How insurers can beat economic disruption with tech investments

Whether or not a recession officially arrives, the current severity of the economic downturn to date can’t be dismissed. Many insurers have already recently reported reduced profits and a slowdown. Despite these economic hardships, those looking at the bigger picture have already planned to increase their technology investments, largely to boost decision making and reduce operational costs for greater profitability in the long run.

Where those tech dollars are going reflects urgency around the new economic reality. While insurers have previously prioritized investments in sustainability and talent as a means of driving greater competitive advantage, there’s been a recent shift towards doubling down on supply chain investments (primarily distribution and claims). It’s easy to understand the emphasis on the supply chain, but insurers should be careful to integrate and synchronize their investments across all these categories.

Boosting performance by enhancing distribution
For insurers, the priority is to boost performance by strengthening their distribution networks and channels, including both captive and independent agencies. They are also paying increased attention to the role of digital brokers, online marketplaces and experiences.

The focus on supply chain investments largely reflects insurers’ broader strategies. And they build on the large-scale transformation investments made by many insurers during the last few years. Heading into 2023, the priorities were to retain existing customers, compete for new ones digitally (e.g., by enhancing the customer experience) and price risks both efficiently and accurately, all the while running lean operations. All of these objectives correlate to the tech investment priorities in the Capgemini research.

Claims servicing is another important aspect of the supply chain. The focus here is on increasing efficiency. That is something of an evergreen objective for claims operations and other back-office functions. But maximizing efficiency in claims – through straight-through processing and intelligent automation for routing and fraud detection – is critical in a tight economic environment.

Why sustainability and talent still matter
Looking at sustainability investments, a notable number of insurers have shown some level of commitment still to their sustainability investments, maintaining them at current levels or reducing them partially – with this level of caution being understandable given the current market.

But sustainability is an issue with multiple and multi-dimensional impacts and, thus, requires sustained investment over time. Leaders in finance and risk teams will think first of the increasing reporting requirements and the need to automate data gathering processes. But leaders in underwriting, product development and other parts of the business are more likely to be focused on the huge and complex risks presented by climate change. Then there’s the massive gap in protection, which signals a significant growth opportunity for insurers that can figure out how to measure and price the risks.

To be clear: climate change is a core business issue. Firms that fail to invest in the necessary technology and capabilities to understand and model the impacts of climate change could face a deeper business crisis on top of eroding combined ratios.

Data and analytics and advanced cloud computing are core components of the long-term solution. That’s true because they will provide insurers with ready access to both internal and external sources for risk data and profiling tools, including on-demand analytics and highly sophisticated simulation and scenario modeling engines. These capabilities will be essential to adjust appetites, tune underwriting rules and price the climate risks adequately in a highly dynamic landscape. And they will help insurers innovate in other areas of the business involving complex risks, including those associated with cybersecurity, the shift to autonomous vehicles, personalized coverages and holistic risk prevention solutions in both commercial and personal lines.

Talent is also a key to long-term success. Speaking with several insurers, a majority have noted they are planning to maintain investment levels in talent and skills in the next 12–18 months. Here again, the priorities reflect today’s realities; for instance, investing in hybrid working options for employees has emerged as a main focus for many in the industry.

In contrast, few firms are planning to increase investment in reskilling and upskilling programs. Even fewer, are planning to spend more to enhance the employee experience. Again, it’s understandable given current economic pressures. But given the tight talent market and need for new skills in data science, experience design and other areas, these cost reductions carry some risk.

However insurers balance their tech investments for 2023, alignment and integration hold the key to generating the strongest returns. For example, support staff should be trained to ensure agents know how to get the most out of new portals and other sales tech. Similarly, new systems to streamline underwriting processes and incorporate more data sources to assess climate risk will yield the maximum benefit if underwriters are trained appropriately on all features.