Most large players recognise that insurance is approaching a massive paradigm shift all around the globe. The digital revolution has certainly made an impact, but many other factors are starting to drive change as well. Consumers are learning to expect certain types of service and bringing those expectations into their negotiations with insurance companies.
Large operations are scrambling to catch up to newer, more agile competitors. The pressure is building as older players are increasingly pushed into areas they’re not well-prepared to compete in. Change is inevitable, and the biggest disruptions expected in 2020 and beyond are outlined below.
Customers Are King, Again
Customers are starting to demand products that are more tailored to their particular needs (eg car insurance by the hour), which puts some insurers in an awkward position. When a customer wants a specific service at a specific time and isn’t willing to compromise too much, an insurer can either become more flexible or lose business, because there are likely competitors out there who can cater to that customer.
Technology is allowing insurers to offer far more personalised products, opening up the market to smaller players. Insurers are fully aware that big changes need to be made to personalise products that are driving ever-more streamlined insurance processes that cater to a customer’s needs. One-size-fits-all propositions will be replaced with flexible coverage options, peer-to-peer insurance, and micro-insurance. In the upcoming years, competing merely on the price will be outdated and ineffective.
Claims and Many Other Aspects Will Be Automated
In a variety of industries, AI is taking the world by storm, and insurance is no different. Data-driven processing and advancements in algorithms will minimise fraud and excel at saving time and effort for customers. Even claim underwriting is seeing automation efforts and probability models being used in both the actuarial and underwriting functions.
Bots are already becoming a widely-used tool for end-to-end policy servicing and claims management. Chatbots are more effective and efficient at providing personalised customer service much faster and claim assessment bots can already analyse a claim and allocate payout in less than three seconds. Cost optimisation, customer service, and every aspect of operational efficiency will soon be automated.
Tech-Enabled Prevention Will Outpace Loss Protection
A shift towards prevention has already started to take root and insurers are moving away from protection against loss and closer to preventative measures to avert loss altogether. Many services, such as cybersecurity training to prevent attacks and fitness trackers to reduce health insurance premiums, are some of the new technologies aiding the switch from compensation to prevention.
According to a survey from Deloitte, almost a quarter of the services offered regularly by insurers today weren’t available five years ago. Data collection technologies are evolving so quickly that they may be able to predict with serviceable accuracy which customers are likely to suffer loss and when to issue warnings.
As Efficient New Startups Rise, Bigger Players Will Look to Acquire Them
For a long time now, mergers and acquisitions have been an important theme in the insurance industry and the trend is only liable to continue growing. In the same paper from Deloitte, over 90% of surveyed firms saw M&A as one of their primary growth factors in the long-term. Firms are looking to use M&A to add to both their product range and their service offerings, as well as use it as a resource to access new markets.
Another important reason to foster alliances is that many big insurers just aren’t ready to cope with technological change and won’t be ready in time to prevent major losses. Joint ventures and other types of collaborations are also becoming much more common. In the coming years, many smaller, faster firms will see themselves become the targets of aggressive deals and partnerships.
Blockchain Will Enter the Fold in Earnest
The amount of customer data that needs to be processed, and the sensitive nature of that data, will demand the use of secure and fast transfer technologies to support operational efficiency. Blockchain technology is perfectly positioned to offer secure data management across a variety of platforms. Dozens of insurance companies have already started exploring the potential of blockchain through the B3i initiative.
Insure the Future
The trends outlined above and their implications are just some of the upcoming changes that the industry is likely to face. The insurance industry as a whole is certainly lagging behind in terms of technological disruption, but it’s catching up very quickly, making it difficult to predict with any certainty what the future will hold.
John is an actuary and owner and Director of HJC Actuarial, which he founded in 2003 and which has advised over 100 clients since it’s’ inception. He has worked in the insurance industry for 30 years, qualifying as an actuary in 1995 and becoming a Partner in a major global consulting firm in 2000. Since 2003 he has provided independent advice to his clients on optimal insurance program design, presentation of risks, and premium negotiation with insurers, insurer solvency assessments, policy wordings, insurer selection, and insurance broker selection.
