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May 2021

Insurers: Desperately seeking efficiencies

Source: Asia Insurance Review | May 2021

Years of cost-reduction efforts have yet to yield significant results for insurers, but the need for leaner cost structures is acute in highly competitive lines of business and markets where cost efficiency is closely linked to innovation.
By Ridwan Abbas
The need to free up funds to invest in new digital capabilities makes cost reduction a greater priority for insurers than before, according to a new report by EY.
As cost pressures continue to mount, increased strategic focus and restructuring of the business can help create the additional funding capacity for growth-oriented investments, EY insurance leader for APAC Grant Peters told Asia Insurance Review.
“Insurers need to reassess which part of the business is core and which is not, but I think the momentum for cost efficiency is there because of economic conditions and the changing needs of consumers. For example, more are wanting bespoke solutions and insurers need to take a more strategic view on cost to deliver on such demands,” he said.
The report added that insurers must seek capital-efficient ways to deliver innovation, and this could take the form of teaming up with InsurTechs in ecosystems or other partners. Doing so allows insurers to avoid large capital outlays as they seek new revenue, and also prevents the risk of subpar returns on big investments.
Technology would have a big role to play in optimising cost, and purely administrative tasks should be automated – starting with claims, underwriting and customer service, said EY.
Modernising legacy tech, which often presents barriers to cost efficiency, and moving data and infrastructure to the cloud are additional priorities, the report added.
Being more agile and customer-centric
In a peculiar way, the pandemic resolved long-standing debates about the need to digitise distribution as insurers were left with little choice amid social distancing measures.
However, all channels play an important role and insurers need to assess which distribution channel is relevant for various customer segments and needs.
“The direct-to-client model is becoming more mainstream but once the needs become more complex, there is a need to interface with agents. Also, self-education among consumers has become more common and insurers should look to educate consumers about insurance needs and perhaps offer personalised recommendations,” said Mr Grant.
He said, “The buying behaviour of customers has evolved in two ways. One is that they seek an easier way to interface with insurers whether it be to file a claim or renew a policy. Secondly, there is also a growing trend seeking more flexible terms and conditions in products and more personalised solutions.
“I believe usage-based insurance and more flexible covers would be a natural thing coming out of the pandemic.”
Product innovation 
Having stronger digital capabilities would allow insurers to be more agile and customer centric, and facilitate better product development, the report said.
A global insurance consumer and small business owner survey conducted by EY last year showed positive response among customers for usage-based motor policies (69%), and health plans that offer customised pricing in exchange for sharing of personal health data (67%).
The survey also noted rising market interest in new products such as coverage of credit card bills in case of a pandemic-related job loss (65%) as well as coverage for home protection services (62%).
Data is king
To capitalise on these new demands, insurers will need to gather more nuanced insights on customers. In that regard, insurers need dramatically to improve their intake of third-party data to enhance underwriting, marketing and other functions.
The report added that insurers should also look to deploy robust APIs to create an environment for data passporting and access.
“As operations become more digital and automated, insurers will be better positioned to collaborate with other external partners via ecosystems, joint ventures and other models. Again, digital transformation is a much about opening doors to new possibilities as it is about eliminating manual activities,” said EY. A 

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