In a hardening market for insurance businesses, the hunt for profitable growth looks set to continue in 2022. L.E.K.’s Justin Balcombe looks at the challenges insurers need to overcome to survive and thrive as they see old sources of revenue fall away and climate change continue to impact their businesses. More startups, more innovation, more digital and more investment opportunities all feature in the year ahead. 

Read a transcript of the video below:

My name is Justin Balcombe I'm a partner at L.E.K. I co-lead our insurance practice. So as we look forward to 2022, there's a number of themes that we're seeing both continue from this current year, but also evolve in a much more detailed way for 2022.

The first I would say is the continuation of hunt for profitable growth continues where all organizations are really focused on where they can obtain value, how they can plug some of those revenue gaps that all have experienced as a result of the pandemic and where they can grow most profitably next. And in particular with insurers, the hunt for profitable growth has never been more important because what the pandemic has seen is that some organizations have been hit hard by our exposure to the pandemic. Other organizations have felt the effects of weather and major losses over the preceding years. And the culmination of what we term a hardening markets has meant that growth has been challenging and therefore 2022, they should be emerging from a sort of culmination of pretty bad historical periods to a more profitable period ahead where rates have increased in the products that they sell.

Focus has been more around digital innovation and distribution, so a much lower costs of being able to distribute products and engage with the customers in a more robust way and a more seamless way, but also more focused on innovation. Selling the rights products and engaging in the right ways, and focusing on the opportunities that really matter for a market that has to move quite significantly from where it's been traditionally, give them the way that the world's also moved as well.

And the risks have changed, and the interdependency on some of those risks have changed. So for an insurance industry is really an exciting time now that for M&A will continue at pace. It's been slightly stagnated during the year, but it's still nevertheless been really very exciting to be part of the acquisition process. And that's something very much at the heart of what L.E.K. does.

I think I see that that will continue quite significantly in the first course of the new year. I think we're going to see some really interesting deals happen with traditional insurers and financial institutions, perhaps consolidating, but also smaller participants, smaller organizations coming together in innovative ways to manage distribution and client segmentation and parts of the value chain where the hunt for profits of growth really is. So I also see that digital will continue to scale at pace. Many organizations have already embraced some parts of the digital imperative, but actually more of the insurance industry and financial institutions will continue to invest deeper and wider in innovating their organizations and using parts of the digital value chain to enable their businesses to go harder and faster and scale in ways that perhaps they haven't done before.

Of course, this helps organizations from a profitable point of view because it lowers the cost of organizational expense while also getting them closer to their customers. And that's really very important over the next few years as we continue to navigate our way through the pandemic on a global basis. So I think digital will be embedded at the heart of organizations. We'll see more innovative products. We'll see faster time to market for some of these businesses. We'll see the start-up community continue to evolve, particularly the InsurTech side of that community and therefore, we'll see continued investment into parts of the sector, which will only help change and transform the insurance industry.

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