Insurance companies that plan to be prognosticators – those that can predict future events or developments – will emerge stronger from times of disruption.
That’s the message Aaron Wright (pictured), director of strategy at insurance technology provider Earnix, gave to insurance leaders gathered at last month’s Earnix Excelerate 2023 conference.
“To come out better than you were before, it’s important to increase your ability to prognosticate or predict the future,” Wright said.
Wright presented several findings from Earnix’s latest survey, which polled 400 insurance executives about the trends having the greatest impact on their business and their response to transformative changes in the industry.
The top trends that emerged in the survey were:
Amid tremendous disruption brought on by rising costs, cybersecurity threats, regulatory pressures, and extreme weather, insurers must build their capacity to predict future outcomes and stay on top of emerging challenges, according to Wright.
“If we don’t adapt to our changing industry environment, then we will get left behind,” he said.
Earnix’s survey revealed that insurers are responding by boosting their internal forecasting and simulation technologies to predict macroeconomic or industry conditions. About 80% of executives said they would be using these internal models within the next two years.
However, less than half (43%) of leaders in North America said they would be harnessing both internal and external models to better predict future weather patterns, compared to 55% of leaders worldwide.
Asked how their companies were preparing for changing macroeconomic conditions, leaders cited the following actions: improving integration across enterprise applications, implementing dynamic pricing models, and implementing new underwriting processes.
Wright stressed the importance of dynamic modelling in helping insurers react to evolving conditions in the market and adjust their pricing accordingly.
“Good modelling practice is to vary the model refresh cadence to match the underlying variability in the variables that you’re trying to predict,” he said. “Becoming prognosticators means making sure the models you’re using are going to come up with the best predictions they can.”
One theme that came up in Earnix’s 2023 industry survey was the continued focus on customers, according to Wright.
C-suite executives, in particular, named evolving customer expectations as their biggest concern. This was due, in part, to the tremendous pressure put on top-level leadership to maintain strategic long-term focus, Wright said.
“Losing consumers’ trust is a long-term negative risk of focusing too greatly on short-term operational challenges, which can easily take away our focus during times of change,” he told the Earnix Excelerate crowd. “Increasing our customer-centricity can actually help us to change.”
Quoting Amazon founder Jeff Bezos, Wright added: “Focusing on the customer makes a company more resilient.”
When asked if companies use models to anticipate customer reactions, all the respondents in the Earnix survey said they either did or had plans to do so.
But Wright pointed out that these types of models can only be built through historical experience and by understanding customer feedback. In an era of unprecedented change, insurers must listen to qualitative data as much as quantitative ones.
“If your company needs to make the change that’s outside of your historical experience, your predictions of customer reactions could be completely wrong,” he said. “When external forces drive unprecedented changes, expect unprecedented customer reactions.”
This means insurers must engage in more frequent model tests and updates and supplement their historical models with qualitative methods of listening and understanding customers.
Finally, Wright encouraged insurers to be prepared and to innovate as the pace of change in the industry quickens.
“Being prepared means gathering industry information and keeping your eyes and ears open to what’s happening in today’s industry,” he said.
What are your thoughts on Earnix’s industry trends survey? Tell us in the comments.
