Insurance is an industry uniquely built to respond to change. As Sherif Zakhary, CEO of Aon’s Strategy and Technology Group, explains: “It came into existence because of volatility and uncertainty.” While each era may bring unprecedented events, Zakhary notes that “volatility and complexity come in different shapes, forms and magnitudes.” The key is recognising permanent uncertainty as the new normal.
But to adapt to this new normal, leaders in insurance need to stay ahead of the curve and prepare for the volatility that has become standard – redrawing their organisations through talent and capital optimisation to meet the moment.
The sector is currently facing a “hard market”, according to Brad Melvin, president of Aon’s Regional Insurer Group. “That means rising reinsurance costs and resultant retention pressures – as well as increased volatility in weather events,” Melvin explains. This perfect storm is “creating headwinds” and stress for insurers’ financials as they work to raise rates and keep premiums flowing while costs rise. For certain segments, there is a “timing disconnect” between reinsurance price hikes and the ability of insurers to earn premium increases, he says.
Keeping ahead of the curve
Of course, the insurance industry, more so than many others, aims to adapt to change to keep ahead of market movements and protect its customers. It’s built into the industry’s DNA. Yet to differentiate, companies must ask: “How are you different from the average?” says Zakhary.
Strong decision-making to extract opportunities amid challenging dynamics is key, he adds. “How is your decision-making allowing you to pull out opportunities in periods of what will be constant volatility?” Average performance will not suffice when facing the massive, intractable issues that dominate the world today. And competitors will be moving quickly.
So how can insurers turn volatility into opportunity? Aon focuses on a “holistic, relevant and executable” approach to capital optimisation, says Zakhary. This includes understanding the true cost of capital across various sources like debt or equity, tailoring the risk-reward portfolio to business goals, efficiently transferring risk to free up capital for deployment elsewhere, and leveraging various capital sources to find the right capital stack. The goal is maximising opportunities within the capital constraints that many companies struggle with.
With rising rates, insurers are exploring capital solutions like legacy reserve transactions that can free up capital. Having a clear capital strategy and measuring the cost of different capital sources through tools Aon offers enables that optimisation to insulate companies from reinsurance shifts and leveraging diverse capital sources.
But beyond fine-tuning capital, talent optimisation is also mission-critical. With competition for talent especially fierce, creative solutions like recruiting from other industries can have a big impact. Insurers are also focused on leveraging data and AI and accelerating digital transformation and are evidencing a growing appetite to augment key roles, such as underwriting, through the use of AI.
Zakhary points out that transformative trends like renewable energy, electrification, and biotech require insurers to think about the skills needed, from actuaries to climatologists to data scientists. The “war for talent” and the shortage of individuals who fit the bill to adapt to the changing world require attracting and effectively utilising talent to capitalise on those emerging opportunities.
Troubleshooting and transforming
For business leaders, the scale of the challenge ahead can seem insurmountable when they’re asked to evolve their business – and business processes – at a time of heightened competition. But Aon’s expertise in the space has been built to help.
When working with clients, Aon focuses on discovering client needs, answering the question: “Why is transformation important?”. The company researches the critical pain/gain points that are likely to impact an organisation, then approaches the conversations with an expert regional team to collaboratively uncover what is “critical and top of mind,” says Zakhary.
The goal is to develop empathy to create realistic, executable solutions tailored to the client’s individual requirements. “We’re not immediately landing on a preordained outcome,” he says.
Having an inclusive culture and multidisciplinary teams enables Aon to conduct more informed client conversations. They bring the right expertise to bear, using EQ alongside IQ to make client meetings most effective. Such an approach avoids preconceived notions and opens up the opportunity for more strategic discussions and the opportunity to shape better business decisions.
Making a difference
Though Aon’s solutions differ by client size and need, the company has helped global insurers transform underwriting for renewable energy, optimised job architecture and talent assessment, and provided capital strategies leveraging its expertise and bench strength.
“We’ve got numerous case studies where we’re helping companies transform their underwriting operating model to start to prepare for some of these transformative trends around renewable energy,” says Zakhary.
But the ability to unlock efficiencies and work more effectively is not limited to insurance alone. While the industry has unique challenges, other sectors wrestling with volatility can emulate core tenets of the industry’s approach, including treating volatility as an opportunity, not a threat. While insurance sees volatility as intrinsic to its existence, other sectors can reframe uncertainty as bringing options to capitalise on.
Expanding beyond insurance
Just as insurers leverage diverse capital sources for their business, creative financing creates options. Optimising capital strategy and sources to maximise flexibility should be a primary goal. Understanding risks and aligning resources and talent accordingly is also vital in shaping strategic plans and talent investments.
Accelerating digital transformation and leveraging the great leaps forward in data and AI is happening across all sectors, with insurers prioritising the use of this to better manage their volatility. At the same time, the example insurers set by looking beyond their sector for talent can easily be followed by other industries.
Though uncertainty brings obstacles, by taking the insurance industry’s lead in cannily optimising talent and capital, leaders beyond insurance can also unearth hidden opportunities rather than simply reacting to storms. It’s a formative lesson to learn from a sector that knows all too well the uncertainty involved in day-to-day operations. Insurance doesn’t wait for disruption; it expects it and plans for it. Adopting this mindset transforms volatility from a threat into a growth catalyst.
For more information please visit www.aon.com/stg