For many, 2021 can’t arrive soon enough. Whether or not COVID-19 struck close to home, it disrupted all our home and work lives. For insurers, it brought disruptions no one anticipated.
Last January, insurers rang in 2020 with every expectation of a prosperous year ahead. Global premiums had passed an all-time high of $5 trillion, and the World Bank projected US GDP would increase by 1.6 percent. Despite a long stretch of low growth and declining earnings, insurers were positioned for a nice uptick in topline revenue.
COVID-19 changed all that. The rush to accommodate a virtual workforce and near-overnight changes in macro-economic conditions had them struggling to get their business bearings. And on the human side, they faced concerns for their own communities, including the health of their friends and families, socioeconomic inequities and violence, and an uncertain future for small businesses.
These seismic shifts in life and work are also reflected in what we heard from insurance consumers in 2020. In my latest report, Three ways COVID-19 is changing insurance, co-authored with Todd Staehle of Accenture Interactive, we analyze the impacts of the pandemic on insurance consumer behavior.
With all the unprecedented events of 2020, insurers are now looking to build back better and with greater resilience. Based on what we’ve seen, I offer the following predictions for what we can expect to see in 2021.
- Expect new risk models, shifting capacity, and new products and pricing. In 2020, we saw historically reliable risk models upended. With wildfires unlike any seen in years past and a record-breaking hurricane season, catastrophic events linked to climate change started to feel more like claims-as-usual. Meanwhile, ransomware and wiperware attacks continued, and business interruption losses linked to COVID-19 and civil unrest further drove underlying change in the risk-adjusted cost of capital. In 2021, insurers will be pulling all the levers to maintain financial resilience and the capital reserves needed to underwrite in this new risk landscape. They will have to choose between investments in product lines based on which offers the greatest competitive advantage. As a result, we will see substantial shifts in available capacity and pricing.
- Cyber is everywhere and getting more personal. Even as we watch for large-scale distribution of a COVID-19 vaccine, work-from-home, and digital operations will continue. New risks created by the increased cyber-attack surface will continue to drive demand for cyber cover in commercial lines. With work activities putting the security of consumers’ personal data and digital assets such as photos and media at greater risk, insurers will also find the opportunity to expand beyond simple “identity theft” coverage for consumers. In 2021, look for more holistic prevention, mitigation, and restoration offers in cyber for personal lines.
- The digital distribution game is on. In our report, Where’s the payback on digital innovation in insurance, Jean-Francois Gasc and I show how leading insurance companies are investing in customer-facing digital innovations, particularly in distribution. Distribution is already a battleground for insurers, and that battle will only intensify in 2021. Insurtechs focused on distribution are seeing big investments from venture capitalists. While continuing to compete against start-up distribution plays, incumbents will take the experience of 2020 to deliver improved digital sales and service experiences.
- The industry will get real about inclusion and diversity. The heartbreaking and high-profile deaths of Ahmaud Arbery, Breonna Taylor, and George Floyd sparked both social unrest and a long-overdue conversation about inclusion and diversity. In 2021, the insurance industry will have to show progress. Insurance companies are keenly aware of the need to be by their customers’ sides when things go wrong. By virtue of that experience focus, they understand the need to reflect the lives of their customers. However, there are some areas in which the industry needs to demonstrate a stronger commitment. See more in my colleague Darcy Dague’s blog post, Talk vs. Action: the limited state of diversity in insurance.
- Insurers will reach for ecosystem solutions in wellness. Insurers will reinvent their offerings for more demographically targeted wellness solutions aimed primarily at Millennials and the age-at-home population. We will see increasing convergence around wellness among the P&C, health insurance, and financial planning/wealth management industries enabled by IoT and cloud-based wellness devices and programs.
In the trying year, we have just experienced, I take comfort knowing our industry is unique in its position to help when things appear to be at their worst. I hope everyone will come back in the new year refreshed and ready to face the challenges ahead.
Happy new year to all!