EY’s Isabelle Santenac identifies seven business models that will define the future for the (re)insurance sector.
Since its creation three centuries ago, the commercial (re)insurance industry has been essential to the global economy — providing security and resilience to businesses and enabling innovation. But the sector’s operational fundamentals have barely changed.
Even before the global pandemic, a range of forces — from technology advancements to demographic shifts — were forcing the industry to significantly change the way it operates and serves customers. Covid-19 has only accelerated transformation, especially relative to stronger digital capabilities across the business.
Such capabilities are now required to support remote workers and stay connected to customers and suppliers. They can also propel the creation of entirely new business models based on dynamic connectivity and easier data sharing among all industry stakeholders. The following seven business models point the way forward for an evolving industry.
1. Global composites
These market mainstays will leverage strong balance sheets, strategic capital investments and new expertise to ignite growth. Modernized technology, re-skilled workers and refreshed cultures will enable new levels of process efficiency and operational agility, with customer value at the heart of the business. Productive partnerships and collaborations will be necessary to offset competition from smaller players.
2. Specialty insurers
In a market that demands either specialization or scale, the most successful boutiques will target specific profitable niches where few other firms are bold enough to tread. Their strategic priorities involve enhanced business origination and the launch of loss prevention and other high-value services. Specialists must also become smarter and leaner in risk transfers if they are to win by taking on risks no one else will.
3. Global reinsurers
Future global reinsurers will boost market share with innovative risk-transfer solutions. Through partnerships with alternative capital providers, these reinsurers will diversify their offerings to include primary insurance products and loss prevention services. Their lean teams will be data-driven and analytics-enabled in matching new products to different risk appetites and gaining access to secondary markets.
4. Underwriting agents
Lean, agile and dynamic, tomorrow’s managing general agents (MGAs) will focus solely on specialized underwriting services to portfolios and networks of investors and capital providers. Though specialization is key, “mega MGAs” will reach $1bn in revenue via consolidation or by duplicating their success across multiple market segments. The largest may ultimately become insurers, further threatening traditional players.
5. Capital providers
By 2030, some carriers will become experts in capital deployment and management of third parties, with a focus on well-defined market niches, customer segments and specific product types. These portfolio managers will operate with few employees and exceptionally lean in-house operations. They will excel in strategic sourcing and managing delegated authorities and vendors for underwriting, claims and other services. If they can deploy capital flexibly and efficiently, they could develop niche products for target segments.
Large companies that formerly bought insurance are increasingly selling risk, which could marginalize some carriers. Without appropriate coverage for intangible and virtual assets, more multinationals will commit to self-insurance. Some may even build out capabilities to be sold on the open market. They will use huge data volumes to match coverage to risk appetite and also develop the skills to navigate complex regulatory and tax environments.
7. Global intermediaries
Risk placement will always be important to commercial insurance brokers, but soon they will expand their offerings to include underwriting and risk advisory services. To execute the transition, brokers must overcome skepticism about their ability to add value in a digital world. They also need new skill sets, richer data and modernized technology, especially if they are to create industry ecosystems that connect industry players, a traditional strength of brokers.