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PwC: Long-term Strategy for Japan’s insurers post COVID-19

Insurers who can align their COVID-19 response with their long-term strategy will be able to emerge stronger, report Strategy&PwC

|Nov 22|magazine10 min read

Japanese insurers successfully mobilised their operations in the face of COVID-19, according to a report from Strategy&PwC but where do they go from here?

“The next step is to stabilise operations and then re-strategise for the future. This should necessarily focus on business models and organisational change,” comments consultants Strategy&PwC in the report, Japan’s Insurance Sector post-COVID: Where to from here?

“Insurers who can align their COVID-19 response with their long-term strategy will be able to emerge stronger. We encourage you to explore your scenarios and stress-test them and, in doing so, focus on the implications to your strategy over the coming weeks and months,” says the report.

Actions that will build resilience and adaptability in your organisation according to Strategy&PwC, should include the following: 

• Test, test, test: Insurers have historically run financial scenario tests, but they now need to expand this to customer- and employee-facing processes and develop market approaches, product portfolios and physical infrastructure. 

• Assessing resilience in product portfolios: It is unlikely global interest rates will increase for some time. Stress testing your current and legacy products including using health analytics will enable you to better negotiate with re-insurers (near term) and optimise your post-COVID portfolio (long term). 

• Digitise the customer interaction: The need to digitize sales, customer management, and claims management has never been higher. 

• Revisiting governance and controls: Current governance models and controls must be redesigned for an environment in which risks rapidly translate across national boundaries and one where much work can be done remotely. 

• Rethinking the workforce: Insurers must start thinking about their workforce strategy including the mix of required skills, employee location, incorporating a digital upskilling program, instilling remote team leadership skills and rethinking career pathways. 

• Redesigning the operating model: Beyond organisational structures, you need to define how parts of your company work together and the requisite collaboration, information flows and infrastructure fidelity

“The successful insurer of the Post-COVID era will be the ones that take a holistic approach to rethinking their business (beyond just reacting to market dynamics),” points out Strategy&PwC.

According to the report, insurers can move in this direction by calibrating their mid and long-term strategies around six key areas: strategy and brand, distribution, finance and liquidity, workforce, operations and supply chain and being proactive about the regulatory agenda. 

“In short, insurers must watch the immediate situation but with a firm focus on the emerging future to deliver on customer promises and stakeholder expectations.”

Impact of COVID-19 on Japan

The report states, Japanese insurers should expect a double-digit decline in new businesses in the initial months of the restrictions and a low, single-digit reduction in annualised premium income thereafter.

“Several insurers have started making regular compensatory payments to their agents, further impacting profitability and liquidity. Market volatility and declining interest rates have challenged investment portfolios and overseas business interests further.

“Yet, a relentless focus on business continuity will only get you so far - insurers need to have one eye on the future to emerge strong and capture the significant market opportunities that emerge. 

“In this context, we see three broad scenarios developing over the next ~12–18 months, both globally and in Japan. Our house view is that scenarios U and L are most credible and insurers will need to adapt accordingly,” says the report.

The U scenario shows a flattened curve of COVID-19 with a sustained recession with return to previous GDP level over several quarters leading to postponed and, in part, sustained restricted consumption. 

The L scenario shows a continued re-emergence of the pandemic with drastic impact on economic performance and prolonged recession with acute threats to the monetary and financial system.

Strategy&PwC comment that to respond effectively, Japanese insurers need to cater to four Japan-specific issues:

  • A significant shift toward remote working
  • Regional variances in COVID related economic impacts
  • A higher degree of manual operations 
  • Improve governance of their global portfolios

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