We are past the first anniversary of the start of the COVID-19 pandemic. While it’s an event many of us never expected to see, it is a reality that is informing an array of operational, financial and structural decisions inside the insurance industry. These changes will likely be with us long after the dust settles and the post-pandemic normal becomes the de facto operating model.
The pandemic has wrought a catastrophic human toll. However, there have been some silver linings in terms of things like the rapid acceleration of digital and virtual capabilities that allow customers, employers and employees to rethink the once seemingly unchangeable operating rules. Our collective eyes have been opened to an array of new possibilities that will likely inform hybrid models for as far into the future as we can see.
Another set of changes rippling through the insurance industry relates to the financial pressures that carriers are facing. Some of this has been created by persistently low interest rates. Long-term demographic shifts and changes in customer preferences are also having a profound impact on what carriers need to bring to market to remain both relevant and competitive.
Industry Evolution
This confluence suggests some notable “sea change” events in the future for life insurers in particular. For one thing, long-standing expense challenges have become clearer and more urgent. Investment income has masked this for perhaps as much as 25 years. No more. New products generally have less fixed cost covering capability than old, in-force blocks, so the natural changes in generations of policies create their own form of expense pressure.
Demographic shifts are also in play. During this decade, the youngest Baby Boomer will reach retirement eligibility. We are but months away from the oldest millennial reaching 40 years old. The shifts in product demands are palpable, and a strategy that suggests millennials will turn into Boomers, aside from the graying hair, appears flawed. Perhaps fatally so.
All this is now playing out in carrier decisions about future business models. One interesting example is that publicly traded companies are under pressure to consider fundamental changes in their strategies, moving away from retail businesses with long-liability-tail products and toward more fee-based and institutional models. MetLife recently completed an exit that included individual life, annuity and P/C operations. Prudential announced that it is considering an array of options, including a possible sale of its core L/A business. Principal has a study of the future of the L/A business underway, driven in part by activist minority investors.
See also: Pressure to Innovate Shifts Priorities
Tackling Challenges
At the same time, mutual carriers (e.g., MassMutual, Northwestern Mutual) seem to be doubling down on the long-liability-tail retail businesses, perhaps a recognition that this is most possible when the prospect of quarterly earnings calls is not an imminent challenge.
The spate of M&A witnessed over the past few years shows no signs of abating. This is likely a reflection of the need to generate scale in core businesses, a recognition that organic growth can be difficult in economic downturns, as well as the realization of the need to see if smaller units are really businesses, distinct from “corporate hobbies.”
The challenges, and opportunities, for carrier IT organizations are real. Clarity on the business direction for a company, agility to respond quickly to new priorities, flexibility to ramp resources up (or down) depending on circumstances, and the ability to tie IT investments more closely to the internal business cycles of an organization will be key. Business as usual is likely to take on a different meaning in the future, a reality compounded by the ever-shortening useful life of technology.
We would have arrived here with or without the pandemic, but COVID-19 has accelerated the moment of reckoning. Developing an overarching IT strategy to address both the technology and human capital needs to support this could be key to how successful CIOs and their teams are at delivering successes, building on their effective responses to the pandemic’s arrival. It turns out that was the start, rather than an end, of a story.
