“After decades of stable returns, insurance is now a value-destroying industry in which half the players do not earn their cost of equity,” according to a recent report published by McKinsey. That same report states that insurance companies will need to make bold moves if they want to survive. Many of these bold moves cannot be developed without strong support from technology. Identity and Access Management (IAM) plays a key role in making this happen.
Insurance companies have had a bumpy ride over the past few years. The Covid-19 pandemic triggered a global economic downturn and profits in the insurance industries dropped by 15% in 2020. Thanks to government support programs, recovery was swift and 2021 was a better year for the industry. With another recession taking shape, this specific market will face further turmoil. In its report ‘Creating value, finding focus: Global Insurance Report 2022’, McKinsey & Company dissects the market trends and discusses strategic imperatives for insurers.
Going digital is a strategic imperative for the insurance industry
The report states that insurers have struggled to reduce their costs, while their margins are being eroded by InsurTech vendors who are offering a better digital customer experience. These InsurTechs are succeeding in getting a closer contact with consumers, while traditional insurers are further losing touch. In contrast to the wish of insurers to act more directly, the opposite is happening and the middlemen (i.e. the brokers) are faring better in that respect.
Needless to say, that getting more digital is insurers’ top priority. According to the report, “many insurers are considering a replacement of core systems with tech platforms that support the requirements of the digital age. The challenge is that such projects can take five to ten years, and they often last longer and cost more than expected.” Rather than undertaking a complete change of the IT stack, insurers will need to clearly pinpoint the real business requirements.
Enhancing and personalizing customer engagement
New customer behaviors require a shift in distribution for insurers. Consumers are embracing digital channels and have become used to delightful experiences with leading tech companies. They expect no less from their financial services partners and from their insurance companies. To cater to that need, insurers will need to start offering seamless digital customer journeys. And this is where an end-to-end IAM solution can help, providing workflows throughout the customer journey. Multi-factor authentication and Single Sign-on will provide ease of use in onboarding and authentication, while consent registration and management help realize personalization.
Digital ecosystems for revenue growth
Besides better customer experience, product innovation and new revenue streams are other strategic imperatives. “As traditional industry borders fall away, ecosystems will greatly influence the future of insurers, with InsurTechs aiming to play a role in this recomposition of the value chain.” McKinsey calculated that ecosystems could encompass USD 60 trillion in revenue by 2030. According to the report, only a few insurers will be able to create or orchestrate their own ecosystems, but the ability to connect with ecosystems will be a prerequisite for growth for all carriers as those ecosystems gain in scale. Logical candidates to become part of the insurance ecosystem are solutions in mobility, healthcare and the connected home. “Carriers will need to take a closer look at their relationship with end-customers in the context of purchasing journeys – such as buying a car, going on vacation, and buying a home – and decide how to embed solutions and services alongside insurance coverage.”
Last year, TrustBuilder published a commissioned survey conducted by Forrester Research that clearly showed that digital ecosystems are the holy grail of the financial services industry. While all insurers and retail banks are digitizing, not all are at the same stage in the maturity model. McKinsey also noted that insurance companies take a staged approach to participating in and forming an ecosystem. These stages can help insurers implement ecosystems in manageable, focused phases.
In each of these phases, companies will find themselves confronted with new challenges in security and compliance. IAM will help address these challenges, guiding them along their ascent in the digital maturity model.
TrustBuilder has ample experience in the insurance industry, with big-name customers such as Allianz, DKV, Delta Lloyd and DTCC. Contact us to offer your customers a secure and delightful experience throughout their user journey.