Looking Back and Ahead to Overcome Current Insurance Industry Challenges
Many challenges, like the impact of inflation on the insurance industry, are affecting everything from customer engagement in insurance to employee retention.
The last year has been marked by significant insurance industry challenges: new entrants into the market, new technology ecosystems, rising premiums, evolving risk factors, legacy architectures, omnichannel experiences, and many more. Fortunately, plenty of providers have demonstrated incredible resilience and adaptability in response to the mixed bag that 2022 brought.
Was it an easy road? Not by a long shot. All providers can certainly attest to that.
The challenges insurance companies have been facing are ongoing. The impact of inflation on the insurance industry, rising interest rates, changing consumer expectations, talent shortages, insurtech advancements, and climate change barely skim the surface of what providers have been dealing with over this past year — and prior years. Chances are more than good that these and other insurance industry challenges will continue in the coming months.
There were bright spots, and it’s important to celebrate our successes as we look forward to what’s likely to come this year. The present is informed by the past, after all, which means the present will inform the future.
A Look Back: Overcoming Insurance Industry Challenges
Transformation has been the name of the game over the past year. That much is hard to deny. Insurers have found themselves taking a multitiered approach to servicing policyholders in ways they’ve come to expect. An arduous task, but paying attention to insurance customer experience trends has led to many advancements in the space.
Here’s a quick look back at how far the industry has come:
What We Saw in Digital Capabilities
Consumers expected functionalities similar to those of retail brands. Thanks to advancements in insurance technology, the industry was able to oblige. These digital capabilities allowed insurers to better meet consumers where they are with a technology-first approach for not only the sale, but also the management of insurance policies.
Meeting consumers where they are, however, wasn’t just a benefit to potential policyholders. The move allowed insurers to capture valuable consumer data, which then went on to inform decisions about products and services. Providers could fine-tune their offerings toward a target audience — and personalize the messaging to spark greater interest. Customer engagement in insurance improved as a result.
What We Saw in Customer Experience
If we were to sum up the customer experience in a word, it would be “frictionless.” Insurers that invested in digital capabilities tried to remove any hiccups along the customer journey. More than half of consumers have said they would buy insurance from the likes of Amazon over traditional carriers, after all. The personalization capabilities alone make it an attractive proposition — not to mention the convenience factor. So, it only stands to reason that providers paid close attention to insurance customer experience trends and did everything possible to make it much easier to buy policies.
What We Saw in ESG
An estimated 82% of consumers prefer doing business with brands that align with their values. This includes insurance brands, naturally. Another 75% have parted ways with companies that were at odds with their belief systems. As such, insurers have been looking for opportunities to strengthen their environmental, social, and governance (or ESG) efforts companywide. The same can be said for diversity, equity, and inclusion — though there’s more room for improvement in this arena. (More on that later.) To be sure, ESG in the insurance sector will continue to be a driver of consumer interest in the years ahead.
What We Saw in Services
Consumer expectations are a moving target, changing constantly. However, insurers have done well to respond by offering myriad value-added services to plans, policies, and packages. A few of note include caregiving services, risk monitoring, home maintenance checks, discount programs, and roadside assistance — all of which were easily folded into traditional insurance.
What We Saw in Advisory Services
Another development of importance was the influx of advisory organizations offering assistance to insurance providers. The benefits of such an advisory service were often felt in the rates offered to policyholders. It also helped accelerate filing rollouts across multiple states, limit regulatory risks, and enable faster company growth.
What We Saw in Nontraditional Insurance
Many providers are now offering health insurance wellness programs as an option. Usually, wellness programs are offered through one’s workplace; now, insurance providers are starting to offer them to their enrollees. This program allows employers to offer discounts, gym memberships, cash rewards, and other motivational incentives to participants. Some examples of the different types of programs include encouraging people to stop smoking, schedule preventive health screenings, and participate in weight-loss and diabetes-management programs.
What We Saw in Cyber
The rate of growth in cyber liability insurance was up 34% in the last quarter of 2021, the most updated statistic available. A good thing, as 83% of C-suite members didn’t believe their companies were ready to combat cyberthreats. An increasing number of insurers began exploring such a product to offer companies both large and small.
A Look Ahead: Navigating Potential Insurance Industry Challenges
The insurance ecosystem is in an almost constant state of evolution. Don’t expect that to change anytime soon. Technology challenges in the insurance industry will persist, and consumer expectations will continue to shift. Policyholders seem to become more discerning (and demanding) by the day. And while some insurers will find themselves in unfamiliar territory, the potential of what’s to come will bring many opportunities. It might require leaving some of the old, more traditional ways behind, but this leaves room for insurers to develop and offer more innovative products and services in the coming years.
Everything from technology and partnerships to talent and consumer experience will be at play in the months ahead.
What We’re Seeing in Talent and Hiring
Diversity, equity, and inclusion are still important to employees, especially those from younger generations. However, reports show that there are substantial opportunities for diversity and inclusion in the insurance industry to improve. In 2021, the largest insurance companies had a lower percentage of employees of color than the largest banks and investment firms:
• 30.5% in insurance.
• 40.6% in investing.
• 42% in banking.
The insurance industry still shows signs of needing improvement in other areas as well. For example, only 4% of people in the industry identified as having a disability.
The inverse is true for women. As of 2021, 77.2% of administrative support employees identified as women, while 22.8% identified as men. However, women only made up 33.5% of people at the executive level and 28.5% at the board level.
On the employer side, Justworks found that perceptions about insurance can impact employee retention — an important fact to note when working with companies on employer-sponsored plans. This benefit affects jobseekers’ employment decisions. In fact:
• 78% say health insurance that meets their needs is an important factor in the job search.
• 64% say they’d sacrifice some pay for better health insurance.
• 63% say their coverage impacts their desire to continue working at their current employers.
What We’re Seeing in Sales and Distribution
Signs point to three technologies shaping the foreseeable future of mobility and auto insurance:
• Autonomous driving.
• Connectivity and embedded telematics.
• Vehicle electrification.
With these technologies, an exciting new business dynamic could potentially form between original equipment manufacturers (or OEMs) and insurance carriers — much of which will involve connected cars and embedded telematics. According to McKinsey & Company, connected cars will account for 90% of new vehicle sales in the U.S. by 2025.
Customer and vehicle data will become more accessible, which puts OEMs in advantageous positions compared to intermediate insurers. However, this trend toward connectivity also paves the way for new partnerships and distribution arrangements.
Though a different sector, the insurtech company Hippo struck up partnerships with ADT and Handdii in recent years to make security and home repair services available to policyholders. Bold Penguin and Snapsheet, both insurtech platforms, formed similar partnerships with the likes of Microsoft and Salesforce to help build out their own insurance ecosystem software capabilities.
Ford and Tesla now offer insurance plans to their customers. Volvo is following suit, but the auto manufacturer is working directly with Allianz in an effort to establish a collaborative insurance ecosystem. Regardless of the arrangement, auto manufacturers and insurers have fairly large customer bases, allowing both parties to extend their reach into new channels. And with consumers looking for greater ease and convenience with any transaction, insurance products tailored to an automaker’s line of vehicles hold great promise.
What We’re Seeing in Marketing and Customer Experience
With the changing market dynamics, it shouldn’t come as much of a surprise that new partnerships highlight marketing and insurance customer experience trends.
Group insurers, in particular, are leaning further into the innovation of both areas. An increasing number of providers have begun to partner with third parties and even other providers with the goal of developing “as-a-service” offerings. An end-to-end solution is a smart move in this space, as it can usher in simpler onboarding, enhance customer support, and add greater ease to claims management processes.
If not an end-to-end solution, providers, in general, have been investing in technology as a means to improve customer engagement in insurance, as well as the partner and agency experience. One area garnering attention is the digital insurance platform, and for good reason. First off, it adds much-needed speed for bringing products and services to market. It also allows insurers to adapt their offerings’ attributes quickly and provide advanced customer service, even so far as to enable straight-through processing.
More importantly, digital insurance platforms often offer advanced functionalities that can be of benefit internally. Administrative, enterprise, analytics, and so on can all see improvements with the implementation of the technology, as it can integrate disparate systems and increase overall information accessibility, if not new capabilities.
Besides, almost all digital insurance platforms open up new market and distribution channels. Technology simply makes it much easier for insurers to extend their points of sale into OEMs, contractors, retailers, etc.
Even then, however, there might still be a gap in customer experience with employed individuals. The same Justworks survey mentioned above found that:
• 72% want health insurance recommendations specific to their needs.
• 62% don’t change their coverage year over year due to the stress of the process.
• 49% feel pressure to select the most expensive option.
• 47% call friends and family for advice during healthcare enrollment.
All these numbers taken together present an opportunity for insurance providers to offer employers services that improve the employee experience — and better employee experiences lead to better customer experiences.
What We’re Seeing in Products and Product Changes
Inflation will always do a number on P&C insurers. Today is no different. Almost every line of insurance has been experiencing increases in claims costs and expenses. Efforts to counter the current economic climate will be essential, which will likely lead to insurers adjusting their pricing strategies and exploring ways to tighten up their operational resilience. This will naturally require closer involvement of those in the C-suite to guarantee the best response.
This isn’t to say that the insurance sector was free of challenges with its profitability prior to rising inflation. It’s just that the general increase in prices, combined with the decline in purchasing power, has exacerbated the problem. In 2021, price hikes led to a roughly $30 billion increase in loss costs. That’s over and above historical loss trends.
As with any industry, there’s always room for improvement. The insurance sector has taken steps in the right direction on many fronts and has been resilient in the challenges that it’s faced. Now is the time to look back at what has been accomplished, not just to celebrate how far we’ve come but to find those opportunities to improve services and better tailor products to the generations to come.
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Published on May, 2, 2023.
PIMA® (Professional Insurance Marketing Association®) is a member-driven trade association focused exclusively on the affinity market.