“The biggest challenge is that digital transformation is not about distribution, it is not about client engagement exclusively, digital transformation is about transforming the entire enterprise.” - Rob Wesseling
Companies across the industry are undergoing enterprise-wide transformations, the likes of which have never really been seen before, as companies play catch up with the digital revolution and customer experience expectations set by companies like Amazon.
Amid this, executives from several insurance companies gathered to discuss the future of insurance in Canada at a recent virtual conference hosted by Reuters Events.
They say most insurance companies are realizing the need for significant investment in technology. They say some are well on their way, while others still have some way to go.
“The biggest challenge is that digital transformation is not about distribution, it is not about client engagement exclusively, digital transformation is about transforming the entire enterprise,” says The Co-operators chief executive officer, Rob Wesseling.
“We are not used to enterprise-wide transformations. Think about the things that have occurred in the last couple of decades that have been transformational. They have not been at this size and scale. I think that is the biggest challenge for our organization, and I suspect for many others.”
Artificial intelligence initiatives
More, Louis Gagnon, president of Canadian operations for Intact Financial Corporation says companies need to align the development of any platforms – needed to make use of modern tools – with the development of broker and customer connectivity and the development of artificial intelligence initiatives, all at the same time. “The customer, they expect the same kind of experience that they get with all of the other tools they are using. They are not expecting something different or worse, they want something comparable to the best. That is also a big challenge.”
This need for massive investment will continue, putting pressure on already stressed balance sheets – not all companies have weathered COVID-19 challenges as well as others – possibly resulting in increased merger and acquisition activity going forward, as well.
A need for better client communication
Those gathered also discussed a number of short-term and long-term trends affecting the industry, and discussed the industry’s need for better communication with their customers about what is and is not covered by policies, and about the risks in general that insurance companies and their customers need to manage.
The way companies communicate with clients, in particular, is an area that experts say is ripe for change. “I think everything that is related to climate is going to create some real incentive to give more information to better prepare the people, the government, the different stakeholders, to be better aware and prepared for what the climate is bringing us,” Gagnon says.
Stories about companies who haven’t made good on their promise to provide business interruption coverage too, are also putting insurers in a difficult position. Christian Bieck, global research leader, insurance with the IBM Institute for Business Value says the lack of understanding on the consumer’s part is part of a bigger tendency on the industry’s part, to rely on information asymmetry when developing coverage. “By making it easier to understand what is actually in, or what is not in (an insurance policy’s coverage), you could solve a lot of problems immediately. There are solutions and carriers who do that across the globe, but far too few are going that route. I think this is one of the things that will change.”
In discussing the industry’s reputation, Wesseling agrees that some significant change is needed in the way the industry explains and discusses risk. Rather than create messages focused on hard markets and why rates need to increase or how underwriting criteria is changing, he says insurers should instead be communicating in a way that helps clients to better manage the risks they face. “We have not done that as well as we could have,” he says. “Making what we know transparent could have significant impact. I believe it could have a significant impact from a reputational perspective as well. I think it is actually a requirement if we are going to play the role that we should play going forward.”
Proactively mitigating risk
This shift, from a position where insurers are primarily reactionary and responsive, to one where they are more proactively mitigating risk by using information and communication strategies that encourage clients to adapt, is another longer term change occurring in the industry.
More immediately, executives say customer loyalty is changing notably, as well. Consumers are very value conscious, they say, holding all suppliers, including insurance companies, accountable for the value they receive and how they conduct business.
In looking at the nearer future, there are also shorter term and more immediate developments to contend with. Regulatory intervention, shrinking premiums in some lines, higher operational costs were all considerations discussed, as were a number of factors impacting pricing.
Increasing regulatory intervention
In his keynote address, Rowan Saunders, chief executive officer with Economical Insurance told conference attendees that he expects regulatory intervention to increase in the coming years. “I think our regulators now realize there is a need for innovation. We have got to be more responsive to trends. We have to be able to be more flexible on products like usage-based insurance telematics. We have to be more flexible with our pricing and the pace at which we change our pricing models.” Automobile reforms are needed as well, he says. Although in the short-term costs in that line of business are down as a result of COVID-19, he says that will normalize. “We will need reforms across many of the provinces to make automobile insurance more affordable.”
In looking at the broader picture, Saunders adds that the industry is seeing foreign capital being withdrawn from Canada in particularly stressed segments of the commercial marketplace. This is occurring while reinsurers, who are also affected by COVID-19, are beginning to have tighter standards and tighter capacity. Around the world “they can move their resources to where they get properly rewarded,” he says. “I think it will be tighter for us in the next year or two.”
In the near term, he also says companies will be looking at how to introduce and use advanced analytics and artificial intelligence to make decisions. In her own presentation to the conference, Sasha Sanyal, global business leader, insurance with professional services firm, Genpact, says a significant number of executives expect data and analytics to fuel revenue growth, improve underwriting, pricing, risk selection and claims.
Shrinking premiums
Sanyal also says trends in the near term include the development of products with more flexible coverage and payment options, hyper-personalization and a growing need or demand for simpler products.
“Another set of dynamics taking place in certain lines – premiums are shrinking. Operational costs are rising due to a need for crisis management and there is increased volatility in the financial markets. In addition, cybercrime is significantly on the rise, which means there is a need for a much higher spend on information security,” she says. “This requires a specific focus on operating costs and business resilience.”
