of many ESG measures is that it is difficult to prove that they work, mainly because they tend to be reactive – responding to regulations or other external pressures – rather than being proactive in a way that show true leadership.
To that end, groups such as the World Economic Forum publish metrics that insurers can use to evaluate their achievements against a wide range of ESG criteria.
Fortunately, risk managers are in a unique position to facilitate the transition to low and zero-carbon energy.
As Deloitte’s report says, insurers can help reduce climate exposures through incentives to use electric vehicles or retrofit assets. They can also offer new coverage that carries the risks of transitioning to more sustainable energy sources – to emerging suppliers of renewables and to legacy producers seeking to reduce their impact on the environment. &
