Insurance Productivity 2030: Reimagining the insurer for the future

The pandemic has created significant challenges for insurers and sped their digital shift. To stay competitive, carriers will need to radically transform their operating models and cost structures.

The COVID-19 pandemic has upended many sectors of the economy. Insurance carriers in particular have faced serious operational disruptions and increasing pressures on profits.

However, even in the years before the pandemic, only a small subset of insurers were earning substantial profits offset by another small subset of insurers that had destroyed substantial economic value. This is in part because, unlike many other industries, the insurance industry has not succeeded in improving productivity over the past decade. Combined with persistently low interest rates, the result is many insurers not earning their cost of capital.

Insurers need more than mere piecemeal attempts at improvements. Only a transformative approach will allow an insurer to survive and thrive in a post-coronavirus world.

While the coronavirus crisis has magnified some of the major challenges facing the insurance industry, it has also accelerated the push toward greater productivity—and, in particular, the shift to digital. Over the next decade, insurance carriers have an opportunity to improve productivity and reduce operational expenses by up to 40 percent while simultaneously improving their customers’ experience. To achieve this success, the insurance operating model of 2030 will have to look very different than it does today.

Indeed, insurance carriers will need to look less like the traditional insurers of the past and more like modern tech companies. Successfully making this transition will require radical improvements in productivity across all areas of the value chain—which means insurers need more than mere piecemeal attempts at improvement. Rather, they need comprehensive, structural approaches to transform their operating models and cost structures. Only a transformative approach will allow an insurer to survive and thrive in a post-coronavirus world.

While the main value-chain elements in insurance will remain, nearly all key operational processes in 2030 will be far more streamlined, enabled by automation and digitization, with much greater degrees of straight-through processing, especially in standard personal and small commercial lines of business.

Investments in new technologies will create or enable many of these productivity improvements. Until even a few short months ago, elements of this vision for 2030 might have seemed fanciful or far-fetched. However, the coronavirus pandemic has accelerated adoption of new technologies and new ways of working throughout the insurance industry, often due to simple necessity. Even for those insurers that have reduced investment in new technologies during the pandemic, cutbacks will not persist indefinitely. Indeed, across many or all elements of the value chain, we’ve seen increased digital adoption and rapid shifts toward remote working.

As a result of productivity improvements, insurance carriers’ operating models in 2030 will be far less labor intensive than they are today. Thus, across every element of the insurance value chain, including product, distribution, pricing and underwriting, policy issuance and service, claims, IT, and other support functions, the insurer of 2030 will likely look very different from the insurer of today.

The product landscape will likely look different in 2030 for two main reasons: simplification of products and simplification of the product portfolio.

In 2030, insurance carriers will offer simpler products, both to improve customer satisfaction and to increase productivity. Simpler products may offer price lists with only three premium levels (bronze, silver, and gold, for example) or perhaps just a smaller-than-usual set of add-on modules. Curtailing the standard plethora of options will reduce customers’ confusion. Some leading insurers will invest in technology and develop one common IT platform for the entire business. They may even create one master product on that IT platform, which every subsidiary or business unit uses as the basis for its product-building process. This approach will generate significant efficiencies for large insurers, as their products (especially in P&C) often have many commonalities across countries and regions.

Many of today’s direct insurers and digital attackers have simpler product portfolios, a fact that contributes to their significantly increased operational efficiency and lower cost structures than incumbents’. By 2030, the most productive insurers will follow this lead and provide no more than five to ten products. This range is in stark comparison with, for example, the 50 to 100 products that many P&C insurers offer now many of which generate neither meaningful revenues nor profitability. Our analysis shows that often the top ten to 15 in-force products generate more than 95 percent of total gross premiums written. The insurers that succeed over the next decade will be those that simplify product offerings accordingly. Simplifying a product portfolio could reduce an incumbent’s operational expenses in product development–related processes by up to 30 percent.