Insurers need to respond to a raft of pressures: digital technologies that are evolving at fever pitch, consumer behaviors and expectations that are shifting, and new business models that are emerging. These three key trends will alter the whole sector:
1. Emerging Technologies
The rapid advancement of cloud, artificial intelligence (AI), big data and Internet of Things (IoT) technologies is changing how we understand the insurable environment. No organization can afford to bury its head in the sand.
Our Work Ahead research found that 98% of 2,000 surveyed executives expect the rise of the new machines – robotics, analytics and AI – to have a moderate or strong impact on work. Hyperconnection is a big deal. As the IoT comes to life, almost everything in our environment will become even more technology-infused and intelligent, with the potential for process innovation and efficiencies.
As more commercial buildings are fitted with smart sensors, vehicles are fitted with telematics devices, and wearables become more commonplace, the real-time data available to insurers explodes. This gives insurers the opportunity to assess how risks are evolving in real time, and more importantly opens up new ways to engage and create fresh value propositions for customers.
2. Human Behavior
Adoption of new consumer technologies is accelerating at pace. Gartner forecasts that worldwide shipments of wearable devices will reach 225 million in 2019, an increase of 25.8 percent from 2018. This increased digital adoption and “always on” connectivity is shifting how consumers want to engage with insurers.
What about the willingness to share personal data then? Consumers are more aware than ever of how their personal information may be collected and used, due to constant media interest and GDPR coming into force in Europe. Yet, the report Global data privacy: What the consumer really thinks – commissioned by the Global Alliance of Data-Drive Marketing Associations (GDMA) and Acxiom – the majority of people (77%) across the ten markets and four continents surveyed are pragmatic or unconcerned about sharing their data.
Vitality is one insurer that is starting to capitalize on this trend: it is offering health and life insurance packages that provide consumers with wearables to track their physical activity, with rewards available to those who meet certain targets. This is only the beginning, however. The real shift is for such insurers to move beyond rewarding physical activity, towards offering customers insights about how they can train more efficiently or identifying early warning signs to help them avoid health problems further down the line. Researchers are already experimenting with AI to identify potential signs of depression early on, for instance.
This is a big shift in traditional insurance thinking, however, and the skills required to maintain high-touch, digitally-driven relationships with customers are not prevalent across the industry today. Insurers will need to take decisive action to accelerate development of these new capabilities: whether recruiting more digital-savvy customer relationship managers, partnering with third parties to access behavioral expertise and digital innovation, or acquiring firms with the skills and technology solutions they need.
3. Evolving Business Models
Insurers are struggling to make sure that their existing business models remain relevant in the changing environment. Sharing economy businesses such as Airbnb and Zipcar are giving rise to new customer demands, such as shared ownership models and on-demand insurance. At the same time, a host of online platforms are springing up to give consumers easy access to peer-to-peer (P2P) insurance propositions.
On the whole, traditional insurers have been slow to react, while innovative industry start-ups – or insurtechs – are seeking to disrupt elements of the value chain. According to this InsurTech overview, 1,788 insurance-related startups were spotted in Europe as of August 2018 which illustrates the strength of innovation in the sector. In the Nordics, already fintech savvy with Klarna, iZettle and Bambora among others, the growing landscape of insuretech presents many interesting opportunities.
Whereas newcomers are relatively unburdened by legacy systems and operation, they often lack essential field expertise. A report from Stockholm School of Economics suggests that this constitutes an opportunity for collaborations between incumbents and startups, by marrying the incumbents’ expertise, with the startups’ ambitions to leverage new technological capabilities such as big data analytics to overcome legacy hurdles, price risks better, and reduce operating costs.