Policyholder expectations are changing and new sources of competition are putting pressure on carriers to adapt at record pace. To succeed in this landscape will require agility and innovation.
Digital Transformation and Consumer Expectations
The State of Commercial Insurance, a report from CIAB and EY, surveyed insurance carriers, brokers, and policyholders to ascertain current insurance trends and challenges. The report shows that policyholders expect increased levels of service, transparency, data, and innovation.
Digital transformation is important, with 16% of policyholders citing investment in portals and 11% citing investment in virtual services as ways to demonstrate innovation. However, new product innovation may be even more critical – 31% of policyholders cited new products as a way carriers and brokers can demonstrate innovation.
The Impact of Insurtech
Insurtech startups have been a major source of disruption in the insurance industry, and the impact of insurtechs will continue as this sector matures.
According to Straits Research, the insurtech market is expected to grow at a jaw-dropping compound annual growth rate (CAGR) of 46.1% between 2022 and 2030, to reach a value of $114 billion by 2030. The report says that insurtech companies are taking advantage of opportunities that traditional insurance companies are less likely to pursue, including ultra-customized policies and dynamic pricing based on behavior.
Although insurtech can be a threat to traditional carriers, it can also present an opportunity. Insurance Business America says that insurance companies and investors with a deep understanding of emerging technology and commercial trends will benefit the most from insurtech’s rapid growth. Not only did insurtech companies achieve a record level of deals and financing in 2021, partnerships between insurers and insurtech startups have increased.
Taking a Cue from MGAs
In a previous article, we looked at how the tremendous growth of MGAs is attracting increased competition and requiring new strategies to gain a competitive advantage. MGAs tend to focus on specialized niches. As they aren’t usually burdened with legacy systems, they have the flexibility to innovate and succeed in a challenging environment.
These advantages have been particularly attractive recently. According to Insurance Journal, reinsurers have been turning to MGAs as a way of getting closer to clients and innovators. Plus, the appeal of MGAs has survived the hardening insurance market.
The Hard Market and Profitability
While traditional carriers deal with digital disruption, they’re also having to navigate increased losses, surging inflation, changing risks, and reduced profitability. The Insurance Information Institute says the insurance industry had a combined ratio of 99.5 in 2021. In 2022, that figure is predicted to rise 1.2 points to reach 100.7.
Insurers have been raising rates. Although these increases have been necessary, policyholders are understandably unhappy. With rates expected to continue upward, insurance customers may start shopping around more, which will increase the need for insurers to stay competitive.
Strategies for Success
This is not the time to stagnate. With the rise of insurtech startups, competition is increasing and consumers are quickly learning to expect more from their insurance providers. At the same time, losses are rising and profits are shrinking. Traditional insurance carriers need to be agile – those that refuse to adapt may find themselves losing more of their market share.
Innovation is critical. As the study from CIAB revealed, policyholders want new products as well as digital tools. Carriers can achieve a competitive advantage by entering a new niche, rolling out a new product, or offering direct to consumer insurance.
Speed is also critical. Policyholders expect innovation now – not in five or 10 years. Carriers need to get to market quickly, but this can require a level of agility that simply isn’t available through a legacy policy administration system.
Leveraging a New Claims Management System
Carriers need increased agility – and they need it fast. To support new product and program rollouts, automated claims technology can transform the customer journey, hike efficiency and integrate with existing core systems.
VCA Software has the solution. With our claims management system, insurers can go live in just 90 days, achieving the speed to market they need to compete in an increasingly challenging environment. Request a demo.
