Becoming an insurer of the future: global insurance industry at a pivotal point to find the path to its long-term success

Necessity has been the mother of reinvention for the insurance sector in the past few years as the majority of insurers were remarkably adaptive and resilient in overcoming obstacles imposed by the COVID-19 pandemic. The new means for customer engagement, the enhancement of internal capabilities and the agile pivot towards new business models are clearly investments that have paid off thus far. But is the industry ready for the new emerging challenges heading into 2023 and beyond?

Insurers are facing a host of new macroeconomic and geopolitical challenges that pose potential threats to growth and profitability – including the looming threat of global recession, climate change, lingering COVID-19 concerns, and competition from non-traditional entrants into the marketplace.

As Deloitte's 2023 insurance outlook points out, in setting strategic plans, investment priorities, and budgets to fully transform into an insurer of the future, insurers needs to build on the momentum that enabled their transition to a remote workforce and virtual client engagement nearly overnight.

More fundamental adjustments should also be considered to maintain a culture of innovation while making customer-centricity the sector’s standard operating model. The Outlook focuses on five major trends that could ultimately turn out to be competitive differentiators for insurers in 2023.

Moving the dial through digitalization: from core-to-customer to customer-to-core

"The goal for 2023 and beyond should be to better optimize the benefits of technology investments to enable insurers particularly in this part of the world where we have observed varying degrees of maturity and digital adoption increasingly agile, innovative, and customer-centric. This in our view is a critical point for differentiation and clearly goes beyond basic operational transformation and meeting regulatory requirements to deploying tech upgrades that meet or exceed the expectations of policyholders and distributors," says Joanna Wong, partner and Hong Kong Insurance Leader at Deloitte China. "In addition, many insurers in Hong Kong have started revisiting their expansion or entry into the Greater Bay Area (GBA) as a digital play. For these insurers, clearly, they need to take into consideration the cross-boundary differences and similarities as they continue their digital transformation journeys."

Migration to cloud platforms might be the most significant technology initiative launched by insurers over the past few years. However, many are still struggling to realize cloud's full business value beyond table stake cost savings and efficiency gains. Insurers should already be taking steps to overcome lingering legacy obstacles and core system interoperability challenges, to amplify system capabilities while making data more accessible and actionable; then leverage cloud as a driver of innovation, differentiation, and growth.

Setting sights beyond compliance to make ESG a competitive differentiator

"Insurers are seeing ESG in an increasingly positive light rather than as mere risk management and are capturing this opportunity to grow their business while making an impact," says Francesco Nagari, partner and Hong Kong Financial Services Industry leader at Deloitte China. "The fact is, insurers are well-positioned to be at the cusp of the transition to a low-carbon economy, given their crucial roles as both underwriters of, and institutional investors in, carbon-intensive industries."

Insurers should consider several steps to accelerate climate risk mitigation across the value chain, from introducing new products, services, and premium incentives, to raising awareness and adding risk management services.

Acquiring capabilities and entering new markets via M&A

Global M&A activity among insurance companies slowed in the first half of 2022. According to an S&P Global Market Intelligence analysis published in August 2022, insurance broker deal activity slowed sharply as the calendar turned from 2021 to 2022. Future M&A activity is hard to predict due to macroeconomic and geopolitical considerations.

"Consolidation of small and mid-sized insurance players is a long-term global trend. In China, these players face challenges arising from new capital requirements, poor capital market performance, and a lack of differentiation initiatives," says Barry Man, partner and Chinese Mainland Insurance leader at Deloitte China.

"Going into 2023, insurers should be strategic in deciding which markets, products, and customers will be most beneficial to target and reposition portfolios to unlock and redeploy capital."

Reinventing workplace strategies and culture as talent competition intensifies

Virtualization of work during the pandemic has fueled revolutionary changes in employee expectations and upended traditional employment models. Flexibility, career path, financial wellness, and inclusion appear to dominate many employees' aspirations. Insurers’ conservative reputation exacerbate challenges in competing for skilled talent.

Many insurers have managed this transition well, but others will struggle to recruit and retain staff if they do not change their cultures to become more attractive places to work particularly in light of the talent crunch across the region. Culture shifts can create irresistible work experiences.

"Insurers have to reinvent their human capital strategy to nurture a digital innovative and yet diverse and inclusive culture that attracts and retains talent. Many major insurers are looking beyond the traditional means to develop an employer value proposition that can enable them to become an employer of choice," says Wong.

Making data more actionable for innovation and growth

Over the past five years, many insurers have spent considerable effort, and billions of dollars in finance and digital transformation and digitalization. These investments should also serve as the foundation for more comprehensive and proactive transformation initiatives that require more cross-functional collaborations.

Going forward, insurers should be turning their attention beyond regulatory compliance to enhanced data management and utilization capabilities that ultimately generate greater insights and improved performance, i.e. becoming an insight driven organization. The challenge ahead will likely be how to make data more actionable for innovation and growth through advanced analytics and artificial intelligence across the enterprise.

Nagari adds, "The next big reporting challenge for finance departments is likely to be an increasing demand for information about ESG issues – from climate risk in underwriting and investments, to diversity and inclusion in staffing and leadership, to finance equity in coverage availability and pricing. Yet, unlike with accounting changes, multilateral standards are lacking and ESG assessment/rating firms often create duplication of effort, additional time and costs, and confusion."

To conclude, becoming an insurer of the future requires a mindset change which will likely depend on how quickly and effectively insurers can move from responding to requirements of regulators and other industry overseers to more proactively anticipating and fulfilling expectations from distributors and policyholders to fully realizing the value and benefits of infrastructure and technological upgrades.

Access the 2023 insurance outlook here for more details.