Despite the global financial challenges faced by many organizations across numerous industries during the pandemic, the global insurance market is still expected to exceed USD 7 trillion in premium terms for the first time by the middle of this year.(1) This forecast comes on the heels of the fourth-highest rate of global insured catastrophe losses, which were over $100bn in 2021 (2) following a 3-year period that saw cyber-related claims increase from just under 500 in 2018 to more than 1,100 in 2020. (3)
With claims growing and losses deepening, it’s a wonder how and where the record-setting forecast will be accomplished. We can likely turn to investments and innovations made by the sector that aim to root out inefficiencies, cut costs, and perhaps even turn the trends around on the claims and losses.
This notion is certainly supported by new highs in insurance technology investments seen in 2021, where investments in digital capabilities continue to grow in claims management, data analytics, and automation to help make better, faster decisions while streamlining business processes. (4) It’s more than just claims and decision-making automation; the entire insurance value chain is getting a digital overhaul: (5)
- Marketing
- Product development
- Sales
- Underwriting
- Servicing
- Claims
Flipping things on its side away from the functional business view to one depicting the operations and technical capabilities, we see that most organizations (69%) define their digital transformation as a method for gaining operational efficiencies: taking existing business processes and seeking to improve or expand them with the use of technology. (6) These are the top 5 strategic technologies connected to the organizations’ digital transformation initiatives: (7)
- Cybersecurity (47%)
- Cloud Computing (45%)
- Artificial Intelligence (43%)
- Data Analytics (33%)
- Automation (26%)
As one example where a return on investment is expected, Juniper Research reports that auto, property, life, and health insurers will increase their annual savings by around four times more in 2023 compared to 2019, simply by investing in artificial intelligence (AI). (8)
One doesn’t have to look far to understand why AI and these other technologies are being used to uncover and address the inefficiencies and waste. Take a moment to consider the difficult times of the last few years where many organizations large and small around the globe were looking to survive. Some, however, leaned in on innovation to not just survive but to thrive. Both surviving and thriving bring exposure and risk, especially during the pandemic. According to an Allianz survey, below the top-ranked risks organizations were (and still are) dealing with – many of which can be mitigated with technology: (9)
- Cyber incidents
- Business interruption
- Natural catastrophes
- Pandemic outbreak
- Changes in legislation and regulation
- Climate change
- Fire, explosion
- Market developments
- Shortage of skilled workforce
- Macroeconomic developments
With cyber incidents topping the list at 44% (up from the previous year), (10) ransomware attacks end up being one of the most concerning cyber exposures for companies to deal with as they tick the cyber box and cause fear for a wide-scale business interruption. This risk ranked second to cyber incidents. This aligns well with a separate view of the market, noting that digital transformation leaders see improved security as their principal benefit (87%) coming from their investments in digital transformation. (11)
Yet another view from a different angle also points to this same sentiment: “The push for digitalisation is best complemented by investment in skills and cyber security.” (12)
Cloud must be at the center of the digital transformation strategy
Digital transformation is no longer the long-view dream once held by organizations, a dream that, like a shot, accelerated to become a fire-fighting exercise to survive the pandemic. Instead, digital transformation has become a permanent part of the business fabric, with organizations embracing it as part of their strategy, initiatives, and plans.
Earlier, we noted that cybersecurity is a top strategically important technology for a successful digital transformation, followed by cloud, AI, data analytics, and automation. The cloud is almost certainly necessary to achieve the other four on this list.
Another study shows that the top three areas of investment for a digital transformation program are led by cloud computing (85%) and followed by AI and machine learning (80%), and cybersecurity (71%). (13)
Businesses aren’t the only ones recognizing both the value and the risks involved with digital transformation programs; government entities are also taking notice. For example, the EU has allotted 20% of its EUR 724bn Recovery and Resilience Facility funds for digital-related investments. Some of the areas covered under this scheme include artificial intelligence, cybersecurity, and advancing digital skills. (14)
Don’t Forget skill and leadership
We’ve seen the element of digital skills hit the reports on many occasions in this post. That’s because the human element and the value they bring to the equation are critical. Investments in skills and leadership must be commensurate with those made in technology and process improvement.
“Companies are focused on experienced leadership rather than entry-level positions in many areas, such as technology, product management, underwriting, analytics, and sales and marketing. Senior roles are in high demand, and employers continue to offer robust pay increases and benefits to stay competitive.”(15)
Of all the roles, digital roles remain most in demand: IT, technology, telecoms, communications, and media (+50%), followed by banking, finance, insurance, and real estate (+43%). (16)
This has become a real challenge, with some of the critical issues organizations face when it comes to hiring for skills and leadership as follows: (17)
- 86% of HR leaders are kept up at night by talent shortages
- 83% of organizations indicate that increasing turnover is a top concern
- 78% of organizations indicate that employees leave their jobs due to better pay elsewhere
- 76% of organizations indicate that they are losing key skills, including digital technology leadership, management, and skills to remain agile and adaptable
And this isn’t just a challenge; organizations see it as a significant risk to not only their digital transformation programs but to the overall health of their business. (18) By 2030, Korn
Ferry estimates that the global talent shortage could reach more than 85 million people (19), up from 40 million in December of 2020. (20)
This reality has earned the lack of a skilled workforce a new spot as number 9 on the top 10 list of risks that organizations will be dealing with for the next 12 months – perhaps even longer. (21)
Citations
1, 12 – “Turbulence after lift-off: global economic and insurance market outlook 2022/23,” Swiss Re Institute, October 2021
2, 3, 9, 10, 18, 21 – “Allianz Risk Barometer 2022,” Allianz Global Corporate & Specialty, January 2022
4, 15, 17 – “U.S. Property-Casualty Insurance Trends and Outlook for 2022,” AON, January 2022
5 – “Regulatory Considerations for Digital Insurance Business Models,” The Geneva Association, March 2021
6, 7, 11, 13 – 2021/2022 Digital Transformation & Cloud Survey: A Wave of Change, Baker McKenzie, December 2021
8 – “AI Insurance trends to witness in 2021 and beyond,” Serkan Yildiz, February 2021
14 – “European Commission, Directorate-General for Budget, The EU’s 2021-2027 long-term budget & NextGenerationEU : facts and figures,” The Publications Office of the European Union, 2021
16 – “Q1 2022 Manpower Group Employment Outlook Survey,” Manpower Group, Q1 2022
19 – “The $8.5 Trillion Talent Shortage,” Korn Ferry, 2018
20 – “The Software Developer Shortage in the US and the Global Tech Talent Shortage in 2022,” Daxx, January 2022