For many people, 2021 may not arrive soon enough. Whether COVID-19 was close to home or not, it disrupted our home and work lives. For insurers, it brought about disruptions that no one expected.
Last year in January, insurers rang in 2020 with all expectations of a prosperous year ahead. The world awards have reached an all-time high. $ 5 trillion, and the World Bank’s US GDP would rise by 1.6 percent. Despite a long period of low growth and declining earnings, insurers were in a position for a good rise in top-line income.
COVID-19 changed it all. The rush to accommodate virtual staff members and near-overnight changes in macroeconomic conditions made them struggle to get their business benefits. And as for humans, they had concerns about their own communities, including the health of their friends and families, socio-economic inequalities and violence, and an uncertain future for small businesses.
These seismic shifts in life and work are also reflected in what we heard from insurance consumers in 2020. In my latest report, Three ways COVID-19 changes insurance, together with Todd Staehle of Accenture Interactive, we analyze the impact of the pandemic on insuring consumer behavior.
With all the unprecedented events in 2020, insurers now want to build better and with greater resilience. Based on what we have seen, I offer the following forecasts for what we can expect in 2021.
- Expect new risk models, resilience, new products and prices. In 2020, we will see that historically reliable risk models are being revamped. With wildfires unlike those seen in recent years and a record hurricane season, catastrophic events related to climate change have begun to feel more like usual. Meanwhile, attacks on ransomware and wiperware continued, and losses from business interruptions were linked to COVID-19 and civil unrest further drove underlying change in the risk-adjusted cost of capital.
In 2021, insurers will pull all the levers to maintain financial resilience and the capital reserves needed to underwrite in this new risk landscape. They will have to choose between investing in product lines based on what offers the greatest competitive advantage. As a result, we will see significant shifts in available capacity and prices.
- Cyber is everywhere and is becoming more personal. Even if we pay attention to the proliferation of a COVID-19 vaccine on a large scale, work from home and digital operations will continue. New risks posed by the increased surface area for cyber attacks will continue the demand for cyber coverage in commercial lines. With work activities that jeopardize the security of consumers’ personal data and digital assets such as photos and media, insurers will also have the opportunity to expand beyond a simple coverage of “identity theft” for consumers. Look at 2021 more holistic offerings for prevention, mitigation and recovery in cyber for personal lines.
- The game for digital distribution is on. In our report,Where is the repayment of digital innovation in insurance?, Jean-Francois Gasc and I show how leading insurance companies invest in digital innovations facing customers, especially in distribution. Distribution is already a battlefield for insurers, and the fight will only intensify in 2021. Insurtechs that focus on distribution are seeing huge investments from venture capitalists. As they continue to compete against startup distribution games, their positions will use the 2020 experience to deliver enhanced digital sales and service experiences.
- The industry will be aware of inclusion and diversity. The heartbreaking and sensational deaths of Ahmaud Arbery, Breonna Taylor and George Floyd sparked social unrest and a protracted conversation about inclusion and diversity. In 2021, the insurance industry will have to show progress. Insurance companies are well aware of the need to be by their customers when things go wrong. Based on that experience, they focus on the need to reflect the lives of their customers. However, there are a few areas in which the industry needs to show a stronger commitment. See more in my colleague Darcy Dague’s blog post, Speaking against action: the limited state of diversity in insurance.
- Insurers will strive for ecosystem solutions in wellness. Insurers will rediscover their offering for more demographically-targeted wealth solutions targeted primarily at Millennials and the elderly home population. We are seeing increasing convergence around wellness between the healthcare, health insurance and financial planning / wealth management industries made possible by IoT and cloud-based wellness devices and programs.
In the difficult years we have just experienced, I take comfort in the fact that our industry is unique in its position to help when things look at their worst. I hope everyone will come back refreshed in the new year and ready to face the challenges ahead.
Happy New Year to all!