In January 2020, insurers were looking forward to a year of strong growth. COVID-19 quickly took the wind out of those sails.
Confidence about the future has clearly sagged. Consider this: when we conducted our annual survey of Insurance CEOs in January 2020, 65 percent expressed confidence in the growth of the global economy. Eighty-eight percent voiced confidence in their company's growth prospects.
Six months later, KPMG International again reached out to Insurance CEOs to see how their confidence had changed. Our results suggest confidence in the global economy had been cut in half (to 32 percent). Confidence in their own company's growth fell by around 20 percent (to 71 percent).
Even those that do expect to achieve growth have watered down their predictions. In January, 8 percent of Insurance CEOs said they expected growth of 5 percent or more per annum going forward; none were as bullish come July. At the other end of the scale, the number of Insurance CEOs that admitted they might achieve no (or even negative) growth tripled since the start of the pandemic (from 5 percent to 15 percent).
The current lack of confidence is not entirely surprising. Like all other CEOs, Insurers are concerned about the prospects of continued lockdowns. They worry about the impact of second and third waves of the virus. Most voiced a strong level of personal concern about the health of their employees, their own health and that of their families. It's difficult to feel confident when you are worried about the safety of those around you.
The bigger weight on confidence, however, comes from the downstream impacts of the pandemic, particularly its effect on global economies and financial markets. Recent OECD forecasts suggest a longer recovery period for many economies; government stimulus programs continue to obscure the real impact of lockdowns on the economy; Central Banks seem keen to keep interest rates as low as possible.
However, what is becoming increasingly clear is that this pandemic is not impacting everyone equally. Some countries and territories and age groups have been hit particularly hard by the virus while others have not. Some markets and economies seem on track for a quick recovery while others expect a long, shallow one. Some industries may never return while a few are clearly growing stronger.
In much the same way, the pandemic and its related impacts are placing an uneven drag on growth across insurance sub-sectors. Commercial lines have, perhaps, been the hardest hit, partly because large sections of their client base (particularly SMEs) continue to face an uncertain future. And the global impact of business interruption insurance has varied widely by region and by country with a potential for litigation that could last years. Personal lines, on the other hand, are experiencing fewer negative impacts - with people at home more and driving less, some auto insurers have started handing premiums back to customers. However, travel insurance is weighing down some personal insurance writers.
For life and health insurers, the long-term prospects may gain momentum. COVID-19 has reminded people of their mortality and safety, driving a more concerted focus on their financial security and safety. Over the coming months and years, that could very well translate into strong growth opportunities and demand in theses sub-sectors.
Greater uncertainty has also caused Insurance CEOs to dramatically rethink and reprioritize their risks. When KPMG professionals talked to CEOs in January, they tended to be worried about four main risks - cyber risk, environmental risk, regulatory risk and a return to territorialism. Just six months later, cyber risk and regulatory risk had tumbled down the priority list. Focus on environmental risks and territorialism had still remain top concerns.
Now it seems what Insurance CEOs are most concerned about is their ability to keep up with customer expectations and their ability to find and retain talent. And the results of our survey demonstrate a significant shift in top concerns over the last few months.
Rightfully so. Let's start with the customer risk (identified in our survey as 'supply chain risk'). The COVID-19 experience has had a massive short-term and long-term impact on customer expectations. Customers have seen many of their service providers and brands make a quick pivot to virtual interactions and digital channels. And now they expect the same from their insurers. In order to meet those expectations, most insurers know they will need to lean on a wider ecosystem. And that brings new risks.
COVID-19 has also fundamentally changed the talent equation. Work from home models are transforming what insurers need and expect from their employees. It is also forcing employees to rethink what is important to them. If anything, the war for top talent has heated up since the pandemic began and employees that weren't 'in play' before are now reconsidering their options.
My conversations with Insurance CEOs over the past few months suggests many of them fully understand they need to move quickly, boldly and deliberately if they hope to drive growth in the future. They recognize that many of the trends accelerated by COVID-19 are enduring and indelible; all they can do is look ahead. And they know that, if they want to remain relevant and competitive, they need to develop and execute a strategy in the midst of this uncertainty.
While all insurers are different and each insurance CEO is facing their own unique set of challenges and uncertainties, my work and my conversations point to 5 key areas where Insurance CEOs should be focusing in order to regain their confidence in the current environment.
This pandemic has sapped the confidence out of everyone - consumers, politicians, business leaders and insurers alike. What will define our future growth and prosperity, however, is not the confidence we have in the future, but rather how quickly and confidently we respond to the environment we face.
I believe insurers have good reason to be confident in the long run. But first, they need to find the confidence to move forward, boldly and quickly, even in the midst of uncertainty.
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