Here’s what insurers need to know to thrive amid the upcoming industry changes we foresee in the coming year.

As 2021 thankfully recedes from view, 2022 will present insurers with a host of profound changes that we believe will significantly alter the carrier landscape this year and beyond. These changes will be driven by serious pandemic-related challenges, climate change threats, continuing margin pressures and unrelenting incursions from industry outsiders.

Gleaned from conversations with clients, prospects and partners, here’s what insurers need to look out for and respond to in the coming year: 

1. Corporate board-level activism will drive strategic planning and operating model change.

Insurer C-suites have generally had broad latitude in setting their corporate strategies. Now, though, factors that were once an afterthought — climate change, the circular economy, social equity, the connected world — are now front and center.

Under pressure from their boards, most insurers now include environmental, social and governance (ESG) components in their strategic plans and portfolio strategies. Pressure will intensify in 2022, which will impact investment returns, employee hiring and retention, ecosystems and partnerships, and the ability to expand into new geographies.

Recently, the technology head at a large P&C insurer with whom we work began assessing a comprehensive data platform to gain a better understanding of the company’s carbon footprint, climate-related risks, third-party supplier risks and sustainability goals. Companies that respond thoughtfully to ESG concerns will gain significant competitive advantage, including increased customer loyalty, better brand reputation and greater compliance, over those that do not.

2. Heightened M&A activity and private equity infusion will alter the insurance pecking order.

Armed with trillions of dollars, private equity (PE) firms are snapping up insurance books of business; meanwhile, PE and venture capital (VC) firms are lavishing insurtechs with investment dollars. Concurrently, insurance companies are actively incorporating digital capabilities from insurtechs and startups.

With more acquisitions announced every quarter since the pandemic began (PE insurance sector investments hit $19.28 billion through August 2021, according to S&P Global), we continue to see a shift in the makeup of the insurer landscape. Recent examples include Blackstone acquiring Allstate’s Life insurance business, Apollo’s merger with Athene holdings and Carlyle’s investments in Vantage Risk.

It’s easy to imagine capital, underwriting expertise and customer experience capabilities from non-traditional sources applied to underwrite new risks across industries. This year may be the industry inflection point for unleashing a significant challenge to the mega-insurer establishment.

3. New business domains will further blur the lines between insurance and other industries.

The pandemic spurred insurers to rethink their core capabilities and increase their relevance by divesting non-core businesses or splitting conglomerates into new entities to create more shareholder value. Recently, AIG split off its life and retirement segment into a standalone entity via an IPO to simplify its business structure, while Principal Financial exited the retail market, placing $25 billion in reserves.

With the ever-increasing need to align business models with how customers engage with products and services, we expect to see new business domains emerge that overlap with and integrate services from several traditional industries. MIT’s analysis of the home domain shows this happening among participants from insurance, financial services, consumer goods and other industries.  

For example, Tesla already offers embedded insurance based on driving data, and Amazon recently launched product liability insurance for its sellers through its Insurance Accelerator.

We’re also continuing to see the employer/employee as a new domain around which insurers can build customer-centric business models that include ecosystem partners and attract the attention of PE money to forge unlikely partnerships. 2022 may be the year when this phenomenon gives rise to more embedded insurance products.

4. Employee wellness will continue spurring innovation and development of new group products.

Wellness products are all the rage, and for good reason. Amid the seemingly endless pandemic, anything that promotes physical, emotional and financial health is a win for all involved.

By proactively engaging with employees to improve their overall wellness and emotional health, insurers can decrease risk for many insurance products, while employers benefit from having more productive and engaged staff. Look for more consumers to seek voluntary wellness options in their insurance products in 2022 — particularly those sold in a direct-to-consumer (D2C) mode via a digital-first model.

Employers will increasingly offer remote benefit programs like fitness classes, telehealth, financial literacy, mindfulness coaching and caregiver help. Such products are a low-cost way to boost employee retention and create a better employee experience.

5. More insurers will experiment with low-/no-code solutions.

2021 was the year low-/no-code platforms gained notoriety, offering more power to non-technical people to automate processes, develop new applications and build new customer experiences. Although the jury is still out on the promise of these platforms, core insurance systems and enterprise software providers don’t want to be left behind.

Microsoft and ServiceNow are good examples of enterprise platforms that offer low-/no-code capabilities to orchestrate processes. Insurance systems like Vitech, Guidewire, EIS and Duck Creek now offer design tools to create scripts that deliver new functionality faster. Insurance carriers are working to modernize their IT operating models, talent and partner ecosystems to make the best use of low-/no-code technologies offered by software vendors to expedite solution delivery. 

6. Digital purchasing experience comes of age.

The decades-long crawl toward increasingly complex online sales capabilities has now shifted into high gear in the insurance space, with the explosion of third-party data, embedded insurance products (see #3) and more precise systems of engagement. No matter what domain they’re purchasing from, consumers expect online purchases to be convenient, speedy and wrapped into a full-service experience.

Insurers are adapting their processes and unique data assets to meet the challenge. Most insurers are placing “digital-first” bets to create seamless purchase experiences, increase loyalty and engagement, and drive behaviors that improve risk profiles.

Working with a digitally-born business, a large supplemental carrier with whom we work is seeking to offer a one-stop-shopping consumer experience by integrating its new product, distribution and servicing capabilities and expanding its base products with complimentary coverage for richer cross-selling opportunities. It’s also introducing white- and co-labeling of products with partner companies’ distribution channels.

Another specialty insurer that we serve is partnering with marketing and tech organizations to create a roadmap for content management, customer relationship management and marketing automation ecosystems through the lens of experience enablement for new D2C audiences and internal (broker and carrier) stakeholders.

While indirect sales channels won’t go away, insurers and intermediaries must improvise and adapt to the digital environment and create unique products and solutions that predict and address customers’  needs. The emergence of better tools (think AI and analytics, for example) will help. But a commercial FOMO (“fear of missing out”) brings real urgency to this shift.

7. Greater use of AI will result in changes to permissible data and a heightened role for regulating authorities. 

Reliance on traditional credit and demographic data is increasingly under scrutiny by regulators, resulting in wholesale changes and limitations on how policies are priced, purchased and serviced. New data sources, as well as AI- and machine learning-driven analytics will increasingly be used to address the vacuum created across product development, distribution, underwriting, pricing, servicing and claims. Such variables will draw more scrutiny from regulators.

Insurers will encounter protracted regulatory reviews based on their use of new data sources (GPS data, health and safety data, consumer demographics, etc.) and AI-driven predictive models and analytics. The need to test models for the irresponsible use of advanced AI technologies could complicate future regulatory filings and rate changes.

Furthermore, regulators may require insurers to publish publicly available model bias impact statements  to establish transparency. To differentiate themselves, leading insurers will invest in establishing a foundation for dealing with third-party data, new rating systems and analytical capabilities while also creating streamlined filing processes. Carriers that drop bias-creating variables in favor of those that truly impact risk will minimally benefit from better underwriting results. As ESG and disclosure requirements evolve, compliant carriers will gain a distinct competitive edge.

Creating tomorrow’s advantage, today

Insurers’ success in 2022 will pivot around how well they predict customer needs, navigate uncertainty and deliver value — concurrently. Winning carriers will be those that are agile, build skills and capabilities that increase their relevance, accelerate collaboration with ecosystem partners and emphasize data-driven products.

By doing so, insurers can step boldly into the future, well-equipped to anticipate change and deliver seamless customer experiences.  

Cognizant Insurance Practice Leaders Tim Queen (P&C) and Craig Weber (L&A) contributed to this post.