Insuring the future: Why agility is key in a changing climate

By Nick Petschek and Shaun Spearmon

Insurance has long been the foundation for managing risk, enabling societies to flourish. However, today’s climate crisis is intensifying these risks, threatening the core of the insurance industry and its role in society.

Looking back to 2023, a stark reminder that events previously believed to be “once-in-a-lifetime” are now commonplace disasters. The U.S. alone witnessed a staggering 28 separate weather or climate-related events, each surpassing $1 billion in damages.

Insurance leaders now face a critical dual challenge in this new reality of climate-driven risk: First, the need to adapt to a changing climate – finding ways to remain profitable while keeping insurance affordable for customers – and second, shaping societal response – seizing the opportunity to influence how communities respond and mitigate climate-related damage.

To achieve this, a fundamental shift is required. Insurance companies must embrace an agile approach to risk assessment and response to position themselves, and society, for sustainable success in the long-term.

With a perfect storm brewing for insurance leaders, today’s rapidly changing environment is heightening demand. This is leading to heavier workloads and a higher threat of employee burnout as these climate-related events increase. But amid this change, proactive leadership can ensure both team productivity and superior customer service remain. Here are three strategies to help insurance leaders navigate this perfect storm to their best ability.

Go back to the industry’s roots: Improving society by reducing risk

As weather events escalate and insurance responsibilities expand, the need for swift decision-making becomes paramount. This can be difficult when senior leaders are the only ones “authorized” to do so. It’s imperative for leaders to cultivate a culture of ownership to optimize the decision-making process across all levels and ensure that they are never a bottleneck. This means:

Take time to determine what needs a senior leader’s direction and what can reasonably be delegated to more junior employees who may even be more familiar with the task or project than their superior. When an individual shows leadership or makes a good decision, be sure to recognize and celebrate that behavior. With this horizontal and vertical empowerment, decisions can be made as needed across centers of control to help keep operations moving swiftly.
Encourage innovative thinking that empowers professionals to problem solve and stay proactive in seeking efficiency and positive outcomes.

At its core, insurance provides stability during difficult times. Finding ways to streamline the processes through which that happens by encouraging leadership at all levels can continue insurers’ outcomes.

Prioritize innovation-centered adaptability

Climate change has been a wake-up call for the insurance industry. It pushes the insurance business to adjust — offering more innovative solutions for the more frequent events described previously, whether they are acute or chronic climate-related hazards. To be able to create these innovative solutions, insurers need a culture that allows teams to shift and prioritize (and re-prioritize) quickly and encourages employees to think beyond historical industry constraints.

An agile organization can quickly adapt to changing regulations, market trends and unforeseen events to push the market in the right direction while also minimizing disruption and maximizing resilience. This adaptive culture can be achieved by rewarding rapid testing, fast failing and accelerated learning.

One example of this: An insurer we partnered with faced the challenge of how to adjust the company’s risk tolerance and processes to quote more policies while mitigating the negative impact on loss ratio. They not only enlisted the expertise of the underwriting function to tackle this problem, they also included several cross functional stakeholders to rapidly design and test – in 90 days – a potential solution that historically might have taken months to develop.

The insurance industry is highly structured and relatively slow-paced; putting mechanisms in place that allow for a degree of innovation and flexibility can put companies in a better position to stay on top of increasingly violent weather events.

Invest in reskilling and upskilling

While expanding decision-making powers and increasing adaptability are great first steps, making a concentrated investment in reskilling and upskilling will ensure employees are truly equipped with the tools and expertise needed to make agile decisions. If technology is being implemented to help keep up with the increased demand, formal training should be provided to ensure that all employees can adopt it into their day-to-day work.

The best way to create an agile workforce is to provide intentional learning and development programs to meet changing needs and demands. L&D programs go beyond initial training by providing ongoing opportunities for employees to develop new skills and stay current with industry trends. Equipping teams with resources and ways to fill gaps between skills will help keep them engaged, motivated and ready to take on whatever is next for the team.

Climate change isn’t just a risk for the insurance industry; it’s also an opportunity to evolve. Agility and adaptability are no longer luxuries, they’re the cornerstones of future success.

Leaders who embrace these principles will be best positioned to navigate disruption, managing headwinds and shifting demands with agility; empower teams, fostering leadership at all levels for faster decision-making, and cultivate adaptability, building a culture of learning that thrives on change.

Moving into offense by establishing leadership at all levels, building adaptability and creating an intentional L&D program can help you stay ahead of the storm to navigate change and mitigate risks in a way that positions your company for long-term success in the face of climate change.

Nick Petschek is managing director at Kotter. Contact him at [email protected].

Shaun Spearmon is director at Kotter. Contact him at [email protected].