With skyrocketing inflation and growing severity of weather-related losses, 2022 was a tough year for insurers. We were spot-on with our 2022 predictions—such as the need to improve the customer experience, increased adoption of connected underwriting, and the growing importance of ESG.
While many of last year’s trends will continue into 2023, we have identified several emerging trends for this year.
Our top 5 insurance trends to watch for 2023.
1. Social inflation and a recessionary economy.
Inflation is at a 40-year high, and increased replacement costs—up 16.3% in mid-2022—are impacting the cost of claims. In addition to managing economic inflation, in 2023 insurers will also need to consider social inflation—which drives claims costs above economic inflation. Factors causing social inflation include higher litigation costs, larger jury awards, and lengthy legal proceedings.
As we face a global recession and individuals and businesses are strapped for cash, Forrester predicts policy lapses will rise by 20% as customers tighten purse strings.
What insurers can do:
- Automate insurance processes to increase efficiency and cost-effectiveness and improve the customer experience. This will give you a competitive edge in keeping prices down and attracting and retaining customers.
- Strengthen your claims management processes to resolve customer claims faster, mitigate claims leakage, and improve customer satisfaction.
2. More scrutinized IT budgets and pressure to deliver.
With growing customer expectations for frictionless experiences and a need for more digitization to compete in a hard economy, IT departments are under increasing pressure to deliver applications that will add efficiency to the business. Due to the cost pressures on insurance companies on account of inflation and the looming recession, IT teams are also being asked to do more with less. Forrester predicts that in 2023 insurers’ IT spend will rise by a modest 2% year-on-year—half of what insurance tech teams had planned.
Insurance companies have not been immune to the “great resignation,” and that goes for their IT departments as well. Retaining technical talent and keeping up with digital transformation are two major challenges for insurance IT teams.
One way to reduce the strain on IT while increasing their productivity is to use a platform with low-code capabilities that cuts typical development time from years or months to mere weeks. Using low-code’s drag-and-drop visual tools, developers at any skill level can quickly build applications and automate workflows that interface with insurers' existing data and systems.
What insurers can do:
- Use prebuilt insurance solutions and development tools that reduce costs and save time, such as a low-code process automation platform that enables agile development of automated workflows.
- Maintain open communication channels between the business and IT to explain business needs, set priorities, and identify bottlenecks early.
3. Ongoing talent issues.
Like many other industries, insurance is struggling to attract and retain talent. Millennials and Gen Zers, or zoomers, perceive the insurance industry as dated. Additionally, many Millennials and zoomers have limited knowledge about the insurance industry and don’t consider it among their top career choices. But insurance needs to attract fresh talent to replenish its aging talent pool. Currently less than 25% of those working in the insurance industry are under the age of 35.
To attract younger talent, insurance firms need to offer the dynamic, technology-first environment that younger candidates seek. Implementing automation in insurance processes will reduce onerous, labor-intensive tasks and allow employees to focus on more meaningful interactions. Other important factors in attracting young talent include increasing diversity and implementing sound environmental, social, and governance (ESG) policies.
It is 10 times more expensive to recruit new talent than it is to retrain an existing employee. Providing a career path through upskilling and reskilling can increase employee retention rates. Training employees with required new skills, such as digital or analytics capabilities, can also reduce the need to hire new employees for that role.
What insurers can do:
- Adopt new technology and innovation and digitize workflows to eliminate manual tasks, increasing employee satisfaction while reducing training time for new workers.
- Increase diversity, equity, and inclusion (DEI) and ESG efforts.
- Reskill employees and offer more meaningful career paths.
4. Need for better, faster underwriting.
In today’s economy, underwriting volume is expected to increase due to comparison shopping by cost-conscious customers. The traditional underwriting approach—manually keying data from files in emails and disjointed systems and running it through various tools—is time-consuming and is expected to cost insurers $85–$160 billion in lost business over the next five years.
At the same time, inflation is raising loss costs, thereby reducing underwriting profitability. In fact, according to an industry report, 2022 underwriting profitability was the lowest in more than a decade.
Clearly there’s a need for underwriting process transformation.
To increase productivity and better assess risk, underwriters need clearer visibility into comprehensive customer data, with automated data ingestion to replace manual, error-prone rekeying. Using a flexible, scalable underwriting tool that automates the core elements of the underwriting process—including data ingestion, clearance, and triage—will help insurers accelerate the underwriting process and reduce time to quote.
What insurers can do:
- Use a prebuilt automated underwriting solution that derisks implementation and provides immediate operational benefits, such as automatically ingesting data from standard and non-standard documents, integrating with third-party systems, and displaying all data in a single pane of glass.
- Increase speed to quote by providing underwriters with a 360-degree of data.
5. Demand for seamless, personalized customer experiences.
2023 takes the customer experience to a whole new level with hyper-personalized customer experiences. Meeting insurance customer needs at specific times in their lives is the next stage of innovation and will increase customer loyalty and trust.
Personalization relies on data, which is the new gold. Real-time access to data sources—such as your policy admin system, CRM, claims system, agency management system, and lead management system—is crucial to understanding customer needs and responding to them quickly.
However, too often, this valuable data lives in disparate data silos. Insurers should look to technology with data fabric capabilities that provide a virtual orchestration layer. The data fabric unifies all customer data by accessing the data wherever it resides, whether in legacy systems or in new, advanced data sources such as telematics and IoT, providing a holistic view of the customer.
What insurers can do:
- Create personalized customer experiences by quickly setting up automated workflows using a low-code process automation platform that can interface with any of your systems.
- Use data fabric to attain a 360-degree view of the customer to personalize offers and reminders.
Looking ahead at how these insurance trends will impact 2023.
Insurers have seen dramatic changes in recent years, and 2023 will be no different. While this year will present challenges, it will also provide opportunities for forward-thinking insurers to move to the head of the pack. Insurers who intelligently digitally transform will emerge from 2023 stronger and will be well-poised for future growth.
