It Doesn’t Matter
If You Fail
Recent history has shown that no industry or enterprise sector is immune from the impact of rapid change and disruption. Despite insurance being an industry whose depth of regulation is a barrier to change (and to new entrants) it too is now feeling the impact of forces, many of them external, which are leading to new ways of thinking and new business models.
Consumers are rapidly becoming used to new ways of interacting with service and product providers and in fact some of these interaction forms have quickly become the norm. Anything less is seen as tiresome, irrelevant and not worth the effort.
It is encouraging to see that insurers are beginning to understand the impact of the pace of change and are putting stronger emphasis on the need to innovate. PwC discovered recently in a worldwide survey of CEOs1 that insurers are willing to innovate with their business models, coming in just behind the technology, communications and entertainment sectors in their readiness to think about new ways of consumer interaction. However, there are still relatively few examples of innovation which have transformed the industry.
Innovation is not a choice but a necessity and represents the low risk rather than the high risk option.
“The future is already here – it's just not evenly distributed”
William Gibson 1948 - Canadian science fiction author who coined the term “cyberspace”
Change is the New Black
Change has become a constant and the insurance industry is facing a broad set of challenges and disruptions. The impact of the mega trends of globalisation, demographics and attitudes have been a major factor in the rapid technology advances that are delivering practical and easy methods of interaction.
Population ageing is unprecedented, pervasive and enduring, and has profound implications for many facets of human life. 54% of the world population live in urban areas and this will increase to 66% by 2050. By 2007 more than half of the global population became city-dwellers and the middle socio-economic class is growing rapidly. The Brookings Institution estimates that there are 1.8 billion people already in the middle socio-economic group and this number is estimated to grow to 3.2 billion by 2020. It is also predicted that within a decade the middle socio-economic class in Europe and North America will be less than one third of the world total, compared to more than one half currently.
Attitudes to wellness and work-life balance are developing alongside better health and increased life expectancy. Consumer use of personalised technology is driving new behavioural approaches to such things as privacy and the sharing of information.
The massive rise in the production, transmission and storage of data combined with the advances in analytics to interpret that data provide insurers with a unique set of opportunities for creating new, innovative products and services that meet developing customer needs. Potentially useful traffic circulating around the internet is expected to reach 3.3 Zettabytes4 a year by 2021, or 278 exabytes (EB) per month. In 2016, the annual run rate for global IP traffic was 1.2 ZB per year, or 96 Exabytes per month5.
New Business Models
As far back as 2012 PwC discovered that almost half of the Life and Pensions executives they surveyed believed that the internet would not only change how customers buy insurance, but also the type of products they chose2. Despite these findings a significant change in types of products being produced and sold to the market has yet to emerge. Whilst there has been some innovation in the form of pooled risk (with P2P and crowdfunding), markers of the collaborative economy, and more use of mobile platforms for communication, the basic structure of the products has changed little.
There has been a significant shift in the levels of claims servicing expected from insurers. This has led to some development from certain insurers and has also increased the importance of risk management as a service.
In summary, insurers need to align business models to take full account of rapidly evolving consumer needs and the detailed micro-information being generated by them. Insurers can create accurate, almost real-time profiles of their customers and align products and services to meet emerging needs in much shorter timeframes.
Putting the Customer First
Insurers who can capitalise on the potential opportunities presented by the massive amounts of consumer data being produced will be able to engage with consumers in ways that are relevant and meaningful to them. This will lead to tailored products and services that put the customer at the centre of the operation, a concept which insurers have spoken about for a long time. The step-change in available information means that insurers can build detailed, individual pictures of their customers and offer services that will enable them to live better, healthier lives. The upside for insurers is the ability to create better risk profiles and price accordingly, perhaps using micro-rating for life risks (an approach which has already been developed by some insurers in the pricing of non-life car insurance for example).
It Doesn’t Matter If You Fail
Some insurers will fail to adapt to the data revolution but it actually won’t matter to the consumer because there are insurers who will succeed in creating game changing relationships that deliver relevant products and services to their customers.
- PwC: Life insurance 2020: Competing for a future
- PwC: PwC life and pensions survey 2012
- United Nations, 2014
- Zettabyte: 1021 (1,000,000,000,000,000,000,000 bytes) or 1 sextillion bytes. One Zettabyte is approximately equal to a thousand Exabytes, a billion Terabytes, or a trillion Gigabytes
- Cisco: The Zettabyte Era: Trends and Analysis