In 2023, insurers’ management teams once again grappled with uncertainty across multiple fronts: moderation in rate increases and inflation, geopolitical conflicts, and wars across the globe, the wind-down of the effects of the COVID-19 pandemic, continuation of hard property and casualty (P&C) market conditions, weak and then stronger equity and deal markets, and the democratization of generative artificial intelligence (AI).
We believe the future is now — the trends of the last decade are continuing to accelerate, with a convergence on fully customer-centric experiences, risk fluidity against uncertain macro conditions, fully digital operating models and an AI-augmented workforce.
As leaders face this new world, they need to be sharper than ever on where they truly differentiate — proprietary distribution and client access, customer data and insights, product innovation, asset origination and management, risk management — as well as building the right proprietary capabilities for their operating model (for example, strategic partnerships, data/analytics, talent, and culture).
Develop cycle resilience to take advantage of the right opportunities
The P&C industry continues to experience its longest hard market period since the beginning of the 21st century, driven by both demand- and supply-side factors such as rising losses and inflation. While it is unclear how long it will last, many carriers believe we are now late-cycle and are starting to prepare for a soft market.
While timing is essential, the winners will adopt a cycle-resilient strategy that will allow them to double down on retaining customer and distribution partner relationships and continue exploring growth avenues, with discipline, based on where the long-term value lies. They will also need to develop a more flexible operating model hinging on many shifts: balancing short-term financial metrics with customer lifetime value and other long-term or portfolio-level metrics; setting expectations accordingly with shareholders, employees and other stakeholders; expanding offerings across the value chain (including fee-based risk management services offerings) to complement more traditional, cycle-impacted influence products; and enabling a faster feedback loop through our 'risk fluidity' concept — the ability to rapidly and frequently adjust how risk, capital and costs flow across products, channels, business lines, and geographies.
In 2024, insurance leaders have an opportunity to reinvent value propositions and operating models from the top-down using generative AI as a catalyst
Move past incremental proofs-of-concept. Use generative artificial intelligence as a catalyst to reinvent value propositions and operating models from a top-down perspective
In 2023, most insurers focused on understanding the hype verses reality of generative AI and experimenting with use cases. While we saw, and actively encouraged, an increasing focus on value creation and return on investment (ROI) towards year-end, we think this trend needs to accelerate for insurers’ initiatives to move the needle.
In 2024, insurance leaders must shift from a solution-centric mindset to a “top-down” transformation mindset — with generative AI serving as a catalyst for value proposition and operating model reinvention. The opportunity for efficiency and revenue gains lies in starting from the business and customer problem back and then solving it in close collaboration with the workforce to accelerate widespread adoption. Areas where we are seeing and driving transformation in the near term include: claims (for example, reinvent the role of a claims adjuster to increase time spent on the most complex claims and augment adjusters' decision-making on claims); underwriting (for example, co-pilot both the 'art' and 'science' of risk selection and pricing by supplementing underwriters' expertise with insights from unstructured, proprietary data); distribution (for example, enable agents to hyper-personalize outreach and expand their breadth of services to end-customers), and customer service (for example, deepen the understanding of what customers actually want when they call, and recommend better next actions).
Turn your finance and actuarial function into an agile, strategic powerhouse that is central to the C-suite’s most critical decisions
There is increased urgency for insurers to develop robust finance and actuarial capabilities. This has been ignited by a wave of new asset management-led players. Today, insurers are facing new financial standards (such as IFRS17 — international financial reporting standard and LDTI — long-duration targeted improvements) combined with stronger competitive norms around speed and agility of forecasting and decision-making. C-suites are often constrained by the inertia of traditional finance and actuarial functions, hindering their capacity to respond swiftly and effectively to dynamic market demands, yet these challenges were rarely deemed mission critical to warrant a structural overhaul. In 2024, these may cause decision-makers to fall behind in their market pricing and forecasting capabilities compared to more advanced peers.
The solution lies in a strategic, agile, and forward-looking finance and actuarial “engine” that delivers timely insights, guiding leaders on when and which strategic levers to pull. Central to this is a heightened focus on integrating asset and liability models, enhancing modeling techniques and decision- making frameworks, and developing them in an iterative manner, working top-down from the C-suite’s most critical use cases, rather than re-building these functions bottom-up.
In 2024, turn your finance and actuarial function into an agile, strategic powerhouse that is central to the C-suite’s most critical decisions
Supercharge capabilities to sustain differentiation in an increasingly competitive market
Last year, “become an asset management-led insurer” was one of our provocations for the industry. In 2023, we saw the underlying tectonic shifts continue with, for example, more than $100 billion of US liabilities transactions across more than 30 major deals, a wave of Bermuda affiliates and sidecar reinsurers established, major private equity firms doubling down on the model and new entrants establishing and funding competing models. In the latter half of 2023, we saw the model move from being mainly US-focused to actively exploring onshore entry to the UK, and actively engaging in Japan and other Asian markets.
Within the US and other developed life insurance markets, if this trend continues, there is a scenario where capital-intensive life and annuity business (both in force and new business) will be ultimately dominated by asset management-led insurer models and mutual insurance companies, squeezing out those public insurers with traditional business models.
Given the pace and scale of this trend, we have called it out again this year, but the focus now should be on accelerating to scale in the US and ensuring that your enterprise catches the global wave (such as new liability types and new geographies) as it rises.
If you are going against the grain, be clear on what is proprietary in your model and do it better than others
For life insurers who are not following the asset management-led model, it is more crucial than ever to be clear on, and invest/mobilize around, the proprietary areas of their model that enable excess returns on capital in mature and ultra-competitive markets.
The winning formula could take various forms for these players: controlling distribution (for example, by pairing a proprietary network with differentiated customer and agent value propositions, building businesses around capital- light fee-based offerings, or explicitly doubling down on solutions not being served by asset management-led insurers. Success will hinge on building and preserving an edge in the right proprietary capabilities (including underwriting, technology, data and AI), as well as infusing the right innovation ambition and mindset.
Invest in a portfolio of market-creating innovations to address unmet customer needs at the intersection of industries and redefine success accordingly
While there has been no shortage of innovations in the insurance industry, most have only had incremental societal and commercial impact — which is no longer sufficient. At their core, mature global insurance markets are expected to delivery low single digit growth and insurers are facing a flurry of new competitors across the value chain. Just like big tech firms have had to question their core businesses and launch new ones as their competitive moats were under siege in the past few months, insurers now face an imperative to innovate in a bigger way than ever in 2024.
Some of the largest, market-creating innovation opportunities for insurers stem from new customer needs at the intersection of industries, such as physical wellness, financial wellbeing, mobility, or holistic advisory propositions. While these have been on insurers’ radars for years, few solutions have truly “cracked the problem.” Moving the needle will require significant energy, budget and management attention, coupled with stage-gated, “test-your-way-to-right” approaches that will often challenge business and function leaders’ conventional practices. Successful attempts typically involve setting the right success metrics — which should be distinct from business-as-usual (BAU) efforts — and starting demand-back — which often involves developing an ecosystem of solutions that goes way beyond insurers’ existing product offerings.
The time is now for insurers to define their “insurtech 2.0” strategy and double down on the right B2B insurtech partnerships or acquisitions
Secure a long-lasting technology advantage by doubling down on evolved ways-of-working and through targeted partnerships or acquisitions to complement your own capabilities
The first insurtech wave in the 2010s hinted at a future where insurers could overcome the industry’s long-lasting operational and technology challenges, through the right partnerships, acquisitions, or simply an influx of analytics and engineering talent from an emerging insurtech ecosystem. However, the decade unfolded differently, with most B2B insurtech solutions struggling to find the right engagement models with carriers, and many high-profile direct-to-consumer insurtechs losing more that 90% of their values shortly after their initial public offerings (IPOs). Meanwhile, technology debt continued to inflate within incumbents, despite many sensible efforts to counter it.
However, in the last few years, B2B-focused insurtechs have consolidated and matured their value propositions to. Meanwhile, many incumbents have been on a journey to evolve their technology operating models and becoming better equipped to handle build/buy/partner trade-off considerations. It's time for insurers to define their "insurtech 2.0" strategy and operating model in order to complement or strengthen their existing competitive advantages. This includes leveraging big tech-inspired ways of working and doubling down on the right B2B insurtech partnerships or acquisitions. While this push will take upfront investment, breaking the tech-poverty cycle will help insurers evolve their IT organizations from a cost-center to an engine that accelerates the business forward.
Run shared services as business service centers in order to monetize your operations and manage demand
In 2023, we saw significant focus on cost and performance management across focus on cost and performance management (and beyond) the industry. However, many insurers continued to struggle with finding upfront funding and resources to enable sustained improvements — even when the business case is strong.
One leading solution for this challenge is to transform shared services from cost centers into profit centers. In this model, the shared service owner is responsible for managing both sides of the profit and loss (P&L) statement — managing the revenue from providing shared services to the business (with prices defined via a service catalogue) in addition to owning the cost of providing those services. “Profits” from effective management can then be reinvested into operational improvements or passed back to the center. This model can further incentivize business automation (for example, via service catalogue pricing), ensure the services provided are competitive with what the outside world could provide (both in cost and quality), and ultimately provide a clearer view of the business’s “unit economics.”
Make the net-zero transition happen by backing trillions of dollars of infrastructure investments — a $71 billion opportunity
At COP28, climate finance took center stage, with the needs greatly outweighing the financing available for adaptation efforts. Supporting adaptation and resilience in the face of climate change is not just an opportunity but a commercial imperative for the insurance industry: without insurance, projects cannot secure financing, which in turns puts the net-zero transition in jeopardy.
Insurers need an explicit, ambitious strategy focused on driving climate adaptation and resilience, hinging on massive infrastructure investments, including in catastrophe-prone areas. There is a once-in-a-lifetime opportunity to support trillions of dollars lined up against infrastructure investments (such as roads, energy, railroads, and ports). In addition, this will require developing and maintaining a portfolio view of exposure to catastrophe (CAT) risks that are getting exacerbated by climate: as the capacity shortfall will likely continue and given the increased scale of infrastructure investments in CAT-exposed geographies, the long-term opportunity is now greater than ever. The short-term risks will need to be measured, managed, and communicated appropriately.
There is an unprecedented opportunity to strengthen the industry’s workforce and reimagine the roles of underwriters, claims adjusters, and agents
As long-term work practices emerge post-pandemic, redefine operating models around technology-augmented workers to make the industry the best place to work
The insurance industry, more than many other industries, has suffered its share of culture and people challenges — the COVID-19 aftermath, an aging workforce in a range of difficult-to-replace roles, and struggles around new talent attraction. Like elsewhere, “hybrid” models have appeared in the last few months, with no sustainable ways-of-working emerging. While once a pipe dream, solving the people and culture challenge in insurance is now becoming an imperative to avoid a structural shrinking of the industry’s talent and expertise.
There is an unprecedented opportunity for the industry to solve many problems at once by redefining what it means to work for an insurance company. Insurers can reimagine the roles of underwriters, claims adjusters, agents, and more from the top-down through reducing administrivia, strengthening the workforce through generative AI, and recruiting from a range of talent pools that can be augmented by technology. Developing a culture of collaboration — and transparency — by design, can also enable insurers to compete head-to-head with some of the best talent-magnets in the world, especially with the new generations.