Strategic Resilience: What’s it and why does it matter?

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What do you think of when you hear the term “strategic resilience”? It probably makes you think about being ready for the future. But how do you prepare for an unpredictable future, including rapidly evolving technological innovations, ever-changing customer and employee preferences, growing environmental challenges, and increasing regulatory complexity, to name a few? And what do you do when the future that you thought was going to happen isn’t true? Or what if the future that you thought would happen in ten years actually happens in five years? Can you prepare for multiple futures?

In this blog series, I’ll examine these questions using Accenture’s strategic resilience framework and modeling to show that future scenario planning shouldn’t be a guessing game – nor should it be a purely academic exercise. You can and should use the information available today to integrate flexibility and consistency into your business model in order to be successful now and to be prepared for tomorrow.

The future of insurance is fraught with uncertainty

It turns out that the future is difficult to predict. We’re getting a lot of things wrong, from election results (Brexit) to technology trends (how many autonomous vehicles are roaming your neighborhood?) And a pandemic that came as a shock to the whole world.

If you look at the insurance industry specifically, there are many developments that are difficult to predict. Three of the biggest are: emerging risks (aging population, climate change and cyber attacks), sharing economy (freelancers, cars, households) and smart economy (technology-integrated products). The specific questions within these areas make it clear how unpredictable the future is:

  • What will the lasting effects of the COVID-driven recession on the insurance industry look like (e.g. shift in demand)?
  • How will emerging risks affect the industry in the short, medium and long term?
  • How will consumer preferences and the sharing economy affect the manufacture and distribution of insurance products?
  • How will the increasing environmental catastrophe risk affect the (re) insurance markets and demand?
  • How is the scope of public liability extended or reduced?
  • To what extent will the introduction of advanced technologies (e.g. AI / ML / VR) disrupt insurance processes?

Since there is so much unknown, we just have to guess how these will play out in the future – or, worse, just wait and see? The answer is no.

Accenture’s Strategic Resilience Framework

While it is impossible to predict the future, we can identify triggers that will lead to market shifts. We can also use historical data and industry insights to model current trends (with a model designed for this purpose) to outline various future scenarios. These scenarios illustrate how key trends can produce different results in different circumstances. Based on this information, we can determine which strategies are best based on considerations such as financial opportunities or risks.

First, we outline current and future trends using the PESTEL framework: political, economic, social, technological, ecological and legal. From there we determine where each trend is currently going – the baseline. The next step is the crucial part of strategic resilience modeling: what if a trend changes due to an unforeseen event or a market shift?

This is where scenario planning comes into play. We outline different scenarios based on possible changes in each trend. However, our strategic resilience framework is more than just a scenario modeling exercise. We can use real data and financial data to see where the most opportunities and greatest risks are in each future scenario. With this knowledge, we can determine the most appropriate long-term strategies for a particular company.

Let’s look at a quick example. Historically, small commercial insurance has been an underserved market with low premium income and high support needs to acquire and provide the coverage required. Sites like Etsy, eBay, and Amazon are making it easier than ever to sell products, while apps like Uber and DoorDash have established a gig economy. A whole generation of new entrepreneurs has emerged. These business owners and their employees need insurance, but most will still pay very low premiums on an individual basis.

This group has also expressed digitally savvy preferences for shopping and service. If companies have overlooked these burgeoning new business owners and underestimated the multi-year data diffusion trends that combine digital capabilities and the consumerization of B2B, then they are probably only now realizing that there is a growing and accessible market (albeit still evolving).

Insurers are reacting because they see digital InsurTechs like NEXT and Vouch building new business models and stealing market share. Legacy players are entering or expanding their digital presence in the small business market such as B. Berkshire’s biBERK and THREE insurance. USAA recently launched a small commercial model to serve the needs of business owners in the veteran community. New sales ecosystems are also emerging via the brokerage market in order to provide small commercial coverage via a digital model such as Aon’s CoverWallet.

Instead of responding, Accenture’s strategic resilience framework could have identified this potential opportunity before it was obvious. By outlining multiple potential scenarios and then analyzing the financial opportunities and risks for each scenario, insurers could examine the implications of various potential futures and make an informed, data-driven decision.

The specific decision depends on the current circumstances, needs and long-term goals of a company. It’s about systemically analyzing current trends, building flexible scenarios based on possible changes, and then making informed decisions that are specifically designed to strengthen the resilience of the company.

The markets, product lines, channels, value propositions, and technology you want to invest in – all of these decisions affect a company’s strategic resilience.

In the next part of this series, I’ll limit my focus to one important world impact category: sustainability and ESG (environmental, social and governance). I will examine the key ESG trends currently impacting the insurance industry and go through specific scenario planning to illustrate the power of strategic resilience.

In the meantime, if you would like to create a long-term strategic roadmap that is resilient and takes future unknowns into account, please contact me here.

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Disclaimer: This content is provided for general informational purposes and is not intended to be used in lieu of advice from our professional advisors.
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