Moving towards a “higher bottom line” in the insurance sector in Southeast AsiaBy Lim Siang Thnia
Insurers in Southeast Asia are bullish about their growth prospects for 2022, despite lingering concerns about the potential impact of COVID-19 variants on overall business recovery and return-to-workplace strategies. But beyond ongoing efforts to adapt to the pandemic’s aftermath, insurance leaders are also confronted with multiple fundamental hurdles that could potentially derail their progress.
These issues include, but are by no means limited to, integrating new technologies with core systems, adapting to shifts in consumer preferences, as well as quantifying and addressing climate risks – all of which would require insurers to double down on digital and talent transformation efforts, and re-evaluate their business models to embed sustainability and trust in their operational processes and investments.
In this article, we take a closer look at several bottomline challenges that insurers are likely to face in the year ahead, as well as some of the considerations that they will need to take to secure their long-term growth.
Scaling and refining pandemic-driven digital adaptations
During the pandemic, insurers had been quick to implement various digital adaptations to support a virtual workplace and customer engagement environment. However, as the environment begins to stabilise, leaders will need to make sure that these adaptations remain aligned with evolving long-term technology strategies and shifts in consumer behaviour:
- Integrate core systems with AI and analytics
Insurers are looking to leverage new data and automation solutions, including artificial intelligence (AI) and analytics, to boost efficiency and revenue – many of which would likely be deployed on cloud platforms. To deliver tangible value to the business, the integration of these applications with legacy systems will be paramount, and many insurers whose core systems are reaching the end of their lifecycle may also find it necessary to modernise in order to support these new technologies.
AI applications, in particular, are a growing area of focus for many insurers as they become increasingly proficient at performing tasks historically difficult for computers to execute – and insurers become more comfortable with utilising AI recommendations for decision-making in underwriting, pricing, marketing, and claims. In Singapore, for example, we have observed insurers deploying the use of AI to detect fraudulent claims and automate claim approvals, with algorithms capable of assessing a claim’s validity and recommending payment amounts within seconds.
Coupled with alternative data and advanced analytics, AI is expected to make a significant impact across the entire insurance value chain. To enable differentiation via alternative data, insurers will need to focus on building a strong data management system that is secure, scalable, and flexible enough to enable integration of multiple internal and external datasets. As data can often be fragmented and of poor quality, having a comprehensive data strategy can also help facilitate better data collection across various business units, and address integration across all platforms.
- Shift to “right-channelling”
While digitisation is an important priority, insurers should not neglect the value of the human touch. In view of this, a shift to “right channelling” – thinking strategically about which interactions require digital versus human interaction – is needed to create the ideal experience for each consumer – and should guide insurers’ distribution and service strategies.
For example, while preferences appear to be shifting toward increased digitisation and self-service capabilities in various areas of the insurance lifecycle, consumers tend to prefer human interactions when it comes to making decisions on more complex insurance products and processes. By investing in the right tools, such as customer relationship management platforms, insurers will be better able to support their teams more effectively in engaging remotely with their customers.
To reflect new digital realities, insurers should also rethink advertising approaches and their alternative strategies. While many insurers in Southeast Asia are already embarking on digital media strategies to reach out to more consumers, developing customised offerings through the use of advanced customer analytics would be key to maximising prospects, acquisition, and retention of new and existing customers.
Aspiring to a “higher bottom line”
Insurers are the economy’s first financial responders, and are entrusted with helping policyholders cope with and recover from some of the most challenging times in their lives or businesses. While insurers appear to have retained and even built upon this foundation of trust during the pandemic, they should also consider several ways in which they can aspire to a “higher bottom line” going forward:
- Ramp up climate and sustainability efforts
Insurers have been ramping up efforts to quantify and address climate risk in both their underwriting and investment portfolios, spurred on in part by increasing demands for data and evidence of concrete mitigation action from a wide variety of stakeholders. Globally, we have seen this trend play out with insurers appointing chief sustainability officers (CSOs) or equivalent to orchestrate organisation-wide environmental, social, and governance (ESG) strategies, and collect and report data on their outcomes.
But climate and sustainability efforts remain very much a work in progress. In the immediate future, insurers will need to focus on the quantification of ESG elements for financial disclosure statements as a top priority. This, in turn, requires them to first overcome a number of common organisational hurdles standing in the way of their sustainability agenda, such as insufficient resources, uncertain governance structures, and lack of individual accountability.
- Build upon a foundation of trust
Insurance ultimately comes down to a matter of trust – the consumers’ confidence that in paying their premiums, insurers will pay their claims if they suffer a loss – and therefore maintaining and bolstering that bond should be an ongoing priority. Apart from being more proactive with ESG initiatives to limit the causes of climate risk at its source, insurers should also consider ways in which they can recruit a more diverse workforce, as well as launch products and services to alleviate coverage gaps for underserved communities.
Efforts that insurers could also consider leading also include developing alternative financing mechanisms to cover a wider range of future pandemic losses, including potential public-private partnerships patterned after the model used in the terrorism insurance market, as well as becoming more open and collaborative with consumers on how their personal data is being gathered and utilised.
Where profit and social impact co-exist
Given their frontline role in mitigating societal risks and supporting those who have suffered ESG-related losses, insurers are in a unique position to influence policyholders and policymakers on many of the most important issues of our time, such as climate and sustainability. But this will require them to commit to bolstering ESG commitments in-house, as well as press for a more aggressive sustainability agenda amongst customers, investment recipients, lawmakers, and society-at-large.
Ultimately, the bigger picture is that insurers will increasingly be called upon to do more to enhance public trust, build a more equitable financial services industry where profit and societal impact coexist, and aspire to a higher bottomline – one where sustainability concerns are on an equal footing with more traditional growth and profit goals.
The writer is Deloitte Southeast Asia’s Insurance Sector Leader. The views expressed are his own.