The Australian insurance industry is currently standing at a tipping point in its long history. Being one of the most profitable in the world for nearly 20 years, ahead of the UK and North American markets, the industry is facing turbulent times. Over the last five years, the industry has faced increasing headwinds. As per a report by KPMG, insurance profit for the year ended 30th June 2020 was down 48.31% to $2,274 million, a significant reduction from the annual results from the previous years. Unfavourable investment results from the volatile market conditions and higher reinsurance costs resulted in the downward trend.
Further, the COVID-19 pandemic introduced new challenges to insurers in terms of increased claims provisions with respect to travel, landlord and business interruption. While there was a reduction in motor and home claims due to pandemic restrictions, there were additional expenses associated with implementing business continuity plans, enabling remote working and bringing certain functions back onshore to address the COVID-19 uncertainty.
Apart from this, ‘digital first’ urgency is sweeping across the landscape, driven by a new generation of customers, changing regulatory norms and the need to gain competitive advantage. The insurance industry is currently facing dramatic disruptions. While insurers are taking several steps to thrive in this new era, many are looking at fast fixes for their challenges. To become resilient and sustainable, the insurance industry needs to avoid these 6 key mistakes and address these challenges effectively:
- Not taking a holistic approach to compliance:
Compliance and regulatory changes are happening at a rapid pace in Australian insurance industry. The new regulations are primarily intended to reduce the improper sale of insurance products and increase the value of insurance products for consumers. surers are quickly automating compliance processes, considering it to be a silver bullet. However, automating without understanding what, where and why to automate leads to weak compliance. In order to avoid any civil penalties due to non-compliance, insurers are quickly automating compliance processes, considering it to be a silver bullet. However, automating without understanding what, where and why to automate leads to weak compliance. Also, insurers are not taking appropriate actions to be future-ready for any regulatory changes.
- Looking at the short-term cost benefits:
Cost optimisation is emerging as an imperative for insurers to gain a competitive advantage. To gain quick results, many just squeeze a few percentage-point savings from their operations. Some others just jump straight to automation thinking it to be a cure-all solution to reduce costs from lengthy and costly processes. While these steps do offer some short-term benefits, these are not enough to guarantee survival and success for an industry facing massive disruption and shift.
- Failing to deliver customer-first experiences:
Despite the time, resources and money spent on customer service programs, many fail to deliver the desired impact. This is because today’s digital-savvy customers don’t just look for service, they also look for engagement.
Insurers need to expand their vision to factor in the entire customer journey. Just taking some steps to digitalise processes is not the answer. Insurers need to target their customer improvement efforts in the right direction to enhance customer service across the touchpoints and establish a firm foundation.
- Modernising for the sake of modernising:
Modernising the technology and infrastructure is a necessity for insurers today to increase productivity, enhance customer service and reduce costs. However, jumping on the modernisation bandwagon without proper analysis spells disaster for the company. This not only results in not being able to derive the desired output from the modernisation initiative, but also results in cascading company-wide interruptions across departments. These interruptions lead to financial losses and even compliance and regulatory issues.
- Not making post-merger integration a priority:
Carrying out mergers and acquisitions is always a complex exercise. As per reports, the failure rate of mergers and acquisitions is shockingly high—a research by Harvard Business Review highlights that between 70% and 90% of mergers and acquisitions fail. For the insurance sector, the merger process is even more challenging as the data is huge and there are a number of regulatory controls. The success of merger depends heavily on the post-merger integration, which is achieved when processes and structures of the two merging entities are unified and business units are consolidated. Oftentimes, insurers do not prioritise post-merger integration. Failure to successfully integrate impacts not just the bottom line but also significantly impacts productivity and employee retention.
- Not doing a 360-degree risk assessment:
Insurers are recognising that risk governance is vital to gain the trust of the consumer base. However, many just consider the big-picture process-level risks and fail to fully analyse and assess threats at the granular level. This doesn’t give a clear picture, limiting organisations to put appropriate controls in place. Managing Challenges and Pitfalls
Avoiding these pitfalls and overcoming these challenges is important for insurance companies to stay relevant and succeed in these changing times. To know vital and effective strategies to effectively respond to these major insurance industry challenges, read the eBook: How the insurance industry can tackle its 6 biggest challenges. The resource analyses each of the challenges, common mistakes made by insurers in addressing them and how can they effectively address these challenges to turn the change in the Insurance Industry landscape into an opportunity.