Six trends sweeping through Middle East's insurance industry

05 August 2021 7 min. read

Global accounting and consulting giant KPMG has released the latest edition of its ‘Future of Insurance’ report for the Middle East. The report outlines major trends that are sweeping through the industry – a round-up of the six main game changing developments identified. 

1. Digital first, digital now

Customer-led digitization: Covid-19 is accelerating the digitization of business and operating models across the front, middle and back office.

Modern technology infrastructure is critical in order to serve customers and enable employee productivity. Robust cybersecurity and fraud protection is required as risks rise. 

Accelerated digital transformation: the significant gap between customer expectations and insurer’s abilities is driving insurers to connect their front, middle and back offices. Those who move the fastest will reap the competitive advantage.

Customer-first thinking; direct-to-consumer sales will require significant and rapid upgrades particularly in many parts of personal insurance. Brokers/agents need to be integrated at each step through digital interactions and interfaces. 

Data: movement must be seamless and protected through the different gates. Use of internal and external data becomes commonplace (e.g. underwriting).

Technology and infrastructure upgrades: mass movement to modernizing technologies, cloud services and decommissioning legacy systems. 

Claims automation: early focus for digitization – anything that can be digitized will be; from first notice of loss/claims submission through to ultimate payment of claims including all interim steps. 

Finance will be a strong business partner and play a key role, enabling operations through deep analytics and predictive capabilities.

Commenting on the digitization trend, Khalil Al Sedais, Riyadh Managing Partner at KPMG in Saudi Arabia said: “Insurers have historically lagged other sectors in their digitization efforts – the pandemic seemed to have brought fundamental change to that. We believe that investing in capabilities to jump on the digitalization bandwagon will pay long-term dividends for the insurance industry.”

2. The new reality workforce 

Building a versatile and adaptable workforce. There will be divergence of workers into essential and non-essential employees, unprecedented unemployment and office closures. As a consequence, the needs of frontline and knowledge workers must be balanced, and companies need to consider new archetypes combining technology and a flexible workforce. 

Remote working becomes more permanent, which brings its own challenges to infrastructure, risks (cyber, privacy, ergonomics at home), productivity, and training/skills. 

Access to talent, with significant opportunities to acquire new talent (e.g. digital, technology and data) to upskill the workforce as organizations will be less reliant on location. 

The automation of the workforce will be accelerated, as claims handling, contact centers will be reimagined as more automation is introduced and customers are more comfortable with digital interactions.

3. Ambidextrous business models 

Playing across physical, virtual and digital. Insurance organizations need to navigate a rapidly changing workforce, customer behaviors and business environments. Insurers switched from an in-person environment to a virtual model overnight and it’s likely that they will continue to oscillate between the two. New core competencies of insurers now include being able to have a rapid response to an uncertain environment.

Cost, continuity and resiliency: continued strain on operations and the associated costs are forcing a fresh look at operations across-the-board. Continuity and resiliency rating models becomes a core component of transformation efforts.

AI and automation will drive the change and re-thinking of operating models on an end-to-end basis. 

Scenario planning becomes the norm for ongoing operations in a combined online/offline organization structure. 

4. Building financial resilience 

Ensuring freedom to manoeuvre. Insurers need to maintain sufficient liquidity and capital to continue to operate, and managing cost pressures is a top, immediate concern. Executive committees need to navigate uncertainties, and CFOs are in

the midst of the most uncertain, yet critical time for decision-making. Pulling the right levers across liquidity, capital and cost will be critical.

Solvency ratios are impacted as volatility is expected and understood by stakeholders but requires increased modeling on a real-time basis. 

Liquidity focus will evolve, with more detailed cash management strategies, removing barriers to trapped cash and capital. There will be an increased use of scenario planning and analyses to gain real-time understanding. 

Evolving investment strategies, including closer monitoring of low interest rates. The impact on the valuation of commercial real estate / loans is essential given the possible shifts in those asset classes. 

Ovais Shahab, Head of Financial Services at KPMG in Saudi Arabia said: “Insurers need to maintain sufficient liquidity and solvency to continue managing cost pressures. Those who would be able to pull the right levers across liquidity, capital and cost will gain market share. There will be an increased use of analytics to gain real-time insights.”

5. Climate change 

Climate risk as a core business issue: global temperatures are rising creating risk to the global economy, ecology, and human health and well-being. Growing exposures from increased catastrophic weather events (e.g. hurricanes, wildfires) to pandemic risks are rapidly becoming a new reality, challenging the bottom line. 

Boardroom conversations around ESG are changing, particularly on corporate purpose, stakeholder capitalism, and climate risk and resilience. Insurance can build socio-economic resilience and enabling economic development and entrepreneurial pathways for achieving climate change goals and targets. 

ESG focus: The use of incentives and performance metrics helps to drive the right agenda on ESG issues. 

Mitigation: Mitigation isn’t just the right thing, it is also a pathway to profitability. Insurers can play a role in adaptation, working with public bodies to build interventions that make societies more resilient to the impact of climate change (e.g. flood defenses, building standards).

New products and business opportunities: there are new risks to insure, including risks related to new industries, such as wind farms and alternative energy facilities. There are also emerging financial risks, such as those involved in carbon trading.

Insurers can move funding into greener investments, and will be challenged by stakeholders if they invest in initiatives deemed not good for the environment.

6.The innovation imperative

Invest for growth: radical waves of innovation are expected as insurers adapt to current environment. Making the right bets in innovation may help insurers to capture market share and move into new markets. Innovation leaders will leverage this moment to leapfrog ahead of their peers. New ecosystem of innovative firms will be the next wave of insurers.

Innovation at scale as remote working happened so quickly, proving that companies can move faster. The appetite for large-scale, impactful innovation has increased and typical barriers seem to be removed or lessened. 

Outsourcing to drive innovation, as insurers looking to cut costs and take advantage of innovative solutions and infrastructure are looking towards insurtechs. 

Partnerships will become the norm as access to the latest technologies and new talent will be critical as insurers focus on operational excellence, artificial intelligence and automation.