Insurance Industry Archives

Agentic AI in Insurance: Transforming Risk, Relationships, and Results | Blog

November 21, 2024

Generative AI (gen AI) has laid the groundwork, but Agentic AI is now the architect of the next frontier in enterprise transformation…

Introduction:

Artificial Intelligence (AI) is transforming industries worldwide, and Agentic AI now represents the next wave of this revolution, with the potential to reshape complex, data-intensive sectors such as insurance.

Agentic AI is an evolved form of AI that creates autonomous agents possessing advanced levels of autonomy, decision-making, and adaptability. The agents can execute tasks in their entirety through natural language-based inputs. They can set goals independently, plan accordingly, and act to accomplish the targets.

It’s important to note that while Agentic AI shares some similarities with gen AI, which creates content based on user inputs, Agentic AI goes further by empowering systems to act and make decisions in real time.

How Agentic AI is Transforming Insurance

In the insurance industry, where efficient customer service, precise risk management, and timely claims processing are critical, Agentic AI holds immense promise. From underwriting and fraud detection to personalized customer service, Agentic AI offers insurers an unprecedented opportunity to streamline operations, enhance customer engagement, and respond more effectively to evolving risks and regulatory demands.

The insurance industry has long been marked by data-intensive processes, extensive documentation, and a reliance on skilled human judgment for underwriting, claims management, and customer engagement.

Agentic AI is set to transform these foundational elements by enabling smarter decision-making, automating routine tasks, and enhancing predictive analytics. Insurers can leverage Agentic AI to achieve greater operational efficiency, improve customer satisfaction, and unlock cost savings.

Through a multi-agent approach, Agentic AI can consolidate data from multiple sources, analyze it in real time, and make informed decisions faster and more accurately than traditional systems. This holistic view not only reduces human error but also allows insurance companies to personalize products and services, ultimately leading to higher customer loyalty and trust.

Use Cases of Agentic AI in Insurance

This chart categorizes Agentic AI use cases for insurance, into four quadrants based on potential impact and ease of adoption, as well as offering a roadmap for prioritizing AI implementation.

Quick wins (high impact, high ease of adoption): These include streamlined claims processing, such as fraud detection and prioritization of suspicious claims, and policy servicing, where AI autonomously renews policies and handles adjustments. Personalized marketing and lead generation also fall here, leveraging AI to target and retain customers effectively. These use cases deliver immediate value with minimal barriers, making them ideal for early adoption

Evaluate (high impact, low ease of adoption): High-potential applications like automated underwriting and complex claims adjudication require integrating vast datasets and advanced decision-making, making them challenging to implement. However, once adopted, they can drive transformative efficiencies and profitability

Educate (low impact, high ease of adoption): Easily implemented tasks like chatbots for customer service and automated record updates, streamline operations and free up human resources (HR). These serve as steppingstones to familiarize teams with AI capabilities

Wait (low impact, low ease of adoption): Complex and low-return tasks like rare claims adjudication or regulatory reporting face significant challenges and should be deprioritized

By focusing on “quick wins” and strategically tackling “evaluate” areas, insurers can maximize Agentic AI’s value while gradually scaling adoption.

Future Trends in Agentic AI for Insurance

Integration with Internet of Things (IoT): Combining Agentic AI with IoT devices like vehicle telematics and health monitors, allows real-time data collection for customizing insurance products, monitoring risks, and automating claims, creating responsive and personalized insurance solutions

Enhanced predictive analytics: Agentic AI enables precise claims forecasting, pricing, and customer behavior analysis, helping insurers anticipate claims, optimize pricing, and proactively engage with policyholders

AI-driven chatbots and virtual assistants: Advanced AI-powered chatbots can handle complex customer queries, provide 24/7 support, and deliver personalized responses, improving customer satisfaction and reducing the workload on human agents

Evolving underwriting and claims: Agentic AI automates complex underwriting and claims tasks, analyzing vast datasets to make quick, accurate decisions, leading to faster, more effective customer service

Ethics and data privacy: As AI integrates further, insurers need strong frameworks to ensure decisions are transparent, fair, and compliant with regulations, balancing automation benefits with ethical and privacy safeguards

Potential Challenges and Risks of Adopting Agentic AI

Technical and financial barriers: Implementing Agentic AI requires significant investment in technology and talent, and the integration with existing systems can be challenging. Insurers may face high upfront costs, ongoing maintenance expenses, and a prolonged timeline before realizing a return on investment

Data privacy and security: Given the volume of sensitive data handled by insurance companies, the risk of data breaches and compliance violations is substantial. As Agentic AI systems gain more autonomy, ensuring robust security protocols will be essential to safeguard customer data and maintain regulatory compliance

Ethical and operational risks: Agentic AI’s ability to operate autonomously raises ethical concerns around decision-making transparency and accountability. If AI agents act independently, insurers risk unintended actions that could impact customers or violate regulatory requirements

Safeguarding Measures

Establish a strong governance model and clear guidelines: Implement robust governance frameworks that define ethical principles, operational boundaries, and accountability measures for Agentic AI. These models should address autonomy, transparency, and compliance to ensure AI systems operate responsibly, and align with organizational values and regulatory requirements

Implement comprehensive human oversight: Ensure regular audits and active human supervision of AI systems, especially in high-stakes scenarios, to validate decisions and prevent unintended outcomes. Human oversight acts as a critical checkpoint to maintain accountability and ethical compliance

Strengthen security measures: Build and enforce advanced security protocols, including multi-layered access controls, real-time monitoring, and regular vulnerability assessments. These measures are essential for protecting sensitive data, mitigating privacy risks, and ensuring regulatory adherence in Agentic AI implementations

Conclusion

Agentic AI presents transformative benefits for insurers, enabling them to enhance operational efficiency, detect fraud, personalize customer experiences, and improve risk assessment. By automating routine tasks and providing real-time decision-making capabilities, Agentic AI can help insurers achieve significant cost savings and operational improvements.

Looking forward, Agentic AI is set to redefine the relationship between humans and machines in the insurance industry. As the technology evolves, it will usher in a new era of responsive, efficient, and customer-centered insurance services, paving the way for a future where AI and human expertise work together to deliver superior outcomes.

In this landscape, insurers that embrace Agentic AI thoughtfully—balancing innovation with ethical oversight—will be well-positioned to lead the industry into the future.

If you found this blog interesting, check out our blog focusing on Agentic Artificial Intelligence (AI): From Science Fiction to Life Sciences Disruption | Blog – Everest Group, which delves deeper into the topic of Agentic AI and artificial intelligence.

If you have any questions, would like to gain expertise in Agentic AI and artificial intelligence, or would like to reach out to discuss these topics in more depth, contact Sidhaant Nagpal ([email protected]) and Abhimanyu Awasthi ([email protected]).

What is Everest Group Engage and the Pragmatic Edge? Announcing Everest Group Engage 2025 – London | Blog

November 8, 2024

Following the conclusion of Everest Group’s inaugural Engage 2024, an event in which attendees left feeling energized and equipped with practical insights and actionable strategies, there is now more to come!

The event, which offered a deep dive into the evolving world of outsourcing and service delivery, brought together industry veterans, thought leaders, and Everest Group advisors, all of whom explored the past, present, and future of global services.

What was the goal of this you may ask? Put simply, it was to arm leaders with pragmatic solutions that drive business impact, in the “do more with less” and generative AI (gen AI) eras.

At its core, Everest Group Engage revolves around “The Pragmatic Edge”—a philosophy that blends practical and actionable strategies, with forward-thinking insights.

This approach enables organizations to build sustainable advantages in service delivery, combining innovative thinking with real-world applicability.

The event highlighted how businesses can leverage this mindset to remain competitive, all while embracing the next phase of transformation: the Business Value Mosaic. This new model emphasizes the need to understand and capture business value holistically—redefining how services create impact across industries.

Everest Group Engage 2024 explored the megatrends shaping the industry today. Sessions delved into topics ranging from pricing models and gen AI adoption, to shifts in global delivery models. Attendees were challenged to think beyond traditional service paradigms and embrace new frontiers—like the growing relevance of Africa as a key player in global delivery with its emerging talent pool.

The event also sparked critical conversations about the future of work. Experts emphasized the need for frictionless service models—delivering seamless experiences—and the importance of developing a “prime” model, with built-in flexibility to adapt in an ever-evolving ecosystem. Whether discussing artificial intelligence (AI) , automation, or evolving workforce strategies, the message was clear: success in this era requires agility, collaboration, and bold leadership.

Everest Group Engage is more than a conference. It’s a call to action for leaders to expand their toolsets, shift their mindsets, and embrace the future of service delivery with confidence. Whether you are new to the industry or a seasoned professional, this event provides the knowledge, connections, and strategies needed to thrive amid constant change.

Announcing Everest Group Engage 2025 — London

We are delighted to announce the next chapter of Everest Group Engage will be coming to London, from March 31 – April 1, 2025. Building on the momentum of the 2024 event, Everest Group Engage 2025 — London will delve deeper into The Pragmatic Edge: Global Impact—exploring how practical strategies can drive sustainable growth in a complex, interconnected world.

This 1.5-day event will connect executives from GBS , sourcing, vendor management, IT services, global locations, and next-gen technology, with top experts and thought leaders on hand to co-create solutions for future challenges.

With hands-on workshops, solution-focused discussions, and immersive networking, attendees will leave prepared to make confident, data-driven decisions and transform their organizations.

Mark your calendars now! London awaits—offering you the opportunity to sharpen your pragmatic edge and achieve global impact. Learn more about Everest Engage 2025 in London!

Insurance Technology Market Trends: Reflecting on the Recent Guidewire Kufri Release | Blog

August 9, 2024

Guidewire’s latest release, Kufri, showcases the company’s dedication to innovation, efficiency, and global reach in the insurance technology space. Emphasizing streamlined processes, advanced data analytics, and expanded global solutions, Kufri is set to enhance the competitive edge of insurers worldwide. Reach out to us to explore further.

In the rapidly evolving world of insurance technology, Guidewire continues to lead the charge with innovative solutions that cater to the industry’s growing needs. The latest “Kufri” release, the second of three planned releases for 2024, marks another significant milestone for the company. Named after the picturesque mountain town in Shimla, India, Kufri symbolizes Guidewire’s commitment to blending innovation with a global perspective. This release emphasizes process efficiency, accelerated time to market, and enhanced data analytics capabilities, all while expanding Guidewire’s reach beyond North America.

Key focus areas of the Kufri release

Process efficiency and time to market Kufri introduces several enhancements designed to streamline insurance processes, making them more efficient and reducing the time to market for new products. These improvements are crucial for insurers looking to remain competitive in a fast-paced market, where speed and agility are critical.
Enhanced data and analytics In today’s data-driven world, the ability to leverage data for better decision-making is invaluable. Kufri’s focus on data and analytics provides insurers with deeper insights, particularly in areas like property insurance and cyber risk assessment. This enhancement allows insurers to make more informed decisions, improving risk management and underwriting accuracy.
Global expansion and localized solutions One of the standout aspects of the Kufri release is Guidewire’s strategic push to expand its presence outside North America. A significant part of this strategy is the rollout of HazardHub in 19 additional countries across Europe, the Asia-Pacific region (APAC), and Africa. This move underscores Guidewire’s commitment to delivering localized solutions that cater to the specific needs and regulatory environments of different regions.

Opportunities for Guidewire

Guidewire’s strategic initiatives open up a multitude of opportunities for growth and market expansion:

Regional GTMs to unlock growth from emerging markets As Guidewire extends its footprint into new markets, it is crucial to develop regional messaging that resonates with local audiences. Collaborating with system integrators and solution partners who possess deep regional expertise will be vital. These partnerships can help tailor Guidewire’s offerings to meet the unique demands of each market, ensuring a smoother adoption process and better customer engagement.
Amplified messaging on industry-aligned digital customer experiences In a competitive landscape, offering a superior policyholder experience is key. Guidewire’s digital experience platform, Jutro, is designed to deliver personalized interactions and accelerate the time to build micro frontends. Highlighting LoB-specific design templates and high configurability could help Guidewire differentiate itself against other major digital experience platforms that lack off-the-shelf industry-specific contextualization.
Low-code capabilities and configurability over customization Guidewire’s platform has done well in building quick configuration capabilities and a low-code architecture that are increasingly sought by insurers. This allows carriers to improve time-to-market for peripheral capabilities, without making major customizations – so, insurers can stay agile in a dynamic market, while avoiding the added complexity for future upgrades. Such messaging and capabilities will resonate with Guidewire’s existing customers who need to drive value acceleration on their core technology estate, but are struggling to build a business case for a major upgrade or moving to Guidewire Cloud.
DevOps and FinOps integration To maximize the benefits of cloud adoption, Guidewire can further integrate its solutions with DevOps and FinOps practices. This integration will provide insurers with greater visibility into their operations, enabling better management of the total cost of ownership. Additionally, incorporating AIOps elements will enhance reporting and governance in cloud environments, driving efficiency and cost-effectiveness.

Looking ahead: expectations for the final 2024 release

As we look forward to Guidewire’s final release of the year, there are several areas where further advancements are anticipated:

Embedding generative AI Guidewire’s customers are increasingly interested in the practical applications of generative AI. The upcoming release could offer out-of-the-box AI use cases that provide insurers with new capabilities in underwriting, claims processing, and customer servicing.
Mature data fabric offering A mature data fabric offering would allow insurers to leverage powerful analytics capabilities, enabling more precise risk assessment and personalized product offerings. This evolution will be crucial as insurers seek to differentiate themselves through advanced data-driven insights.
Cost-effective data migration The final release should also focus on providing cost-effective data conversion and migration capabilities, leveraging cloud infrastructure. Simplifying these processes will help insurers transition to new systems more smoothly, minimizing disruptions and reducing costs.
Aggressive expansion in specialty products While the Jasper and Innsbruck releases have made significant strides in commercial and specialty products, there is a need for continued innovation in this area. Competition from niche tech providers is intensifying, and Guidewire must maintain its momentum to secure its position as a leader in this segment.

The role of Guidewire’s consulting and system integration services partner ecosystem

Guidewire’s consulting and system integration (SI) services partner ecosystem plays a crucial role in supporting its global expansion and product development efforts. Here are some key opportunities for this ecosystem:

Contextualized regional solutions As Guidewire expands in Europe and APAC, there is a growing need for region-specific solutions and go-to-market strategies. Consulting and SI service partners can leverage their experience and understanding of such regional markets to develop localized offerings and blueprints that address unique needs of each market.
Talent development and recruitment The demand for local talent with regional expertise is rising, particularly in emerging European markets. Guidewire’s partners should invest in targeted recruitment and talent development, including specialized training and certification programs. Partnerships with local universities and regional service providers can also provide a steady pipeline of skilled professionals.
Comprehensive support and technical debt remediation As insurers shift to cloud-based solutions, there is an increasing need for comprehensive pre- and post-implementation support. SI partners should plan to integrate service level agreements (SLAs) and develop detailed roadmaps for technical debt remediation, ensuring smooth transitions and sustained operational efficiencies.
Ecosystem-driven business value realization Guidewire’s partners should elevate their conversations with existing customers from a focus on maintenance and changes to a broader discussion about business value realization. This approach involves championing an ecosystem-led core augmentation strategy, leveraging plug-and-play solutions, and exploring new opportunities in data, digital experiences, and advanced risk modeling.
Focus on cloud migration and surround services Partners should align their co-innovation and GTM efforts with Guidewire’s vision on taking a cloud-first approach. They should also shift their focus to providing surround services around the core, working with Guidewire-affiliated solution providers to help clients realize value and achieve high-velocity outcomes.

As Guidewire continues to innovate and expand, the Kufri release sets a strong foundation for future growth. The company’s focus on efficiency, data, and global expansion positions it well to meet the evolving needs of the insurance industry. With the final release of the year on the horizon, expectations are high for even more groundbreaking developments that will further solidify Guidewire’s leadership in the market.

Recommendations for insurance enterprises:

Existing customers:

Based on current technology maturity and appetite for REQUIRED change, insurers must have a defined roadmap to maximize value from existing core investments, without making massive customizations. They should work with their SI partners to identify capability gaps and build future-proof playbooks to adopt plug-and-play solutions from the Guidewire marketplace.

New customers:

Insurers evaluating whether they should embrace modern core systems such as Guidewire must factor in off-the-shelf product capabilities and ecosystem-led scalability. They must bake in the integration effort involved in customizing the product to their business context and conducting a thorough cost-benefit analysis for the migration – for both the immediate term and long term. Enterprises must also adopt a “partner over vendor” mindset and encourage a two-way conversation, where the SI partners are incentivized to drive value additions and bring in best practices from other such engagements to drive on-time and on-budget implementations.

AI and cloud readiness

In line with the vision to scale data-driven decisioning capabilities, insurers should evaluate the potential of the Guidewire Data Platform and augmented data-sets for effective risk assessment and pricing capabilities. Insurers must gauge cloud-native and embedded AI capabilities and seek ongoing guidance from Guidewire and their SI services partners to ensure building a future-proof core tech estate.

Experience

Leverage Jutro’s off-the-shelf templates to accelerate the delivery of engaging digital experiences for policyholders as well as agents. Migrating to Guidewire Cloud allows insurers to access such updates quickly and adapt to evolving stakeholder needs, providing a more personalized and responsive user interface.

To learn more about Guidewire and the platform services market, please reach out to [email protected], [email protected], and [email protected].

Check out our webinar, Mid-market Digital Transformation: Insights and Outlook for 2025, for best-practice recommendations for adopting newer technologies, based on our analysts’ recent experiences.

Future-proofing Insurance: Embracing Sustainability in Insurance for a Resilient Future | Blog

July 17, 2024

Sustainability in insurance transcends traditional practices, weaving Environmental, Social, and Governance (ESG) elements into the core of day-to-day operations, thereby safeguarding the future of stakeholders and the planet. In this evolving industry, embracing sustainability is no longer optional but essential for mitigating climate risks, meeting regulatory demands, and ensuring long-term value in a world facing complex environmental and social challenges. Reach out to us to explore this topic further.

The shift toward sustainability in insurance

Sustainability is becoming increasingly critical in the insurance sector due to the escalating unpredictability of losses driven by climate change, economic instability, and social inequalities. As per a report by the National Oceanic and Atmospheric Administration (NOAA), in 2023 alone, the United States witnessed 25 climate-related disasters that each resulted in damages exceeding US$1 billion, nearly doubling the annual average from the previous five years and leading to 464 fatalities. Such extreme weather events, occurring in regions where they were previously uncommon, are compelling insurers to acknowledge their responsibility in environmental protection. Additionally, shifts in consumer behavior are influencing the move towards sustainable practices. A growing number of consumers, about 25%, are now willing to pay a premium for environmentally friendly products, such as electric vehicles and sustainably sourced clothing, expecting that the companies they patronize uphold similar ethical standards.

Regulatory changes are also pushing the insurance industry towards greater transparency and sustainability. In the first half of 2023, there were over 1,715 adjustments to the US state insurance regulations, many of which address climate issues. A notable example is the California Climate Risk Disclosure Survey, which requires insurers to disclose how they are managing climate-related risks. Moreover, entities such as the Securities and Exchange Commission (SEC) are preparing to enforce new mandates requiring climate risk disclosures, potentially impacting publicly traded insurance firms that do not proactively address climate change.

As a result, insurers have started developing and offering new products across personal, commercial, and specialty lines. In personal lines, companies have begun offering green property insurance, which covers eco-friendly materials and energy-efficient upgrades following a loss, as well as discounts for hybrid or electric vehicle owners to encourage sustainable transportation choices. In commercial lines, insurers in geographies like the US and EU now provide insurance for renewable energy projects and green building coverage, helping businesses transition to sustainable practices. These include coverage for renewable energy equipment, green construction materials, and tools to manage climate-related risks. Specialty lines see innovations driven by InsurTech, such as parametric insurance for climate risks and the use of IoT devices for real-time environmental monitoring, enhancing risk mitigation and encouraging eco-friendly behaviors.

Sustainable insurance in action

Insurers integrating sustainable practices into their value chains include:

AXA (2015), launching the AXA Climate School to educate clients on climate risks, enhancing client trust and risk management
Zurich Insurance Group (2017), initiating the Zurich Forest Project for reforestation, boosting their brand reputation and environmental impact
Allianz (2018), incorporating ESG factors into underwriting and investments, improving investment resilience and attracting ESG-conscious clients
Swiss Re (2019), ceasing re/insurance for the most carbon-intensive oil and gas companies, aligning with climate goals and reducing exposure to high-risk industries
Aviva (2020), setting a net-zero carbon target by 2040, enhancing long-term sustainability and appealing to eco-friendly investors
Munich Re (2021), investing in green bonds and applying ESG criteria to their investment portfolio, supporting sustainable projects and strengthening their market position in the green economy

Currently, while the integration of sustainability into corporate strategies is becoming crucial for many firms, the actual implementation of these strategies in a tangible way remains a very early stage for many companies. According to a global survey, 25% of insurers identified “grasping ESG-related regulations and guidelines” as their primary challenge in advancing their ESG initiatives. This was followed by 17% who cited “determining the most effective actions to take on ESG” as a key hurdle and 15% who pointed to “aligning ESG efforts with customer expectations” as a significant concern.

Challenges in implementing sustainable insurance

Besides the difficulties of managing risks in a world altered by climate change, the insurance sector also contends with issues arising from regulatory, operational, and market-related complexities.

Regulatory uncertainty – Insurers need to navigate a complex web of local and international ESG-related regulations that can vary significantly from one jurisdiction to another. The lack of standardized regulatory frameworks makes it difficult for global insurance companies to implement uniform strategies across all markets. This regulatory complexity requires insurers to invest heavily in legal expertise and compliance functions to ensure they meet all applicable guidelines
Lack of standardized metrics and data deficiency – The insurance industry relies heavily on accurate data to assess risks and set premiums. However, there is currently no universally accepted methodology for quantifying ESG risks, which complicates the integration of sustainability into traditional risk models. This lack of standardized data not only hinders the assessment and pricing of risks but also makes it difficult to track progress and measure the impact of sustainability initiatives
Liability risks – One of the significant challenges for insurers in implementing sustainability is managing liability risks stemming from compensation claims related to climate change damages. As climate change increases the frequency and severity of extreme weather events, the potential for substantial claims also rises, impacting the liability side of insurers’ balance sheets. Additionally, there is an increased risk of litigation, with insurers potentially facing legal challenges for failing to manage or disclose climate-related risks adequately
Affordability and availability of coverage – Affordability and availability of coverage pose significant challenges in implementing sustainability in the insurance industry. As climate change leads to more frequent and severe natural disasters, insurance costs rise, making coverage less affordable. High-risk areas, such as flood or hurricane-prone regions, for example, face higher premiums or loss of coverage, leaving communities vulnerable. This not only affects individual policyholders but also has broader economic implications, leading to underinsurance or no insurance in these zones
Aligning sustainability with market and customer expectations – Insurers must balance the need to implement sustainable practices with the need to remain competitive and meet the expectations of their clients. This involves developing new insurance products and services that not only comply with ESG standards but also appeal to a market that is increasingly sensitive to sustainability issues

Shaping tomorrow’s insurance industry

In the insurance sector, several unpredictable developments stand out, including emerging risks such as an aging population, climate change, and cyber threats, along with the rise of the sharing economy affecting freelancer, auto, and home insurance markets and the integration of technology in the smart economy. Social factors, such as evolving consumer expectations for corporate responsibility and equitable services, also play a crucial role, as do governance issues like regulatory changes and corporate transparency. While accurately forecasting the future remains a challenge, identifying catalysts for market changes is possible. By combining historical data with industry insights, we can use a specifically designed model to construct various future scenarios. These scenarios illustrate potential outcomes and opportunities driven by key trends in environmental, social, and governance (ESG) aspects under different conditions [Exhibit 1]. With this approach, we can strategize effectively, choosing paths that optimize financial gains, enhance social impact, or minimize risks.

Driving sustainability in insurance is not just about compliance with regulatory changes and risk management; it also involves capitalizing on new opportunities and fostering a more sustainable, resilient world. As financial intermediaries and risk managers, insurers have a unique ability to drive and support sustainable practices across different industries and communities. The following strategic key objectives present a structured approach for insurance companies to embed sustainability into each stage of their value chain, along with key performance metrics to align with broader societal goals [Exhibit 2].

By embedding sustainability into its core identity and fostering innovation, the insurance industry can go beyond managing risks to actively stewarding the planet and its people. This transformation will not only reshape the industry but also significantly contribute to a sustainable, resilient, and equitable global future.

To discuss more on the importance of sustainability in the insurance space, please reach out to Debasruti Mitra at [email protected] and [email protected] and stay updated by accessing Everest Group’s latest research on Insurance Business Processes.

Watch the webinar, What’s Next in Financial Services? Driving Transformation Through Sourcing, Technology, and Operations, to learn how the banking, financial services, and insurance (BFSI) industry is driving business transformation in response to evolving customer needs and the rapid adoption of AI and cloud technologies.

Transforming the Game: How Consolidation is Revolutionizing the Insurance Brokerage Industry | Blog

June 7, 2023

Readily available capital and low-interest rates made the past few years ideal for the insurance brokerage industry to consolidate in response to increased competition, changing customer expectations, and other challenges. Merged insurance intermediaries can partner with business process service (BPS) providers to optimize processes, manage risks, enhance data analytics, and improve customer experience, among other benefits. Read on to learn more.

Reach out to us directly for questions or to learn more.

The insurance brokerage industry went through an inflection point last year. A confluence of factors happening simultaneously created a perfect recipe for consolidation. These included large quantities of readily available capital, low-interest rates, highly valued broker stocks, all-time high valuation multiples, and the challenging insurance market.

The deal frenzy of 2021 slowed towards the end of 2022, with less than $2 billion of deal value announced and no large transactions in the last six months of the year. Despite this, insurance brokerage transactions trumped the activity. More than 90% of the overall insurance deals were in the brokerage space. In terms of both the volume of transactions and the multiples being paid, the consolidation rate in the re/insurance broker industry has accelerated.

Let’s take a look at the following dominant broker groups influencing the insurance brokerage industry:

Global brokers – Large multinational insurance brokers who typically operate in multiple countries and offer a wide range of insurance products and services
Private Equity (PE)-backed brokers – PE firms provide the necessary capital for mergers and acquisitions
Family-owned brokers – Small to mid-sized insurance brokers that are family owned and operated

Drivers and challenges leading to consolidation

Competition

Increasing competition: The insurance intermediary industry is becoming increasingly crowded, with new players entering it all the time, further fragmenting the market. These new players often can offer better services, lower prices, and more innovative solutions than traditional insurance intermediaries
Market share growth: Insurance intermediaries can inorganically boost market share with additional capabilities and market penetration in new geographies by consolidating with another firm. They also can benefit from customer base growth

Capabilities

Technological advancements: The industry’s recent drive towards digital transformation by implementing new technology and platforms is forcing intermediaries to seek funds to invest in digitization or lose against better-capitalized intermediaries
Economies of scale: Insurance intermediary consolidation can spread fixed costs over a larger number of policies, resulting in lower average costs per policy. It also can provide intermediaries with increased bargaining power with insurers, provide cross-selling and up-selling opportunities, and help increase brand and mind share
Service offering diversification: Consolidation allows insurance intermediaries to expand and diversify their services and product lines. Intermediaries can attract new customers by acquiring another brokerage that provides different products or services. This keeps intermediaries relevant and competitive in a dynamic market

Complexity

Regulatory pressure: Consolidation can help smaller intermediaries remain up to date on increasingly complex risk management requirements that would be difficult for them to do by themselves
Inefficient processes and people: By joining forces, smaller firms can improve process efficiencies and combine their talent pools. Consolidation also can help large entities better manage operations

Customer

Changing customer expectations: Consumers increasingly demand customized and convenient services and anticipate an omnichannel experience. Insurance intermediaries that cannot meet shifting consumer expectations risk losing clients to rivals who can.

Impact of consolidation on stakeholders

Insurers

Customers

Routes to consolidation

Insurance intermediaries can take multiple paths to consolidate depending on their strategy, such as:

Mergers & Acquisitions: This is the preferred route for consolidation where two or more intermediaries enter into an M&A to achieve economies of scale, expand into new markets, and gain access to the latest tools and technologies. Different forms of M&A pursued are horizontal mergers between intermediaries from the same market, vertical mergers between intermediaries with different capabilities, and cross-border M&A
Strategic alliances and joint ventures: Insurance intermediaries can pursue strategic alliances or JVs under many forms, such as distribution agreements, co-marketing agreements, and shared service agreements to effectively share resources and expertise while reducing risks and increasing market power
PE investments: In recent years, PE firms have increased their involvement in this industry as they look to invest in dependable, cash-generating companies with room for expansion. PE companies can assist insurance intermediaries seeking strategic acquisitions and expansions while also providing access to finance and experience

Many intermediaries also take an independent route and pursue organic growth by investing in digital transformation initiatives to achieve unparalleled scale and efficiency.

Key players in the insurance intermediary consolidation space

The insurance intermediary market is highly competitive and dynamic, with many players pursuing different strategies to achieve their growth objectives. Here are some of the active players in the consolidation space:

Marsh & McLennan: In 2019, the company acquired Jardine Lloyd Thompson Group, a leading UK-based insurance intermediary, in a deal valued at $5.6 billion. The company also has announced the acquisition of Focus Insurance, offering tailored personal insurance programs.
Gallagher: Gallagher has pursued a growth strategy focused on M&A and has completed over 500 acquisitions since 1984. Gallagher started 2023 with an acquisition of Dublin-based commercial and personal lines broker First Ireland, making it one of Ireland’s largest brokers.
Hub International: The company also is focused on growth through M&As, and has made more than 600 acquisitions since its founding in 1998. In 2020, Hub acquired the assets of The Insurance Exchange, Inc., a leading insurance brokerage firm in California.

How intermediaries can leverage insurance service providers

Intermediaries face increasing pressure to reduce costs, increase efficiency, and deliver better customer experiences. By partnering with BPS providers, they can achieve these goals. BPS providers can deliver policy administration, claims processing, customer service, data analytics, and other services, as illustrated below:

In selecting a BPS provider, intermediaries need to evaluate the service provider’s capabilities by carefully considering their expertise, experience, cost arbitrage, flexibility, security, business continuity, delivery footprint, talent maturity, technology, infrastructure, governance approach, and client-centricity.

Everest Group can help evaluate these capabilities through its proprietary PEAK Matrix® assessment and impartially rank service providers as leaders, major contenders, and aspirants, as well as provide expert commentary to help enterprises make better-informed decisions.

To discuss insurance brokerage industry trends, please reach out to [email protected] and [email protected], and stay updated by accessing Everest Group’s latest research on Insurance Business Processes.

Future Insurance Technology Trends: A Closer Look at the Need for Building Humanized Insurance Experience, Data-driven Intelligent Operations, and SaaS Integration | Blog

May 31, 2023

From the many thought-provoking conversations that Everest Group analysts engaged in at Formation ’23, three main themes emerged about the future of insurance technology. These priorities are: integrating a humanized and people-centric approach, leveraging data to make intelligent decisions, and strongly emphasizing the Software-as-a-Service (SaaS) ecosystem. In this blog, we will take a closer look at these growing trends and explore their potential impact on the insurance industry.

Contact us directly for more insights.

Formation ’23 on May 8-10, hosted by Duck Creek Technologies (DCT), provided an excellent opportunity for Everest Group analysts to engage in exciting conversations with the community of insurance enterprise leaders, technology providers (from DCT and its solution partners), system integrators, consulting firms, and other analysts, about what will drive the next era in insurance.

Based on the dialogue we heard, the following three themes stood out to our team:

Building humanized and consistent experience will be the key to success

Delivering high-quality personalized customer experience is taking center stage in the insurance industry’s current transformation as carriers move from their traditional role as loss payors to becoming empathetic insurers and guardians for customers.

Digital experience platforms, distribution management systems, and smart communication platforms are becoming increasingly relevant to streamline operations, provide seamless and consistent digital experiences, and engage customers more effectively.

Data will play an important role here by equipping insurers with the right information that they can use to personalize and humanize the experience for individual customers. Interestingly, DCT also gave us a preview teaser of its new product – Elea, an AI-powered and empathy-driven chatbot slated for release later this year.

Infusing data and intelligence into insurance operations is the industry’s top priority

Data-driven intelligent decisions are a key priority for the industry. As the insurance industry moves toward AI-powered workflows, infusing data and having standard data models at a value chain and workflow level will be a major demand.

We found it interesting to see various point solutions offered by technology providers, such as CogniSure’s AI platform, which helps automate the underwriting process by converting structured and unstructured data to improve efficiency and effectiveness.

We also heard many discussions about early use cases of Generative AI (GAI) for operational tasks (emails, presentations, etc.), GAI-powered chatbots, and writing codes. But concerns remain about using this fast-growing technology in core operations.

SaaS sprawl requires attention

SaaS sprawl was another theme that dominated conversations. While the point solutions across the value chain come with the benefit of speed to market and bridge the capability gap on the top of core systems, integration across these remains a concern as these solutions often don’t talk with each other.

Enterprises leveraging a wide number of these point solutions now see the need for digital rationalization. Most of these software platforms have evolved and added new functionalities. But enterprises are not taking advantage of the latest features because they are either unaware of these benefits or because they are paying for other software with the same purpose. This leads to duplicate costs and less value.

These conversation themes and focus areas resonate well with what we expect from the industry in this environment, but we felt some upcoming trends did not get enough attention from the community – low code/no code technology being the most prominent one.

As always, Formation ’23 was a great experience for Everest Group to interact, learn and exchange thoughts and points of view with industry leaders about the future. The fun atmosphere in Orlando, Florida, complete with country music, delicious food, and drinks, added to the interesting conversations, resulting in lasting memories.

To discuss these insurance technology trends in more depth, please contact Ronak Doshi and Roma Juneja, who attended this insightful event.

Continue learning about insurance technology trends in this blog, Uncovering a Massive Insurance Industry Cloud Opportunity.

The Role of Insurance Intermediaries in the Digital Age: Challenges, Opportunities, and the Future | Blog

May 24, 2023

As the insurance industry undergoes a paradigm shift post-pandemic, digital transformation can improve customer experience and engagement. Insurance intermediaries have an exciting future ahead if they can successfully adopt Artificial Intelligence (AI), mobile apps, big data, and analytics to better understand their customers and provide personalized products. Partnering with service providers will help insurers overcome barriers and improve efficiencies. Read on to learn more.

Reach out directly to discuss or for more information.

Insurance intermediaries (agents and brokers) play a crucial role in the industry by helping customers find the best insurance policies to suit their needs and connecting insurance companies to potential customers.

The overall intermediary market is vast with nearly 500,000 licensed intermediaries registered in the US, according to the National Association of Insurance Commissioners (NAIC), and 12,000 insurance brokers registered in the UK. The market is valued at more than $130B in the US and £13B-plus in the UK, as per IBISWorld and the UK Financial Conduct Authority. McKinsey estimates that 84% of sales in US property and casualty and 90 percent of US life policies go through agents or brokers.

This industry is undergoing a paradigm shift post-pandemic due to the increased adoption of digital direct-to-consumer (D2C) channels, remote work, and other trends. The intermediary business is evolving to maintain its growth momentum with rapid execution of quote to bind, hyper-aware consumers, increased competition, and declining margin profile.

Digital transformation is taking center stage on the intermediary side of business due to factors like the increased availability of customer data, demand for customized products, the rise of low-code/no-code solutions, increased use of self-serve options, increased use of D2C channels, rise of embedded and usage-based insurance, telematics, analytics, and advanced risk management solutions.

Role of service providers in helping intermediaries overcome barriers

While these changing industry dynamics push intermediaries towards adopting digital transformation, they still face the following barriers:

Legacy systems and processes: Insurance intermediaries have used outdated systems and procedures for many years, and the migration to modern systems is further delayed by a lack of funds
Resistance to change: Some insurance intermediaries are unwilling to adopt innovative technology and business models or lack the right knowledge and experience with digital technologies
Resource constraints: Putting modern technologies or business models into practice may require a substantial cash commitment or access to specialist skills that are unavailable with today’s talent crisis
Regulatory constraints: Various regulations like personal data protection, sales standards, and solvency requirements limit intermediaries’ flexibility and ability to innovate
Data security and privacy concerns: Intermediaries must safeguard sensitive client information and adhere to several data security and privacy laws
Shifting consumer expectations: Insurance customers demand more information than ever before and expect customized products through their preferred channel (digital, in-person, sales partner), better user experiences, shorter turnaround times, and digital touchpoints for the end-to-end process

Competition and customer retention also hamper the growth of intermediaries.

Service providers can help intermediaries overcome these barriers as illustrated below:

Digital technologies transforming insurance intermediaries

The following technologies can help intermediaries enhance the services they provide to customers:

Digital onboarding with interactive workflow and digital policies: The entire intake process should be digitized, reducing the intervention needed by intermediaries and showing customers the complete user journey from bind to quote. Insurance policies that allow electronic signatures also will accelerate the overall process.
Artificial Intelligence (AI) and Machine Learning (ML): Applying AI/ML for chatbots, fraud detection, personalized recommendations, and other processes can help insurance intermediaries enhance customer experience, boost efficiency, and offer more customized services.
Mobile technology and User Experience (UX)/User Interface (UI): To meet customers’ increasing desires to access services on the go, intermediaries need to provide access to policies and the ability to submit claims and pay bills available via mobile devices and applications.
Big data and analytics: Leveraging data and analytics will help intermediaries better understand their customers and provide more personalized recommendations. For example, agents may use data on a customer’s driving habits to provide personalized auto insurance recommendations.
Real-time insurance quotation and comparison tools: Using innovative technologies that automate the insurance underwriting process will allow intermediaries to deliver real-time insurance quotes and pricing comparison tools. Digital tools leveraging algorithms and data analytics will help agents/brokers instantly evaluate risk factors and determine
Claims management: Insurance intermediaries can play a key role in automating the claims management process by helping customers with online claims filling systems, automated claims triage, automated claims adjustments, and real-time communication.

By partnering with service providers or using third-party platforms and tools to accelerate their use of modern technologies, insurers have the potential to achieve large-scale cost savings and headcount reduction benefits. Depending on the adoption, insurers can achieve cost arbitrage generating a Return on Investment (ROI) of 1.5 to 3 times.

Intermediary of the future

Insurance intermediaries’ future likely will be shaped by a combination of technological advancements, changing consumer behaviors and expectations, regulatory developments, and economic conditions.

Intermediaries need to adapt to the following five changing trends to thrive:

Embrace digital innovations: The Internet of Things (IoT), AI/ML, blockchain, big data analytics, and other innovations increasingly are becoming mainstream and changing the way intermediaries operate and evolve.
Increase personalization: Data analytics can help intermediaries better understand their customers to provide more personalized recommendations and, in turn, find opportunities to cross-sell and upsell. Insurance plans must be customized to address clients’ unique needs and risk profiles.
Prioritize risk management: By gaining insight into customer risks, intermediaries can offer proactive risk management services. They should also identify emerging risks, such as cyber threats, and collaborate with clients to develop comprehensive risk management strategies and insurance solutions.
Shift to a consultative model: Insurance intermediaries must evolve from their traditional focus on selling policies into offering advice and guidance as consultants. They need to become trusted advisors, providing insights and recommendations to customers, such as risk management, insurance policy options, and financial planning since insurance is often a crucial part of an individual’s financial plan.
Integrate with the ecosystem: To stay competitive and meet evolving customer expectations, agents/brokers have to bundle services and offer financial planning and risk management in addition to traditional insurance products in a seamless customer experience.

To discuss digitization opportunities for intermediaries, please reach out to [email protected] and [email protected], and stay updated by accessing our latest research on Insurance Business Process Services.

Pension Risk Transfer: The Next Greenfield Opportunity in Retirement and Insurance | Blog

April 21, 2023

With pension risk transfer (PRT) activity hitting post-pandemic record highs of $53 billion in North America market volume last year, this growing market represents a massive untapped opportunity for technology and services providers to leverage their retirement and pension expertise to deliver new solutions. Read on to learn about the possibilities this option opens.

Even with the general shift towards defined contribution (DC) plans, defined benefits (DB) assets still contribute to the majority of retirement Assets Under Management (AUM) in the US. However, defined benefit plan providers often struggle to guarantee the security of retirement benefits because of the following risk factors:

Unpredictable investment returns due to variable interest rates, market volatility, and the geopolitical environment
Volatile interest rates
Increasing life expectancy and longer service tenure of plan participants
Underfunded pension liabilities

To shield against this unpredictability, plan sponsors are adopting pension risk transfer strategies to guarantee retirement and pension benefits for DB plan members. Under this approach, DB plan providers transfer their entire/partial pension liabilities to other firms, usually a life insurance firm, to remove their obligation to pay plan participants guaranteed retirement income or post-retirement benefits.

In the past four years, PRT transactions have increased as DB plan providers seek to de-risk huge pension liabilities. Many large and mid-sized plan sponsors are hedging these risks through PRT transactions with the intent of transferring or terminating existing DB plans.

The pension risk transfer market peaked in 2022 as retirement plan sponsors urgently felt the need to secure pension benefits in an increasingly uncertain world following the pandemic.

The growth momentum is expected to continue due to favorable transaction terms for sponsors and insurers’ continued desire to de-risk pension assets. North America accounted for approximately two-thirds of global PRT sales (US$60 billion) in 2021 and grew by 40% in 2022. In both these years, almost half of the PRT transactions were near US$1 billion or more, according to the LIMRA Secure Retirement Institute.

Pension risk transfer types

The following two PRT transactions are most prevalent in the market:

Buy-in – The insurance firm takes the liability of benefit payments for plan participants to the plan trust. The sponsor retains fiduciary and administration obligations and holds the pension plan contract as an asset on its balance sheet
Buy-out – The insurance firm takes the liability of benefit payments for plan participants entirely and all of the administrative responsibilities. This is the most common transaction type, as the entirety of pension obligations are transferred

Implications of pension risk transfer for services and technology providers

Transferring pension liabilities to an insurer comes with many challenges. Providers have several opportunities to support insurance enterprises, recordkeepers, plan sponsors, and third parties involved in such transactions in the following key areas:

Technology systems: Insurers need support to transform their technology landscape to meet the increasingly complex market requirements, including data migration, fund transfer, benefits administration, contracts and provisions management, and pension administration for the full participant lifecycle.

Varying technology maturity levels among recordkeepers, insurers, and plan sponsors presents a big challenge. A service provider or platform provider’s solution can help with the entire process of transferring liabilities (sometimes along with plan termination) and all the relevant data, provisions, rules, funds, and critical participant details. This presents an opportunity for system integrators (SI) and platform providers to work together to efficiently manage the process lifecycle

Strategic partnerships: As this business achieves scale, insurers will strategically view this as an alternate revenue stream. Insurance firms can partner with technology and service providers to enable user-friendly onboarding, payment/annuity processing, automated query resolution, and analytics-based PRT transaction pricing, as well as building newer underwriting and actuarial capabilities for deciding PRT transactions’ premiums
Regulatory compliance: Technology and service providers need to assist insurers and sponsors in complying with the changing regulatory environment, varying state and regional taxation laws, and accounting nuances of different transaction types such as buy-ins and buy-outs
Cyber security: The significant amount of sensitive participant data being exchanged between recordkeepers, insurers, and sponsors’ systems poses substantial security risks. With the varying complexities and formats for different plan sponsors and record keepers, traditional file formats of participants’ data are difficult to maintain. Technology and service providers can securely manage the migration of pension data from on-premise systems to cloud, on-prem systems to other on-prem systems, and between different cloud environments

With the transaction volume increase in the PRT market expected to continue, technology and service providers have many opportunities to seize this underserved industry segment by leveraging their existing business expertise in the retirement and pension domain to build new solutions catering to this market.

To discuss pension risk transfer further, please reach out to [email protected] and [email protected].

Learn about the evolving digital requirements for the insurance industry in the blog, Reinventing the P&C Insurance Claims Value-Chain: Moving to the Claims of the Future Vision.

Transformation Imperatives for Wholesalers and MGAs in Insurance: Exploring Opportunities to Unlock the Next Growth Phase | Blog

March 17, 2023

Managing General Agents (MGAs) and wholesalers are becoming increasingly relevant in the insurance ecosystem due to the unique advantages they have over brokers/agents. With five key transformation levers described in this blog, MGAs can overcome challenges and unlock a wave of unprecedented sustainable growth. Technology and business process services (BPS) providers can help MGSs reduce costs and increase their digitization and automation intensity. Read on to learn more.

As insurance intermediaries that represent carriers, MGAs provide insurance products to retail agencies and insureds. They are frequently positioned between other intermediaries, such as retail or wholesale brokers and insurance firms. MGAs also are qualified to underwrite and bind coverage as well as perform customer support services, including policy issuance and claims management. Overall, more than 1,000 MGAs are in the US, and 250-plus operate in the UK, covering nearly 5-10% of the overall insurance market.

Role of MGAs in the insurance ecosystem

The business model of MGAs stands apart from full-stack insurers and agents/brokers by the greater span of control and the profitability they generate. On the product side, MGAs have the flexibility to build products in collaboration with the insurer but may have a lower appetite for innovation and slower speed to market, depending on the insurer’s capability and commitment. On the customer relationship side, these specialized agents have full control over all customer activities.

According to a McKinsey report, 43% of top 100 Property and Casualty (P&C) insurers have at least one MGA relationship to source new premiums. Various types of MGAs operating in the ecosystem are illustrated below.

MGA profile

MGAs keep their financial profile stronger like other intermediaries in the ecosystem by achieving 20-30% EBITDA. MGAs are moderately capital efficient due to low setup cost, no legacy platform burden, quick monetization opportunity, and lean team setup.

However, they need to share the profit pool with insurers. The major revenue streams for MGAs are commission paid by insurers, risk performance-based commission, and offering additional services like claim administration and inspection.

Various value chain elements performed by MGAs include marketing, sales, distribution, underwriting, policy issuance, claims handling, policy review, customer services, risk management, policyholder communication, and renewal management.

Challenges MGAs face

Despite the significance of their role, MGAs face the following challenges in running operations effectively:

Complying with regulations: MGAs must keep up with the most recent rules and compliance standards because insurance regulation is always changing and is state-based. Penalties, fines, and legal repercussions may arise from breaking rules
Attracting and retaining talent: MGAs face hurdles in attracting and retaining skilled and experienced employees who can provide quality services to clients
Managing risks: On behalf of insurance companies, MGAs are in charge of risk management. This requires agents to have a thorough understanding of the insurance products being supplied, the underlying risks, and the potential effects of these risks on the organization
Balancing client demands with profitability: Client demands for new products, services, and coverage may not be aligned with the profitability goals of the MGA
Staying competitive in a rapidly changing industry: MGAs must stay abreast of advances in technology, goods, and services in the insurance sector to remain competitive
Competing with increasing industry consolidation: With large companies getting bigger, it is more difficult for other players to compete effectively

Five transformation pillars

To remain competitive, MGAs must find new ways to transform their businesses by leveraging new technologies and business models, as shown below.

Let’s explore each of the elements in the innovation framework in more detail:

Embrace digital transformation: MGAs can streamline operations, enhance customer experience, and cut costs by utilizing digital technologies, including automation, artificial intelligence, and cloud computing. To improve their decision-making and expand their business, MGAs can benefit from unique insights into consumer behavior and market trends provided by digital transformation
Partner with other ecosystem providers: Partnering with InsurTechs and technology and BPS providers is an effective way for MGAs to embrace digital transformation and wide-scale automation levers like Robotic Processing Automation (RPA), Artificial Intelligence/Machine Learning (AI/ML), Natural Language Processing (NLP), Optical Character Recognition (OCR), etc. By leveraging the expertise and technology of these providers, MGAs can access new tools and capabilities, helping them remain competitive and grow their business.
Embrace a customer-centric approach: Young customers prefer a digital-native approach and demand slick web and mobile interfaces to engage; direct-to-consumer (D2C) distribution platforms to buy; and two-way SMS messaging, chatbots, and interactive documents, forms, and videos to communicate. By offering these services, MGA insurance companies can not only improve customer satisfaction but also build deeper relationships with their customers, which can lead to increased loyalty and longer-term engagement
Enable data-driven decision-making: Data and analytics play an increasingly important role in the insurance industry, and MGAs must leverage these tools to remain competitive. By collecting and analyzing data from multiple sources, such as customer interactions, market trends, and operational performance, MGAs can gain new insights into their business, enabling them to make more informed decisions and drive growth
Foster a culture of innovation: Innovation is key to remaining competitive in the insurance industry, and MGAs must foster a culture of innovation to stay ahead of the curve. This requires a commitment to investing in new ideas and technologies, as well as encouraging employees to think creatively and embrace change.

These five transformation levers can help mitigate challenges like compliance adherence, talent management, low profitability, risk management, and strong competitive intensity by ensuring a culture of innovation, enforcing client-centricity, utilizing data analytics, outsourcing non-core functions, and embracing digitization.

Sourcing implications

MGAs operate in an area requiring specialized knowledge and experience in specific insurance markets and products. Companies typically prefer to keep core functions in-house and outsource non-core traditional and technology-led activities.

Multiple tech and BPS service providers work across the ecosystem with insurers, agents, brokers, insurtechs, and MGAs that have built superior capabilities to provide services across multiple business lines and geographies.

Service providers also offer the latest tools and technology, superior customer experience capabilities, operational efficiency, Service Level Agreement (SLA) management, flexibility to ramp operations up and down, superior talent, a low-cost advantage, best-in-class lean operations, improved risk management, and much more. MGAs can outsource either a part of the value chain or engage in end-to-end transformative deals, depending on their appetite for outsourcing, process maturity, and management buy-in.

Some of the areas within MGA’s and wholesaler’s process value chain that can be outsourced are as follows:

MGAs need to evaluate the service provider’s capabilities after carefully considering their expertise, experience, cost arbitrage, flexibility, security, business continuity, delivery footprint, talent maturity, technology, infrastructure, governance approach, and client-centricity.

Analyst firms like Everest Group can help evaluate these capabilities through its proprietary PEAK Matrix® assessment and impartially rank the service providers as leaders, major contenders, and aspirants, as well as provide expert commentary to help enterprises make better-informed decisions.

To discuss MGAs in insurance and outsourcing trends, please reach out to [email protected] and [email protected], and stay updated by accessing our latest research on insurance business processes.

The Recessionary Conundrum: What Lies Ahead for Healthcare Payers?

March 13, 2023

A looming global recession may finally take its toll on payers who have escaped prior economic challenges. Let’s take a look at the healthcare trends influencing decision-making by payers, the markets most likely to be affected, and the actions payers can take with the uncertain outlook.

Wall Street predicts that the probability of a global recession in 2023 is 61%, well above the stable benchmarks. Although inflation has eased up marginally since the last quarter, tighter financial conditions and weaker global growth still indicate a potential downturn.

The healthcare industry historically has weathered economic collapses better than core industries that are generally more severely impacted. A Forbes assessment shows that while the US economy (as measured by GDP growth) plunged into recession eight times over a 60-year period from 1960-2020, healthcare expenditure growth never shrunk, often outgrowing gross domestic product (GDP) as illustrated in Exhibit 1.

This stability is primarily because impacted employees either opt for subsidized government programs or forego medical care, as applicable, pushing the healthcare cost to the future. As a result, health plans tend to be relatively less affected due to recessionary headwinds. In fact, reports suggest that earnings for healthcare payers declined only by 27% compared to a 77% decrease for the overall S&P 500.

Exhibit 1: Real GDP growth and national health expenditure growth 1960-2020

Although many healthcare payers posted strong growth rates at the end of fiscal year 2022 as shown below (Exhibit 2), the results may not be as positive in 2023, particularly for employer-sponsored or provider-owned health plans.

Exhibit 2: Year-over-year growth rate by revenue for healthcare payers

The overall impact on the payers in the fiscal year 2023, however, will be determined by several upcoming trends. Let’s look at some of these influencing factors in detail below.

005 — Exhibit 3: Major healthcare trends defining the decision-making process of payers in 2023

Medicaid redetermination: As states kickstart Medicaid redetermination in April 2023, over 15 million Medicaid members are expected to lose their enrollment after the renewal process. Several payers, such as Centene, expect to lose about 2.2 million members over the next 18 months. On the other hand, payers like Humana and Molina Healthcare project their Medicaid membership to be largely stable due to new Medicaid contracts offsetting redetermination losses
Prior authorization rule: The CMS Interoperability and Prior Authorization rule requires regulated payers (Medicaid, Medicare, CHIP, and QHP) to utilize Application Programming Interfaces (APIs) that give healthcare providers more streamlined access to data. Payers will be required to maintain these APIs using the Fast Healthcare Interoperability Resources (FHIR) standard. This regulation is expected to bring effective workforce utilization, improved data exchange, reduced appeals, and, in turn, more timely claims disbursal
Inflation reduction act: Starting this year, Medicare will be allowed to negotiate prices for prescription drugs with pharmaceutical companies. Apprehensions are high that this will lead to cost-shifting to privately funded and employer-sponsored health plans. Or, the reverse also could be true, and privately-funded plans may demand similar negotiations along the lines of Medicare to avoid overpaying for healthcare. Moreover, the Part D plans will have to bear higher responsibility in the catastrophic phase as the law puts a spending and inflationary cap on out-of-pocket expenditure beginning in 2025
Focus on alternative care market: Payers are striving to strengthen preventative care and ensure end-to-end offerings, as many big players (e.g., United HealthCare, CVS Health) have invested in home, virtual, and alternative care. The race to outcomes-based care is shifting from retrospective to proactive and comprehensive health management through multiple integrations
Member experience and STAR Ratings: With the Consumer Assessment of Healthcare Providers & Systems (CAHPS) member experience weights increasing to four times in 2023, ensuring top-of-the-class member experience will remain a priority for health plans

Impact of the potential downturn on the healthcare payer market

So, how specifically will payers be impacted? It’s hard to say, given the global inflation outlook improvement. But lessons from the past indicate that a sustained period of economic uncertainty will impact both the government and the private markets in the following key markets:

Privately-funded market: Markets such as employer-sponsored health plans could lose members due to layoffs and loss of employee-sponsored coverage. Payers such as Cigna, that have significantly high commercial membership (Exhibit 4), could feel the heat of the competition from the health insurance exchange (HIX) and Medicaid plans. However, these losses can be offset if payers can retain these members in other product lines. Alternatively, having a diversified business portfolio such as a pharmacy or data services also may provide a cushion against medical membership loss
Government market: While the Medicaid market would traditionally gain membership in a recession, instead it will see the combined effect of redetermination and a potential economic downturn. As some of the members who lose employer coverage join Medicaid, the drop in membership might be less than expected after the redetermination process. The impact on Medicare, however, is expected to be relatively insignificant. Overall, the payer mix might experience a shift toward government business

Lastly, the uninsured population may experience an uptick due to information asymmetry and administrative complexities. According to an assessment done from 2007-09, only some of the insurance loss from a lack of employer coverage was offset by added public coverage, leading to a 5.6 million rise in uninsured adults. While the Affordable Care Act (ACA) has lowered the uninsured population, an economic downturn potentially can add to the current uninsured coverage.

004 — Exhibit.4: Percentage of membership in the commercial business

What should payers do in this uncertain market outlook?

With the market unpredictability, healthcare payers will have to take calculated measures to prevent business impact. Here are four actions they can take:

Focus on operational efficiencies: Healthcare providers are more likely to be impacted by a downturn, pushing them to negotiate for higher contract prices. Payers will have to explore ways to offset any price hikes. This can lead to increased outsourcing and offshoring of traditional processes, such as provider and claims management to ensure lower administrative spending and higher operational efficiencies
Invest in preventative care: Price-conscious members may move to higher deductible plans and avoid care, particularly preventive services, leading to lower utilization. This can have lingering long-term effects, particularly for members with multiple chronic diseases. To combat this, payers should identify susceptible members, invest in areas such as social determinants of health (SDoH), and devise strategies that prevent care gaps and discontinuity
Increase digital member engagement efforts: Millions of members lost their coverage in the last recession despite being eligible for other plan options, partly due to a failure in getting the right information and comprehensive engagement with their insurers. To avoid this from happening again, payers will have to ramp up investments in member engagement to avoid losing members. Regional health plans and the Blues will have to bring in digital-enabled solutions that help to understand member needs and provide forward-planning insights. Support from third-party services providers who offer customized, plug-and-play customer experience (CX) solutions can help meet this need
Upgrade systems: Several payers with strong capital support can undertake digital transformation efforts to replace legacy systems and move to interoperable, connected ecosystems that will help improve administrative as well as care outcomes. However, this might only be applicable for payers who experience limited utilization and payouts due to the downturn.

Outlook for service providers

These measures will require service providers to proactively engage with healthcare payers and focus on three levers – the right clients, the right capabilities, and the right value addition. This will enable service providers to aim for the right opportunities such as member engagement and preventive care and ensure sustainable growth in an uncertain economic environment. Finally, in a highly competitive market like payer services, service providers will have to offer targeted digital and traditional Business Process Outsourcing (BPO) services to serve the right client need and differentiate themselves with unique value propositions refined as per the prevailing market demand.

To learn more about healthcare payer and provider trends, contact Lloyd Fernandes or Vivek Kumar.

To learn about the changes in the pharmacy benefits management (PBM) industry, such as increased regulatory scrutiny surrounding pricing transparency and rebate-sharing rules, watch our video, Pharmacy Benefits Management: The Next Big Healthcare Opportunity.

You can also learn more about How to Deliver Hyper-personalized Customer Experiences in Life Sciences in this LinkedIn Live session.

The Mapping the Next: Key Priorities for 2025 webinar is almost here! Register today.

Category: Insurance Industry