As we reach the end of the year, insurance business and technology teams are emerging out of intense annual review sessions ready with plans for 2021. The prognosis forebodes caution as executives grapple with scenario options ranging from a quick rebound to further drag in the recovery. At the same time, there are green shoots and those well prepared have plentiful to gain.
2020 has been notable not just for COVID-19, but also for extreme wildfires in Australia, Brazil and Western US. The pandemic realigned consumer needs and behaviors, while speeding digitalization and virtualization of operations. The impact on employment and business activity has resulted in flat global premiums for 2020, with a decline in advanced markets. Despite ongoing challenges, the industry may well rebound to 3% growth next year, with 7% from emerging regions.
Some P&C lines will be hit harder. Workmen’s compensation sales have faced the brunt of job losses, with volume unlikely to return to pre-pandemic levels till Q4 2022. Small business insurance already battered by bankruptcies, faces uncertainty of more retailers, restaurants and personal services outlets closing down.
2021 promises more of what we saw. Insurers need to deal with economic consequences from an unpredictable virus and devastating climatic events. But in chaos, there lies opportunity. Some key trends to expect more of, in 2021:
- Return to profitability fueling increasing M&A
- Growing insurtech investments, especially in emerging regions
- Rise in virtualization and automation of operations
- More product innovation and market expansion
- Changing channel mix and rising ecosystem plays
Improving premium rates with an upbeat outlook for several lines will enable strong players to look for growth through acquisitions, an activity pushed to the backburner in 2020. The industry has been attracting capital, boding well for such deals. Insurers can focus on long-term strategy, deal-making and shirk the uncertainty of the past year.
In 2021, carriers can be expected to target more acquisitions to drive adoption of newer tech and distribution channels. The ability to perform tasks such as remote screenings and virtual claims will likely no longer be seen as a differentiator, but a required operating capability. Partnerships and acquisitions are seen as a more efficient, less risky vehicle than building internal capabilities.
The investment themes emerging from second half of 2020 are seen to set the tone for the coming year. In 2020, six late-stage mega-rounds (Bright Health, Ki, Next, Waterdrop, Hippo and Policybazaar) drove more than 60% of total funding. Early stage deal share grew to 57% – returning to pre-Covid levels. India overtook China for the first time since 2017. More investments in emerging regions is a continuing theme.
With expense management efforts remaining crucial, moving to the cloud is a 2021 priority. Building the cloud foundation will allow insurers to cost-effectively implement analytics and automation tools. Containing claims leakages will be crucial for P&C as they deal with high claim losses. This will drive smarter analytics to identify leakages.
New types of coverage will continue to be spurred in the wake of the pandemic, such as launch of parametric policies, a top product development priority among North American and European survey respondents. Pandemic-induced changes in driving habits and work environments will trigger innovations in personal lines. Pet insurance and cyber insurance, already on a surge, will see market expansions across regions.
Agents and brokers will harness digitalization and get further support from carriers, such as for strengthened security for virtual salesforces. Customers taking to self-service digital modes will see a further uptick. Accordingly, insurers will increase investment in direct online channels, shifting the channel mix. This will be bolstered by transition of offline processes to the digital e.g. signature verification and medical underwriting. Consumers, now inured to seamless brand interactions, will expect integrated ecosystems that holistically address lifestyle needs at numerous touchpoints.
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