by Oliwia Berdak, Principal Analyst, Forrester Research
Industry View from
The insurance landscape is changing – are you ready?
Risk is a fact of life, and as long as it exists, people will want to protect themselves and the things they care about. But while insurance has a long history that will undoubtedly continue, insurance companies will need to reinvent themselves and innovate to survive the digital disruption that has ravaged the media, travel and retail industries, and is coming to insurance.
Insurers have so far been shielded from digital disruption by an older demographic, boring products, underwriting expertise and regulatory requirements. But these barriers are starting to fall. Technology is rapidly changing customer behaviour, challenging existing underwriting models, and opening up new distribution opportunities. Technology is also upending insurers’ operations, automating manual processes and increasing workforce productivity, opening up new data sources and uncovering new insights from buried data. It’s also enabling new products and unlocking new revenue streams.
As a result of these changes, in the next five to ten years we expect to see:
- Fragmentation of the insurance value chain
- The vertical integration that has served insurers so well in the last few decades has become a straitjacket. Rigid organisational structures and monolithic applications can’t adapt fast enough to respond to rapid changes in customer behaviour, technology and the competitive landscape. Digital businesses thrive in this environment, using technologies like the cloud and application programming interfaces (APIs) to quickly configure new products and services and test new business models using internal and external capabilities. Leading insurers will identify winning capabilities, invest in those, and create a dynamic ecosystem of partners to deliver everything else. For example, we expect insurance distribution to change significantly, as insurers embed themselves into customers’ lives. Insurtech startups such as Anorak and Digital Insurance Group aim to help by analysing customer data – coming from open banking, for example – to assess their customers’ coverage gap and suggest the best product to suit their needs.
- A shift from insurance compensation to protection
- Today, insurance customers “buy” confidence, yet insurers sell them a loss-recovery contract. To stay relevant, insurers will become service providers that offer value-added services that wrap around the underwritten coverage. This is already a growing business area for companies such as Allianz or Generali that combine insurance, assistance, and technology in one package. The explosion of data from connected devices together with the advancement of predictive analytics and automated real-time interaction management will open up opportunities for insurers (or other firms with access to relevant data and analytics capabilities) to engage customers in ongoing risk mitigation and protection.
- Challenges to existing underwriting models and regulation
- Underwriting can sink insurers or fatten up profit margins. But current underwriting methods and models are dated and need a technology boost. Insurers such as AXA and New York Life are using artificial intelligence (AI) to extract data from historical paper forms, discover new correlations, and hone their actuarial models. As insurers explore new data coming from our ever-expanding digital footprints, they will need to convince both customers and regulators of the benefits. Similarly, as insurance contracts shrink from annual to hourly and we become capable of real-time underwriting, regulatory reporting and capital requirements will have to adapt.
Are insurers ready for this wave of change? According to our data, some 73 per cent of insurance firms are either currently undergoing digital transformation or see themselves as in a constant state of digital transformation. But change is hard, and many insurance executives are citing security concerns, data issues, and the lack of the right skills as the main inhibitors. Leaders must step up to this challenge and help their companies transform.
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