Approximately 5 minutes reading time
When the corona pandemic first broke out over a year ago in Europe, it turned everyday life upside down. Shops closed. Masks were donned and everyone was suddenly working from home. Although, from a business perspective, at first, little seemed to change. Work continued. Corporations kept on running. You could almost be forgiven for thinking that, in the world of business, not much had changed.
A Brewing Storm
But, Gartner (in their article "Urgent Need for Insurance CIOs to Stress Test Their Insurance Core Systems") certainly does see changes and is advising insurers to stress test their business models and core systems. By and large, innovation in the insurance world does not happen very fast, and there is often no urgent need for change. The major drivers of change, such as shifts in consumer behaviour or technological innovation, do push the insurance world forward, but only gradually.
Although, on the surface, from a business perspective, it may seem that little has changed, the consequences of the corona pandemic are actually having a major impact, making stress-testing and innovation essential. Gartner sees 5 trends caused by the corona pandemic, namely:
- Economic contraction;
- A greater need for self-service;
- Distribution shift;
- A greater need to cut costs;
- A change in customer behaviour (e.g. reduction in car use).
The above trends affect both life and non-life insurers, with some trends more applicable to life insurers (for example, possible negative interest or poor investment results) and some more to non-life insurers (for example, using the car less, resulting in less damage). We can certainly say that trends 2 through 5 have a significant impact on non-life insurers. So, let's zoom in on this a little bit more.
Self-Service: It’s not Only the Millennials and Gen Z Who Want to do their Business Online
In the insurance world, we have been talking about changing consumer behaviour for years now. The suggestion is that millennials and Gen Z in particular want to arrange their insurance online and to be able to contact their insurer via the platforms they use the most. For the older generation, it was thought that calling and emailing an insurer was mainly their preference, but that perception is now clearly outdated. In 2020, everyone, both young and old, came to the realisation that doing business online is easy. Click & collect has become a new phenomenon, and parcel delivery services have experienced unprecedented growth due a massive increase in online ordering. It is this trend that has triggered a major change in the way we do business. Because, if you can do your shopping or order clothing online, why not manage your insurance online or handle your claims STP?
For insurers, the key question is whether their online environments are adequate and whether their business is sufficiently automated. Traditional systems do offer some online solutions and some processes are automated, but is it enough? Being able to arrange a few things online was good enough for years, but can traditional systems cope with the level of digitisation that is now required? According to Gartner, it’s time to take this question seriously.
Distribution shift; Direct-to-Consumer
The increased demand for self-service, the trend described above, also directly affects distribution in the insurance market. Consumers have become accustomed to arranging everything themselves online. In markets, and within back-office systems that have been used exclusively for agent or bank-assurance based revenue models, challenges can arise with the Direct-to-Consumer model.
The real challenge is the need for insurers to configure new products, or variants of existing products, for a more direct customer approach. The questions that insurers must ask are: “Is it possible to quickly configure new products with our current system? Are all business rules hard-coded or can they easily be adapted to new products? If you, as an insurer, deliver your products through an intermediary channel, how much effort does it take you to make the transition to Direct-to-Consumer?"
The Need for Cost Cutting
Insurers across Europe are responding to the deteriorating economic outlook. Gartner sees that, amongst other things, savings being made on personnel costs. For insurers, a reduction in staff means they have to have more efficient internal housekeeping. After all, there are fewer people to accept insurance plans and handle claims. According to Gartner, there will be more pressure on operational efficiency and, so, it is essential for CIOs and CTOs to turn their focus to this. The consequences could be that existing workflows, business processes or business rules need to be redesigned or embedded in external automation tools. For CIOs, the question arises as to whether their current systems are capable of making this move. Is it still possible to quickly and centrally define your insurance processes in your legacy system? It is possible to mask any limitations of the current legacy by linking to new platforms that integrate data and make it freely available.
New Business Models; Changes in Customer Behaviour
Usage-based insurance is a phenomenon that surfaced years ago, but has never really taken off. Traditional business models were deemed adequate and the technical design of a usage-based insurance model was often difficult.
As everyone is now mainly working from home, the question has to be asked whether traditional business models are really able to meet current and future needs. Maintaining current business models in order to ultimately achieve a positive combined ratio on, for example, the car portfolio may be a strategic choice, but the question is, of course, how future-proof is this? Because of the increased numbers working from home, cars are being used less, which means that there are fewer claims than normal. Paying according to use is, therefore, a much more obvious proposition than it was before the corona pandemic. The question that automatically comes to the fore is: "How are you going to make usage-based insurance technically possible?" Can the current back-office system make this move or do you have to prepare yourself for a new IT environment?
Conclusion
The corona pandemic has turned our entire world upside down. Although the initial impact was mainly on our personal lives, the consequences are now also being felt in the business world. The pandemic has triggered more significant and enduring change than we could possibly have anticipated. It is time for insurers to ask themselves whether their current housekeeping, IT landscape and business models are still adequate. Gartner calls this a stress test. After a year of corona, it is certainly clear that this pandemic has highlighted the pressing need for increased innovation.