Introduction to the Business Models For Insurance Sector
At the beginning of the year 2020, industry assessment reports anticipated a positive future for the industry with an increment in business opportunities and growth potential.
However, within just a month or so, the industry outlook shifted from positive to negative, mainly due to financial market fluctuations, lower interest rates, and an increased number of claims; all that is a result of the COVID-19 outbreak.
There is a lot that insurance companies are doing in order to tackle the impacts of COVID-19. There will be a lot of insurance business transformations that will change the industry in the long run.
According to the NextWave Insurance report, reinsurers and large commercial insurers could experience 25-35% improvements in combined operating ratios and US$600b in revenue growth by 2030.
The industry needs to realize the need to become agile and dynamic to obtain the expected gains aforementioned. From Insurtech to profitable investments, insurers need varying forces that can encourage and enable them to create new business models and overhaul the existing ones.
Let’s discuss some business model trends that are showcasing what the future of the insurance industry would look like.
Technology & Partnerships
Big, established, leading insurance industry players are gradually developing their business models by strategically investing capital and obtaining new expertise.
In the coming years, modern technology will empower the insurance workforce to enhance their skills, and insurers will incorporate a new customer-centric culture, operational agility, and process efficiency into their new business models.
Moreover, companies will treat data no less than a multi-beneficial asset while increasingly depending upon reliable, productive collaborations. All of this will have significant importance to outgrow small-scale competitors.
In today’s extensively specialized commercial reinsurance market that often calls for scaling or specialization, the most successful insurance companies may be able to beat the competition if they target particular niches.
Their real key to survival will be their quality services, expertise, and a readiness to underwrite risks that others usually refuse. By doing this, they are also protecting their market share.
For the next decade, these companies need to expand and enhance core business, focus on loss prevention, and add more high-value services.
They have to work smarter while transferring risks and create better, stronger relationships with partners.
Several innovative insurance companies are upgrading technology and developing expertise in order to offer excellent risk-transfer solutions.
Global insurers of the future will produce innovative risk-transfer solutions with smaller teams. These insurers will boost product innovation and market penetration rates by partnering with alternative capital providers.
With data becoming an advanced source of huge information, these insurers will hire more data analysts and scientists while employing fewer claim processors.
This will enable them to find more opportunities and offer new products that meet different risk requirements, further engaging them with more stakeholders.
To succeed in the industry, they need strategies focusing more on growth opportunities and capabilities to manage capital risk efficiently.
Besides, they need to partner with alternative capital providers to encourage product innovation, leverage big data, and grow analytical capabilities.
Managing general agents – MGAs of the future is on a roll and capitalizing on selective market trends to capture highly profitable niches.
In the coming years, agile and dynamic MGAs will build niche businesses and increase profits faster than the insurance industry as a whole.
They will be providing specialized underwriting services to impressive portfolios and unified networks of capital providers, investors.
By utilizing defined products and expertise to derive benefits out of distinct market niches, tomorrow’s MGAs are expected to grab revenue of $150b, double the revenue base of the current time.
The most successful ones may enter the insurance market – another threat to business models that insurance companies use traditionally.
By the end of the next decade, several insurance carriers will likely shift their focus toward becoming experts in capital deployment.
These carriers would operate having less in-house employees as compared to the current situation. Their focus will be on market niches, different customer segments, and certain types of products.
These portfolio managers are most likely to be successful in handling arrangements with delegated authorities for underwriting, claims management, and other service providers.
They must realize the need to identify and engage DAs that are performing well and improving operations with strategic planning.
If they can (efficiently and flexibly) deploy capital, they will get more opportunities to develop niche insurance products they can offer to targeted customer segments.
Brokers are moving to other positions; working as underwriters and risk advisors, they are strengthening relationships with customers and driving revenue.
Although risk placement services will be in their profile forever, it will not be their core job in the future. After significant re-skilling, these teams will become smaller, and the successful carriers will adopt new models for business expansion by diversifying their offerings, which will include risk advisory and underwriting services.
No doubt, this transition will demand considerable effort and quite a notable investment. Brokers need to be sure about their ability to add value in today’s digital world, for which they will need new skill sets, quality data sets, and modern technology.
The brokers or companies that transform and adopt new business models quickly and successfully will be the leading players in creating ecosystems.
To succeed, they need to bring in new skills that will help them develop their range of offerings. Besides, they need to leverage distribution networks to launch and deliver services, utilize data efficiently to identify opportunities to meet a broader range of customer demands.
Insurance Outsourcing – The Partner-centric Approach
Insurance companies have always been employee-centric. However, many companies are now experimenting with new business models by joining hands with third-party service providers or outsourcing companies.
Companies are increasingly considering insurance business process outsourcing and taking assistance with back-office operations, collaborating with on-demand service providers, and recruiting resources only where/when necessary.
They are more interested in building networks of excellence, generating value with others’ help while being a valuable partner to others.
Small to mid-sized insurers are setting an example of partner-centric companies that are driving growth and increasing their network in the industry.
For instance, they are outsourcing insurance claims processing, commissions management, or partnering with a firm that handles the entire back-office process.
In this fast-changing world, insurance companies need to learn a lot from outsourcing – a flexible, scalable business model.
Many insurers are already in the middle of the transition we discussed above, in collaboration with firms with dedicated teams to create a successful future in the industry.
Many are still in the early stages and gradually adopting new business models. Some might think it will be easier to go from an idea to execution; however, the reality is that the road is long and challenging, layered with operational disruptions caused by different issues such as lack of skilled workforce, staff shortage, inappropriate technology, etc.
With time, changes have been impacting the insurance sector, but the impact of the COVID-19 has been huge, which is reshaping the insurance ecosystem and will continue to do the same for years to come.
Successful will be those that start early and adopt technology, train their workforce, and develop new models, ensuring they will not only survive but thrive in the future.