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EY has published a study on the challenges for the insurance industry in the main countries of the American zone. The theme of the study: What should insurers do now to prepare for the future? Here is a summary of “EY insurance outlook americas”.
The state of the insurance industry in the United States
Lack of growth, strong pressure in relation to revenues and a constant evolution in relation to technology and customer expectations: this is the current situation in the United States and an adaptation to technology is becoming inevitable to allow for more profitable development.
The life insurance sector is shrinking and other insurances such as car or health insurance are growing. The North American market is reportedly more developed than in South and Central America, but this implies increased protectionism and rising inflation. Gross premiums written on insurance contracts would grow less in the United States than in emerging markets.
The growth trend at this level in Latin America would be higher than that of the United States from 2018 onwards and for the years to come. The decline in the number of insurance premiums in the United States decreased between 2014 and 2017 by 0.8% for a decrease of 0.4% for the rest of the American continent. The number of life annuity contracts even decreased by 18% for the same period.
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The bad market situation requires several reactions
- The first necessity is the development of new proposals for financial well-being in line with customer expectations and the needs of an ageing population.
- Improved distribution through new direct channels and responsible agents is the second type of response.
- Collaboration with insurtechs and new inputs is a third necessary reaction.
- Finally, an optimisation of the value chain fundamentals to increase sustainability is another necessity of the current situation.
However, these changes will only be possible if digital development is taken into account, which is the only way to offer customers products that meet their expectations. This will make it possible to reduce operating costs and build customer loyalty through the development of a more personalized relationship.
A lack of adaptability on the part of life insurance companies.
Life insurance companies need to adapt to the reality of the market to increase their efficiency, as their sales are declining. The key issues here are increased financial well-being and more holistic financial advice, which alone will enable insurers to adapt to their customers.
Minds are changing! The millennials are massively redirecting their spending towards leisure and holidays, which are short-termistic subjects, rather than towards life insurance and projection into the future. 27% cite hobbies and recreational activities as an excuse for only 8% of baby boomers. The insurance sector must adapt to this reality, notably by offering new products and services, developing its communication process and distribution.
The strategies used in the past to focus on wealthier customers no longer work in a world of constant technological development. Insurers need to broaden their potential customer base if they are to continue to develop profits. Communication is key to bringing real sales arguments to customers.
This development requires time and money, but will prove beneficial for insurers, with stronger relationships with their customers.
Human and digital development
Insurers need to develop their business model by digitizing their services, with an offer that includes all existing channels, complemented by new advisory services. 33% of customers would currently not trust agents, while 31% would not trust insurance companies.
An overwhelming majority (96%) of customers make their insurance purchases via the internet, with only 42% having direct contact with an insurer. The services expected from customers must be homogeneous and allow for self-service. This is the only way to achieve an increase in direct sales for insurers. However, the human relations factor remains important for everyone. 72% of the millennium generation considers meeting with an agent to be important before any insurance purchase, for 69% of baby boomers.
Collaborations within ecosystems: the importance of being proactive
Insurers need to develop comprehensive ecosystems that include new and existing Insurtechs and partners. The insurance world could be revolutionized with the possibility of buying insurance from potential new market players, such as Amazon or Apple, by assimilating insurance with other consumer products.
Insurtechs’ investment in the life and health insurance sector quadrupled between 2012 and 2017. This development is steadily increasing, although it remains relatively marginal in relation to overall Fintech development.
This situation should soon lead to the development of new acquisition models, as well as new distribution and efficiency models. Other types of sectors can teach insurers a lot to help them better adapt to this new reality. The development of ecosystems that include global services for financial well-being must be done in collaboration with different partners. (Note: on this topic, read againt this article). This cannot be achieved by developing these new types of services in isolation, so collaboration with the Insurtechs becomes unavoidable.
Value chain optimization
Insurers need to develop their agility and modernize their business systems so that they do not end up being pushed out of the market. The insurance sector’s expenses were up by almost 1% with 20.7% in 2017 compared to 19.8% in 2012. The reduction in the sector’s expenditure must be achieved through the development of digital technologies.
In particular, the practice of data outsourcing is an effective strategy for solving many of the technical problems posed by traditional business models. These models prevent insurers from experimenting with new technologies, integrating structural changes to adapt to their clients’ needs, or better reaching their target customers through data collection and analysis.
This poses a real threat to older insurers, who have to find ways to compete with these strategies, by outsourcing their data, partnering or harmonizing internal and external operations to be effective in day-to-day operations. It therefore becomes essential for all insurers to develop a new holistic insurance model. This will enable them to offer their financial well-being, to create a distribution map that is both human and digital, to evaluate and develop partnership options for the development of future ecosystems and platforms, while identifying relevant Insurtechs partners for the development of strategies and skills, but also to evaluate individual components in the value chain to identify opportunities for automation and possible reorganizations.
The non-life market situation
Insurers need to focus their attention differently to improve profits in a low profit margin market. This includes focusing on what is effective in terms of their profits, strengthening direct channels to reduce the number of agents, preparing for the market entry of information giants such as Apple, developing partnerships with Insurtech and accelerating their speed to market to take advantage of new opportunities.
Digitization will define winners and losers
Digitization is the only way to increase the efficiency of performance and its benefits. These technologies include artificial intelligence, the internet of things and block strings for identification. This development should lead to an increase in service quality and customer satisfaction, enhanced innovation skills, greater transparency in cost controls and a reduction in operational costs. In this context, it also becomes vital for insurers to be able to launch new products ahead of their competitors, to be able to track market and customer developments with data and to be able to identify demand before it materialises.
The requirements for insurers in the United States.
Value chain optimization is essential to increase returns. A takeover of ecosystems is essential to enable insurers to define their position in them. Domestic and property insurers need to adapt their direct channels and distribution strategies, identify a new value proposition to accelerate their product development approach, identify specific areas to increase cost efficiency, identify and prioritize areas of underinvestment for digital development, and assess their internal development skills against critical development areas, especially in digital architecture, analysis and design.
The insurance situation in Canada, overcoming stagnation
The development of insurance has slowed down significantly in recent years in Canada due to an aging population. Among the solutions to overcome this stagnation, a commitment to the customer experience and digital newcomers to the market could redefine the rules of the game.
The new IFRS 17 contract standards have put regulatory pressure on operators, by increasing the operators’ costs to adapt to them, particularly in life insurance.
The development of Insurtechs and new partnerships should enable insurers to reposition themselves in relation to this new market reality. The management of data and analysis must also help them to better adapt to this reality, by being able to better estimate their costs.
Proactively taking into account the results of IFRS 17 and the possibilities of consolidating products in relation to their operating model seems essential to better manage this situation, but also the implementation of a digital development strategy.
Growth opportunities in Brazil
Insurers need to prepare for a digital-centric future to take advantage of market growth opportunities. Better development of annuity systems is essential to adapt to this new development. Modernization operations must allow a reduction in overall operating costs.
Insurance in Mexico, resilience in an uncertain market
This market offers opportunities for growth, but suffers from regulatory pressure linked to inflation. Some recommendations:
- A digital development should reduce the complexity of the processes.
- Data management solutions must allow for increased growth.
- Limiting misrepresentation through data analysis, sensor technologies and improved underwriting technology should reduce fraud, especially in the area of car insurance.
- A focus on IFRS 17 is essential to enable effective adaptation to this new accounting standard.