2019 Insurance Scouting Report

A look ahead to the busy year in store

As 2019 starts to ramp up, it's that time of year to unwind, reflect on the year that was and look ahead to the ensuing year ahead. For many, 2018 will remembered as a whirlwind on a number of fronts. Sustained economic growth, rising interest rates, and higher investment income are among the positive factors that appear to be bolstering results in 2018, setting the stage for enhanced growth in the year ahead.

Pace and speed are two factors that are much needed to succeed in 2019 and something that the insurance world has yet to fully grasp. Partially due to the nature of the business and part to the speed at which participants are prepared to make changes in behaviors.

As with prior years, digital transformations are fundamentally changing the way organizations across all sectors operate — a trend that is poised to continue into 2019 and beyond.

Enterprises are making big bets on digital strategy to invent new markets, redesign customer experiences, deploy advanced analytics against a more converged information base and simultaneously gain operational efficiencies to reinvest further in a digital future.

In a 2019 Insurance Outlook published by Deloitte, the underlying message is that while the industry may have to cope with a plethora of internal and external pressures, the impact of such challenges remains very much in an organization’s own hands. Perhaps the biggest determining factor will be how committed and prepared each market participant is to seize the opportunities presented by ongoing changes in the economy, society, and technology, and to respond before competitors or new market entrants beat them to the punch.

Transition is constant, but no matter how we may look at the year ahead, changes in the insurance space will be profound in 2019. Although this vigorous transformation makes it hard to pinpoint the chief opportunities and threats that should demand attention over the next year, here are just a few trends that may prove to influence the landscape in the coming year.

Reshaping Customer Experiences

It is common place today to focus on technology as the key to solving business problems. We like to believe that solving a problem is as easy as rolling out a new process or product. However, technology is simply a tool, not a solution to dynamic problems. Technology is only effective if it helps create the seamless, effortless experiences that users increasingly expect.

With emerging technologies, competition, and pressure for improved customer experiences builds on a daily basis. The ease of accessibility and variety of convenient experiences set by other industries have been seen to meet the evolving demand of users.

For a long time, insurance companies have used outdated systems that were not built with agility and flexibility. Today, that is where artificial intelligence, machine learning, and other innovative technologies come in - despite being over-hyped in the media. BigTech firms and InsurTechs are rapidly entering the market and will assist in scaling customer-centric approaches that cater to customized needs and services.

We see digital platforms that are constantly enhancing their offerings. For example, by utilizing targeted logical questions in a digital format made possible by smart forms, insurance companies get the information they need with less burden on the customer.

At the core for any successful insurance company in the year ahead will need to be a fully digital ecosystem that seamlessly interconnects insurers, brokers, customers, and partners. Individuals expect to be able to interact with companies however and wherever they are. Although it might not fully impact commercial insurance companies in 2019, the platforms that are used to interact between these parties will greatly expand in order to meet the needs of customers.

As the insurance industry continues to invest in technologies, it must always look at how the technology can help deliver optimal end results for its customers and avoid letting the capabilities of the technology drive the customer experience. By working at every step to keep the customer front of mind, the insurance industry can use technology to dramatically change both the customer experience – and the customer perception of the industry itself.

Information Enlightenment

It’s no secret that in 2019 there will be more data available than ever before. In order to take advantage of this data, companies must be able to understand their data, know how to manipulate and analyze it, and be able to use it to make better and faster decisions.

Data analytics will be increasingly built into applications to analyze patterns and better exhibit intelligent behavior needed for efficiency, improved service offerings, and new sources of revenue.

Insurance companies are already seeing the ROI of AI applications, and it’s now a race to realize those gains, institute new workflow efficiencies, and identify AI-powered data. According to Accenture, a quarter of insurers are using artificial intelligence in some way, though that number is expectedly increasing rapidly every month.

While digital-first companies have had the advantage in creating and leveraging their data, we will also begin to see incumbents that are now using AI and data tools, to clean up their legacy data and make it machine readable and minable for the first time. Completing this ongoing process will unlock an enormous trove of information that insurance companies have been sitting on for decades. Soon, they will be able to tap into this data to find new correlations and insights that are otherwise impossible to identify.

In 2019, companies will put intelligence closer to the data.

Mixed M&A Signals

Two massive acquisitions in 2018 seemed to set the stage for acceleration in large-deal M&A activity for the insurance industry, but stakeholders appear to have since pumped the brakes following AIG’s and AXA’s mid-2018 purchases of Validus for $5.5 billion and XL Group for $15.3 billion, respectively.

Insurance sector M&A activity, 2017–2018:

The convergence of unrelenting market pressure to achieve sustainable growth, a lingering abundance of capital and capacity, improving global economies, and an upturn in interest rates may indicate that insurers should be prepared for a potential uptick in M&A in 2019. Still, rising interest rates provide a doubtful advantage, because it makes debt more expensive. However, businesses might still be able to draw from cash on hand rather than borrowing. In the meantime, relatively rich valuations may yet discourage activity in the near term.

Continued soft rates could drive larger property-casualty acquisitions to increase market share, diversification, and growth in niche areas. It can be expected that many insurers will spend 2019 seeking out the potential benefits of scaling or broadening portfolios.

As for some new entrants, many of the organizations who have been hunting for distribution individually will come together to broaden their portfolio and frankly look for survival while others will be acquired by traditional organizations and baked into their ongoing digital offerings & efforts.

Furthermore, the formation of InsurTech ventures and consortia formed by incumbent insurers and reinsurers is accelerating. Recently, we’ve seen the creation of B3i and now there are internal initiatives at Hiscox, Travelers, Hartford, and others. In 2019, we’ll likely continue to see incumbent-grown teams and companies raise large funding rounds and make some noise in the marketplace as they establish themselves.

Blockchain still struggles to find a home

This past year has been primarily focused on assessing where the most immediate value of distributed ledger technology may lie for insurance companies, determining what processes to upgrade initially, and figuring out how to collaborate with competitors.

Groups of insurers are forming consortiums to share startup expenses as well as enable cross-industry collaboration, open-source agility, and quicker scalability. In 2017 and 2018 we saw the creation of consortia, like B3i and Riskblock, to get a critical mass of reinsurers and insurers on the same page. However, these groups and incumbents are still struggling to pin down a particularly attractive use case for blockchain.

While we probably won’t see sudden and dramatic implementation growth in 2019, large carriers and consortiums are expected to launch more impactful blockchain initiatives that could change the shape of insurance operations. This could set the stage for much wider blockchain adoption across the industry going forward.

Looking ahead, 2019 will likely see the industry move past basic education and proofs of concept to preparing for the launch of an increasing number of real-world blockchain applications impacting day-to-day operations.

The key here will be for blockchain to begin cementing itself further with financial institutions and other industries outside of insurance. Once a use case is proven out, we may see insurers feel more confident in moving forward. However, unless that happens, it’ll likely be another year of uncertainty in how to effectively implement blockchain into insurer work streams.

Unrelenting Buzz

As technology and innovation continue to evolve, so too will all of the “innovation theater” that accompanies it. I am young enough to be idealistic, but I have also seen enough to be a tad pessimistic. In 2019, we will continue to be hammered by bold headlines, buzzword-laden content, and little supporting data or figures. Incumbents will still discuss the idea of “partnering with start-ups” and start-ups will continue to talk a big game before they can walk it.

The world is rapidly evolving and the next twelve months will be no exception. I have not even touched on talent management, cyber, regulation, Brexit or so many other areas that we will continue to weather. Looking forward to 2019, there are plenty of stirring challenges and exciting opportunities on the horizon. Here’s to a great year ahead. 

Sources:
https://www.dig-in.com/list/10-insurtech-predictions-for-2019-xl-innovate?brief=00000159-faf0-d111-af7d-fbfd9f0a0000
https://www.propertycasualty360.com/2018/12/28/three-pc-industry-predictions-for-2019/?kw=Three%20P%26C%20industry%20predictions%20for%202019&et=editorial&bu=PC360&cn=20181231&src=EMC-Email&pt=NewsFlash
https://www.dig-in.com/opinion/5-trends-that-will-impact-digital-transformation-initiatives?utm_campaign=voices-dec%2028%202018&utm_medium=email&utm_source=newsletter&eid=004041d7e12aa5278866ebcdae788ff2
https://www.bobsguide.com/guide/news/2018/Dec/28/busy-year-ahead-expected-for-insurtech/
https://www.propertycasualty360.com/2018/12/26/internal-external-pressures-to-impact-2019-insuran/?kw=Internal%2C%20external%20pressures%20to%20impact%202019%20insurance%20industry&et=editorial&bu=PC360&cn=20181226&src=EMC-Email&pt=NewsFlash
https://www2.deloitte.com/us/en/pages/financial-services/articles/insurance-industry-outlook.html