As we enter the new year, it’s once again time to examine the industry trends and emerging technologies that are shaping insurance in 2021. Unquestionably, this past year has brought severe and unexpected challenges to businesses and consumers worldwide. At the same time, we’ve learned some valuable lessons, including the critical importance of both planning and agility when building out a long-term growth strategy. By infusing decisive action with flexibility, your organization can continue making progress and serving customers, regardless of changing circumstances.
Part of the new normal is recognizing that “normal” is neither universal nor permanent. So with humble acknowledgment of an unknown future, we’ve identified 12 key developments you’ll want to pay attention to in 2021.
Are insurers going back to the office soon?
In the early days of the pandemic, companies across the globe urgently switched to a partially or fully distributed workforce. Once situated with remote-friendly processes and technologies, many of these employers and employees soon discovered some surprising benefits – most notably, decreased costs and increased productivity – from the new work arrangements, which are likely to continue even after the pandemic. In a recent Mercer survey, the majority of respondents, including 83% of financial industry participants, intended to continue leveraging flexible work options at a greater scale moving forward.
The 2021 workplace will likely be marked by more virtual meetings, web-based industry events, and online customer communications. By strategically implementing digital solutions – such as automation (e.g., automated billing systems), mobile solutions (e.g., claims adjuster apps), project management software (e.g., online task management systems), and remote network security software and hardware (e.g., VPNs) – insurers will be better positioned to handle a wide array of working conditions, whether at the office, in the field, or working from home.
How important are digital claim payments?
Between social distancing and touchless everything, digital payments quickly became an essential technology for carrying on commerce activity in 2020. However, although most insurance companies already offered some degree of digital premium payment options to their customers, digital disbursements had not yet been as widely adopted. Once the pandemic hit, outbound payment functionality quickly became a major focal point for the industry. According to the SMA Market Pulse Insights 2020 report, 81% of personal lines insurers and 57% of commercial lines insurers are pressing forward with, even accelerating their digital payment technology plans in the upcoming year.
As more insurers adopt digital disbursement capabilities, consumers will not only expect but seek out those companies that offer a full range of modern payment options. Implementing a full-stack inbound-outbound payment solution will be more important than ever in 2021 and beyond.
How is the “new normal” impacting the insurance customer experience?
In a socially distant world, people across the globe have had to shift their personal interactions over to virtual platforms. Hence, the rise of the web-based happy-hour, live-streamed wedding ceremonies, and online group fitness programs. Likewise, in commercial activities, consumers flocked to brands that already possessed - or quickly adopted - strong remote access capabilities.
These businesses have been able to maintain their customer relationships by offering the full range of experiences through online channels, and insurance was no exception. The pandemic led to a nationwide surge in auto insurance shopping, and direct carriers significantly outperformed their traditional counterparts.
Just as businesses found operational benefits once employees began working from home, consumers have become accustomed to the added convenience of remote business dealings. Moving forward, insurers should not only replicate the pre-COVID customer experience in a virtual format but reimagine the entire customer journey with the resources available in a digital environment.
How will COVID-related litigation and legislation impact the insurance industry?
The 2020 COVID-19 pandemic has created (or exposed) several new legal issues. Throughout the year, business interruption claims and questions of liability have continued to play out in courts across the country, with mixed results. Until such time as precedents are established, insurance providers can expect a bumpy road of ongoing litigation in 2021 and beyond.
In the meantime, federal and state legislators and policymakers are reviewing several options to help sort out many of these issues. Insurers can track the status of pandemic-related bills in each state on the National Conference of State Legislatures website. Additionally, the U.S. Congress is considering the Pandemic Risk Insurance Act of 2020 (H.R.7011), which would allow insurance companies to opt in to a newly formed federal reinsurance program within the Department of Treasury to help offset costs incurred in future pandemics.
What can insurers do to help reduce the growing risks associated with climate events and the pandemic?
Over the past few years, ESG analysis – the consideration of a company’s environmental, social, and governance factors when determining the value and sustainability of that business – has become increasingly important in the financial industry. As multiple global crises converged in 2020, climate change and social justice joined the pandemic as critical focal points among governments, NGOs, businesses, and consumers alike.
The insurance industry plays multiple roles in the ESG movement. Many providers already include environmental and governance factors in the underwriting process. As ESG-related risks continue to increase and more data is available, the ensuing rise in premiums will incentivize commercial customers to adopt cleaner, safer, more equitable business practices.
At the same time, insurers can raise the ESG standards within their own organizations. In addition to making the world a better place, adopting ESG practices can lead to improved employee recruitment, retention, and productivity, increased customer loyalty, superior media coverage, and many other benefits of corporate sustainability. In a recent Deloitte survey of senior insurance executives, 88% of the respondents in the U.S. and Canada indicated they plan to reprioritize environmental, social, and governance issues moving forward.
How much ‘digital transformation’ does insurance really need?
Although insurtech has been on the rise for nearly a decade, the pandemic accelerated the industry’s need for digital solutions. Cybersecurity, big data, digital payments, virtual claims management, remote work access, omnichannel customer service, and many other trends of the past few years quickly evolved from a matter of business efficiency to one of necessity, as insurers and policyholders were suddenly cast into a socially distant world. A recent McKinsey Global Survey of executives estimated that the insurance industry’s technology adoption in 2020 was equivalent to three to four years’ worth of progress at the pre-pandemic pace.
The recent upsurge in insurtech investment reflects this increased demand, with a record-breaking third quarter in both funding amount and number of transactions. Partnerships between insurtechs and insurance providers will become even more essential over the next year as insurers continue to adapt and refine their technology plans to accommodate the new normal.
How do insurers use RPA?
Insurers use robotic process automation (RPA) to digitize repetitive or rule-based administrative tasks. It is commonly used for purposes of conversational process automation (CPA) – which includes chatbots, interactive voice response (IVR), and virtual customer assistants – to handle routine communications and transactions. These automated systems allow customers to ask questions or perform basic account functions at all hours, freeing up customer service providers to spend time on more complex matters that require human attention.
Other processes that can be automated include generating quotes, detecting fraud, producing bills, analyzing market opportunities, and issuing payments. By increasing efficiency and expanding operational capabilities, RPA enables insurers to be more innovative and provide more personalized service.
Will insurance make it through the recession?
The pandemic has impacted nearly every aspect of the American economy, and insurance is no exception. Unemployed policyholders are not able to make their auto insurance payments, consumers are defaulting on their mortgages, closed businesses are dropping their commercial policies, layoffs have reduced workers’ comp and health insurance policies, and life insurance has experienced an increase in claims due to the pandemic’s tragic mortality rate.
This economic turmoil led to a massive acceleration in the industry’s digital transformation. Technology has helped insurers maintain a remote workforce, enabled policyholders to more easily pay their premiums, automated time-consuming tasks, and otherwise helped the industry streamline operations. By leveraging new and existing technologies, insurers will ultimately be in a position to provide a better overall experience to their customers.
How is COVID-19 changing different lines of business?
While the entire industry has felt the impact, different lines of business have been uniquely affected by the economic upheaval. In many cases, insurers and insureds are turning to digital solutions to help mitigate some of the financial fallout and improve stability moving forward. A few examples include:
Auto Insurance: A recent Streetlight Data report reveals a significant decline in commuter traffic in 2020, leading to a surge in consumer interest in pay-per-mile auto policies. Policyholders who plan to maintain their flexible working arrangements will likely want to continue aligning their insurance rates with their driving habits. Additionally, auto insurance customers shopped online for new providers at record rates in 2020, which means insurers will need to focus heavily on the customer experience to increase retention in 2021.
Travel Insurance: Few industries were hit harder by the pandemic than the travel industry. Between the cessation of nearly all unessential travel and the associated trip cancellation claims, travel insurance had a tumultuous year in 2020. Most providers have had to adjust both their coverage options and rates to accommodate the new COVID-19 risk. Despite the higher price, some experts are predicting an increase in travel insurance plan purchases once restrictions are lifted. Consumers have already begun using aggregated comparison websites to seek out and sign up for travel protection, as there is a greater understanding of why it is so important.
Workers’ Compensation: The dramatic spike in unemployment also resulted in a sudden drop in worker’s comp policies (and premiums). And while there has been a reduction in claims in some areas, certain occupations - such as medical providers and other first responders - have increased their workers’ comp claims. One unexpected staple of the “new normal” has helped mitigate some of the financial fallout for the workers’ comp industry: telemedicine. Sedgwick, for example, reported an increase in telemedicine usage in its workers’ comp claims from 1% (pre-COVID) to 10% (as of December 2020). Not only do telemedicine appointments cost less than in-person, but they also expedite initial assessments, remove transportation issues, decrease missed appointments, and can ultimately result in a faster return to work for the injured worker.
Is it better to use cloud-based services or stick with in-house solutions?
XaaS – also known as Anything as a Service or Everything as a Service – is an all-inclusive term that refers to any product, tool, or technology delivered through a service- or cloud-based business model. Although Software as a Service (SaaS) is among the most widely recognized, insurers can access multiple solutions using this model, including Payments as a Service (PaaS), Infrastructure as a Service (IaaS), Data as a Service (DaaS), Storage as a Service (STaaS), Communications as a Service (CaaS), and the list goes on.
The XaaS model enables insurers to expand their technological capabilities without the burden of having to develop and maintain full in-house solutions. Cloud-based services tend to be more cost-effective and faster to ramp up, while often providing greater functionality due to the specialized nature of the service vendor. Issues such as compliance, maintenance, and upgrades are also typically managed by the third-party vendor, further saving insurance company resources.
As the XaaS landscape continues to grow, insurers can leverage these solutions to empower staff and customers with modern technologies (which would otherwise be cost- or resource-prohibitive), gaining a competitive edge in the market.
Will insurers be able to close the talent gap in the current recession?
Unfortunately, the 2020 recession caused a massive increase in unemployment in the United States. However, insurance did not experience quite the same level of job loss as most other sectors. In part because of the industry’s ability to quickly adapt to a remote environment, many insurance companies have been able to maintain most or all of their staff. Some are even planning to hire more employees in the year ahead.
According to a recent Insurance Talent Jacobson study, about half of the insurance companies surveyed plan to increase staff in 2021. In personal lines P&C, that number jumps to 60%. Although insurance continues to struggle with the “talent gap,” the shifting economy, along with the industry’s recent acceleration in technology adoption, suggests we may soon see an increase in recruitment. To attract qualified talent in 2021, insurers will want to emphasize their organization’s modern digital capabilities and flexible work environment.
What will happen to the insurance industry in the new normal, next normal, and beyond?
After an extraordinary year of public health, social justice, and climate emergencies, business owners, employees, and consumers alike have developed a new outlook on life, perhaps permanently. Modern priorities have been realigned with Maslow’s Hierarchy, and people seem to be making decisions – whether professional, personal, financial, social, spiritual or otherwise – more consciously and deliberately. And while nobody knows for sure what lies ahead (as 2020 made us all painfully aware), we can count on one lesson. Do not take for granted a “status quo.”
To connect customers in 2021 and beyond, insurers will need to acknowledge this new, changing reality. Insurance products will need to be customizable to account for new circumstances, and communications should be personalized. Customers will want to know that you are there when they need you, while they are also empowered with some control over their insurance experience (a self-service account portal goes a long way).
Balancing human connection with technology solutions – and the flexibility to rebalance as needed – continues to be a driving force for success in the insurance industry.
Patricia is passionate about helping insurers continue to achieve success in a rapidly changing industry. She offers news, insights, and tips to help you modernize your organization, boost efficiency, and provide a superior customer experience for today’s policyholders.