With contributors from: Generali, Swiss Re, Liverpool Victoria
Introducing the New Entrants
According to Forrester Research, many European insurance firms have failed to react to the threat of disruption by new digitally-focused competitors. The ‘Trends 2015: European Digital Insurance’ study states that incumbent insurance firms face a growing list of challengers outside of their traditional business. This includes digital start-ups like Friendsurance and Drive Like a Girl, as well as companies in other sectors, such as car manufacturers and utilities firms.
An Ernst & Young report lists internet search engines, credit card companies and medical labs as potential new entrants to the life insurance space, identifying their competitive advantage to come from the ability to mine data to identify customers with low overall risk scores and/or high probability of purchasing life insurance products.9
Capgemini Consulting found that the majority of insurers that they surveyed in the “Big & Fast Data: The Rise of Insight-Driven Business” report agree that big data is the major enabler for external competition.
Swiss Re’s Davis is warning insurers who are reluctant to embrace technology that “the insurance industry has been historically poor at embracing change and technology in particular. And if the current participants don’t pick up their game then there will be some other people coming in and doing exactly that. We will all see external players coming into the marketplace: the Googles of this world, really looking at widely sourced data and putting some algorithms together, which predictively set premiums in a way that possibly insurers won’t have thought of. The quality of the data they are able to get hold of as it become more freely available, it’s going to be sufficient for them to have a consistently delivered simple product offering on low cost platform to be successful.”
However, Stevens from LV= sees a challenge for the new entrants: “I think the challenge for innovation from new entrants is gaining customer trust to adopt: do they come with a track record or a proven brand that is trusted to consumers that are naturally cynical or cautious or negative about financial services purchases. Clearly there are a number of powerful brands that are well trusted by consum¬ers and potentially they could combine to produce new things to market, which would be compelling and attractive to consumers. I think what would be difficult is for an unknown or unheard brand to come up with great ideas but actually have to invest significant amount of money to build a brand that is understood, recognised and most important of all, trusted within the consumer population. Possibly more likely if you’re distributing through intermediaries and you’re niche, where you can perhaps built a reputation for a specialist that appeals to specific market niche through subject market expertise. “
Generali’s Conner also recognises the existence of companies external to the insurance industry becoming competitors to insurers: “For today’s consumers, companies like Amazon and Google are setting the benchmark for best-in-class experiences. This raises expectations for our industry. Likewise, competitors from outside the traditional insurance world, for example car manufacturers, are moving into insurance, creating even more disruption. But this disruption is also an oppor¬tunity to redefine the sector, to innovate significantly.”
Insurers must not underestimate the threat of new entrants and bolster their own offerings with technology and the effective use of data analytics to remain compet¬itive in this new connected marketplace.
Insurance in the Connected World
As the Internet of Things is becoming a reality, insurers are starting to assess the potential impacts that it may have to their businesses. The SMA report suggests that insurance executives clearly believe that IoT has direct implications for insurance and will be a major force of change. When asked about the potential for innovation and transformation, 74% of the 88 respondents said that IoT will be a major disruptive force within five years, and 54% think that it will occur in three years! The SMA survey also revealed that 74% of insurers plan to invest in IoT by 2016, with 7% planning significant spending.
Towers Watson identifies UBI for auto insurance as the area that is currently most advanced in terms of providing connected pay-as-you-drive/ pay-how-you-drive/ pay-as-you-go insurance services and predicts that the technologies such as remote monitoring for home insurance or wearable technology and ingestible sensors for life and health insurance could also soon provide lifestyle based insur¬ance in those lines. (Towers Watson).
Conner from Generali emphasises the importance of using technology as an enabler to connect to the customers’ lifestyle: “Today’s consumers lead busy lives, spending hours connected to their tablets and cell phones. Technology is clearly an enormous enabler, and we must leverage it, taking advantage of this captive audience to provide value-added services for our clients. If a consumer decides to go skiing or biking on a given Saturday, a smart insurer will connect with the consumer for that day’s activity. Practical, customized services will draw the consumer’s attention, leveraging technology to improve peoples’ lives from homes to cars to personal health. This is how insurers can become relevant in their clients’ busy lives
Davis from Swiss Re explains how technology will help insurers to make inter-actions easier not only at the point of sale but also when claiming: “I think we all need to be looking at making it easier for claimants - the means allowing the way customers submit claims will be different with new technology being used. There are numerous means and ways of assessing the impact on an event taking place and checking the validity upfront, from use of digital photography to satellite imagery and other advanced telecoms. Technology will make things simpler for the insurer to obtain detail and for the claimant to submit detail to enable losses to be quickly adjusted and paid.”
Davis also explains other advantages of the use of new technology in insurance: “The internet will enable customers to research product broker and insurers’ propositions before engaging in their purchase. Products will evolve to meet diverse requirements as Big Data identifies proposition development opportu¬nities. Customers will be able to interact with providers on multiple channels. Consequently, I think connected insurance will have benefits all around: I think people that previously couldn’t purchase insurance are likely to purchase insurance and with the ever increasing amount of data that is being captured, products are going to be more specific, more relevant to individual risks and costed appropriately.”
Stevens at LV= agrees that insurers should use technology as an enabler to engage with their customers: “I think that the concept that we might all shortly be getting into driverless cars, or into planes that will fly across the oceans without anybody flying them, and we seem to be reasonably comfortable trusting that, it’s quite a way on from where we are in using the technology in financial services decisions. I think there’s a lot of ground to be made in terms of how technology can help people engage and interact with insurance. I think we’re kidding ourselves if we believe that we do things in the industry that are so complex that they can’t be largely replicated by technology. There will still be an important role for human expertise and imagination in the process but just more sparingly focussed on improving convenience and value.”
Stevens also names algorithms and artificial intelligence as the main enablers: “Through the power of algorithms and artificial intelligence we will have the under¬pinning technology that I think can help in transforming the insurance industry in this way, in making sure that you can match the right insurance solution to the right customer based on their information. If you like your personally trusted adviser in your pocket!”
Despite the obvious hurdles that lie in legacy systems and the need to keep up to speed with ever changing regulatory requirements, the insurance industry is getting ready to embrace the changes that are coming from the changing consumer needs and technological advancements.
Our contributors stressed the importance of keeping up with customers’ behavioural changes and expectations that are stemming from the way they inter¬act with other industries, and using data analytics as well as other technological capabilities to enable better communication and better products.
Whilst disintermediation is unlikely to happen in the near future, the intermediaries of today must adapt to the evolving environment and prepare to clearly demon¬strate their value proposition if they want to remain relevant.
The Internet of Things is presenting an opportunity for insurers to make policies more personalised in terms of product specifics as well as cost. However, as the IoT brings even more data, insurers must be ready to deal with increased data volumes in order to capitalise on connected insurance opportunities. Furthermore, this new environment is opening the doors for the potential new entrants, and insurers will have to find a way to demonstrate their technological capabilities or partner with the big tech companies if they want to reap the benefits of the insurance market¬place of tomorrow.