Editor’s note: This piece is excerpted with permission from Deloitte’s 2021 Insurance M&A Outlook.
Some early insurtech investors formulating an exit strategy may trigger one or more IPO or acquisitions by insurance carriers to accelerate the building of capabilities, such as the acceleration of digital efforts. Not only has the COVID-19 pandemic severely disrupted insurance companies’ day-to-day operations—prompting a dramatic shift to remote work and virtual customer engagement—but it has also uncovered substantial gaps in insurers’ operating models and enabling digital capabilities that they should work to close in 2021.
Deloitte’s August–September 2020 global survey of insurance executives found 79% of respondents believe that the pandemic exposed shortcomings in their company’s digital capabilities and transformation plans. In response, 95% of those surveyed are already accelerating or looking to speed up digital transformation to maintain resilience.
Historically, the insurance industry has underspent in technology investments, creating a digital divide between insurers and current and prospective customers. To deliver a frictionless, end-to-end customer experience, improve operational efficiency, and accelerate innovation, companies across the insurance industry need to think and act digitally. The urgency to act—partly in response to COVID-19–spawned disruption—is accelerating organizations’ efforts to deliver within the coming year what might originally have been three-to-five-year transformation plans. Among survey respondents, investment priorities include cybersecurity (66%), cloud computing (59%), data privacy (53%), and data analytics (49%).
Forty percent of those surveyed expect to increase investment in direct online sales, which is understandable, since most customers likely didn’t want to meet face-to-face with insurance salespeople during the pandemic—a trend that may continue long-term, especially among younger audiences already fluent in digital engagement. Insurers are also looking to invest in AI, alternative data sources, and more advanced predictive models, not only to automate routine, labor-intensive data-gathering and processing tasks, but also to augment underwriters’ capabilities and eventually transition them to higher-level, value-added roles such as portfolio management and greater interaction with brokers and large customers.
Brokers and agency channels appear to be leading in insurtech investment and utilization. P&C personal lines (e.g., auto insurance) show a fairly high degree of digitization, commercial lines less so. Group insurance is a mixed bag. For example, dental claims processing is moving entirely digital, and some companies have tried to create digital experiences to make it easier for employees to do business with them, but they also recognize there are opportunities to digitize more core and back-office operations. Life insurers, whose face-to-face sales model has been most disrupted by the pandemic, have employed tactical digitization to get through the crisis. Further ahead is a potential hybrid sales approach in which consumer conduct transactions primarily online, but have the option to engage in a live chat or phone call with a representative to ask questions or clarify complex policy information.
While many insurance companies purchase specific digital capabilities (generally more time- and cost-effective than developing them inhouse), others are acquiring entire insurtechs outright. For example, Prudential Financial acquired Assurance IQ in 2019 to reach a new demographic using the insurtech’s business-to-customer platform. Even with digital investments on the rise, insurance companies may miss the boat in terms of true innovation unless they shed outdated ways of thinking along with their legacy IT systems and software. Additionally, they should broaden their view of insurtech providers beyond that of vendors to partners and codevelopers and actively pursue partnership and investment opportunities with the startup community.
