It’s safe to say that 2020 has been a year like no other. The turbulence Covid-19 has brought to the insurance sector has certainly been detrimental to growth and profitability. For many product lines, demand is down, and investment returns have been limited by low interest rates. But amid the chaos, the industry is taking advantage of an opportunity to transform how it operates and engages with its customers. Digital transformation was important before the virus hit, but the pandemic has accelerated the need for digital solutions, both within the customer’s buying journey and for the insurer to deliver value through new distribution mechanisms and product innovation.
As we head into 2021, insurers will need to contend with an unpredictable virus and its economic consequences, dramatic climate events and the aftermath of a polarising US presidential election. But in midst of chaos, there is opportunity. Forrester predicts that in 2021, increasing appetite for usage-based insurance (UBI) in personal auto will drive insurers to rethink how they help customers discover and use auto insurance. Adoption of UBI has been modest in many regions, but Covid-19 has ushered in a new paradigm where consumers are more conscious about price transparency. This consumer enlightenment will result in strong new business growth in UBI across the sector. Forrester also predicts that US life insurers, recognising a structural shift where employers replace employees with contractors, will get serious about digital individual disability sales. The gig economy has transformed how the world works – literally – and gig workers need injury protection, too. Start-ups are exploiting this need. Expect incumbents to jump on the bandwagon.
Product and services innovation bode well for the sector, as they create value and differentiation in the marketplace. But the mechanism for prosperity in the new year isn’t singular. In 2021, containing claim leakage will also become a top priority for property and casualty carriers as they deal with exorbitant claim losses from the economic fallout of Covid-19 and global natural disasters. Insurtech, which, following a rough start in 2020, has already recovered strongly, as investors have rewarded the digital mindset that start-ups bring to the market. The new year holds great promise for established insurtechs such as Lemonade Insurance and Hippo Insurance. Unfortunately, smaller, less-known start-ups will find the funding environment challenging as investors take a flight to quality (in the form of “safer” investments).
The societal effects and economic implications of Covid-19 will undoubtedly play out for years. But, with 2021, we open a new chapter in which one thing is certain: change and uncertainty will remain constants in customers’ lives. Insurers must therefore remain vigilant in investing in the digital products, services and capabilities that customers expect
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by Jeffery Williams, Forrester Senior Analyst