Get set for 2021: Shaping up for the future

With 2020 finally behind us, the big question is where do insurers go from here? Economies will take time to recover even after the vaccines are rolled out. However, there are also plenty of reasons to be confident, from still hardening property & casualty rates to the pick-up in demand for protection products. With the pace of digital transformation having moved up several gears, the industry also comes into 2021 with a clearer path to the future than this time last year. 

The rise in premium prices is not only relieving some of the pressure on margins, but also helping to attract fresh capital into the industry. Investment is being directed into both scaling up established businesses and the setting up of ‘de novo' platforms. However, a harder market can’t deliver target returns on its own. Our recent analysis underlines the extent to which underwriting discipline remains critical in delivering standout results. 

Portfolio clear-out

The clouds on the horizon include many more years of ultra-low interest rates to come. Any hopes that interest rates would eventually climb back have now been dispelled. As a result, difficult strategic choices can no longer be put off. 

Resulting priorities include a portfolio review and clear out of unviable legacy business. Large swathes of guaranteed and other capital intensive long-term products are likely to face closure and divestment as a result. 

After several years in which savings and investments held sway, the pendulum would now appear to be swinging back towards protection products. The shift not only reflects the challenges created by low interest rates, but also increased demand for life and health insurance in the wake of the COVID-19 pandemic.

Deals-led recovery 

Acquisition, consolidation and divestment are set to play a key role in this business reconfiguration. This includes taking advantage of the ravenous deal appetite among legacy consolidators. Private equity investment is also helping to fuel a deals-led recovery, whether the focus is start-ups, divestments or larger acquisitions.

To make the most of the potential, it’s important to be clear about how your deal strategy fits into your overall business objectives in areas such as the shift to digital or the balance of savings and protection. To maximise deal uplift from divestments, it’s also important to ensure that separation plans, target buyers and capital considerations are fully factored into the deal blueprint from the outset. 

New routes to market 

With digital becoming the dominant channel, there are opportunities to get closer to customers and create a more compelling experience. This is as much about people, culture and organisational design as systems and technology. How do you foster the skills and buy-in within your workforce to turn data and digitisation into insight and innovation? How do you manage, inspire and create cohesion across a scattered remote-working workforce? 

Digital connectivity is also paving the way for the development of a collaborative platform delivery model for insurers. This is an opportunity to go direct to market and reach out to hard-to-reach segments such as millennials. You can also use the closer engagement to develop lifetime health, wealth and retirement solutions or move into adjacent markets such as maintenance and mobility. However, some insurers have been more successful than others. Common misconceptions include how much of the platform operations and products on offer can be standardised across borders or customer segments. You can create a cost-efficient common core. But preferences differ and therefore these local nuances need to be built into platform capabilities.

Rebuilding trust 

As ever, trust is fundamental. The image of the insurance industry has been dented by the frustrations over business interruption claims. People won’t buy insurance if they don’t believe it will come through for them when they need it most. Bridging the protection gap for pandemics and other underinsured risks such as cyber is therefore critical in rebuilding trust and driving growth in 2021 and beyond. 

Hitting the ground running  

As change gathers pace, the need to upgrade capabilities, refocus resources and ensure that products and services remain relevant is becoming ever more pressing. Alongside digital and workforce transformation, focusing on a deals-led recovery and platform development can help your business to get in shape for the future. It’s vital to hit the ground running across all these fronts or risk falling behind in the competitively pivotal year ahead.

? 2021 PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with a professional advisor.