2020 has been a challenging year for financial services. First, COVID-19 hit insurers with business interruption and travel insurance claims. Then, banks’ profits took a hit as banks set aside billions for loan loss provisions. Given this and the protracted period of low interest rates, investors have taken a dim view of the industry’s prospects, lowering share prices of European banks and insurers.

In response to this, financial services brands such as Credit Suisse, Deutsche Bank, and HSBC have relaunched their cost-cutting plans, which were on temporary hold during the pandemic. This renewed focus on cost cutting is reflected in Forrester data: In May 2020, 36% of French, German, and UK financial services and insurance executives saw cost reduction as a high or critical priority, up from 30% before COVID-19 struck, when growing revenue and improving customer experience still took priority. But I’m also glad to see that leaders are keen not to let the crisis go to waste. Amid all the doom and gloom, European financial services and insurance executives also want to innovate. Together with cost reduction, improving the ability to innovate was seen as the top business priority over the next 12 months. This share has grown significantly since January 2020, when only 21% of French, German, and UK financial services and insurance executives saw innovation as a high or critical priority.

This is good news as there are plenty of opportunities to innovate. In our 2021 Banking and Insurance Predictions, we outline two areas that can benefit from technology-driven innovation in particular: fraud and claims management.

COVID-19 is a crisis for financial services businesses but an opportunity for fraudsters and hackers. In the UK, fraud rates rose by 33% across all financial products in April 2020. And 2021 will reveal the high number of fraudulent COVID-19 loans. For example, the UK’s National Audit Office (NAO) estimated that up to 60% of the COVID-19 Bounce Back Loan Scheme won’t be repaid due to credit and fraud risks. As the demand for business loans and pressure from governments keen to aid ailing businesses continue throughout 2021, financial firms will need to digitize customer onboarding, identity verification, and credit scoring and decisioning. Emerging technology can help. Artificial intelligence has transformed transaction monitoring, risk scoring and model building, case management and investigation, and contextual reporting.

Fraud also impacts insurance claims, raising claims costs together with other factors like extreme weather and higher repair costs. While car and home insurance claims have fallen during COVID-19 lockdowns, business interruption, travel, and health insurance claims have not. For this reason, we expect containing claims leakage to be a top priority for non-life insurers in 2021. Again, technology can help. In 2021, insurers should be investing in smart analytics to identify leakage potential at first notice of loss.

Planning ahead in financial services is difficult in the current circumstances. But one thing is certain: Now is the time to use the digital acceleration and momentum that the pandemic has brought to reshape the future of your business.

To understand the major dynamics that will impact European businesses next year, download Forrester’s complimentary Predictions guide.

To dive even deeper into what we see for the coming year, check out our Predictions 2021 complimentary webinar series and engage directly with the analysts who made the predictions.