Recent history has shown us that no industry or enterprise sector is immune from the impact of rapid change and disruption. Despite the extent of the regulations controlling insurance, it is also open to developments and change that even a few years ago would have seemed impossible.
Consumers now are rapidly becoming used to new ways of interacting with service and product providers and it hasn’t taken long for most people to look at these new forms of doing business as 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 pace of change and are putting a 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 doing things. Willingness is one thing though and many in the industry would struggle to name many ways in which true innovation is transforming the industry.
However, if existing insurers don’t innovate, somebody else will. Fully embracing the new-normal is now the less risky option.
Change is the new black
Change has become a constant and the insurance industry is facing a broad set of challenges and disruptions. The mega trends of globalisation, demographics, and attitudes form a backdrop to the rapid advances in technology that make many new ways of interaction practical and easy.
Population ageing is unprecedented, pervasive, enduring and has profound implications for many facets of human life. Approximately 54% of the world’s population lives in urban areas and this will increase to 66% by 2050.3 The tipping year when more than half of the population became city-dwellers was 2007. The middle classes are growing fast worldwide.
The Brookings Institution estimates that there are 1.8 billion in the middle class, which will grow to 3.2 billion by 2020. Plus, within a decade, the middle class in Europe and North America will be less than a third of the world’s total, down from more than half now.
Our attitudes to wellness and our work-life balance are developing alongside our better health and increased life expectancy. Our use of personalised technology is driving new behavioural approach to such things as privacy and sharing information.
The massive rise in the production, transmission and storage of data and the advances in analytics to interpret that data provide an unprecedented set of opportunities for creating new and innovative products and services to meet developing customer needs.
Potentially useful traffic pouring around the internet will reach 3.3 ZB 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 EB a month4.
“The future is already here – it’s just not evenly distributed.”
William Gibson, 1948, Canadian science fiction author who coined the term ‘cyberspace’
New business models
As far back as 2012, PwC found 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. Five years later and we have not yet seen a significant change in types of products being produced and sold to the market, at least not from the major players and even less in the life and pensions sectors.
Yes, 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 but the basic structure of the products behind the scenes, all living happily in their respective silos, has changed little.
There has also been development at the claims end of the service with some insurers recognising the advantages of moving from just recompense to restitution, helping their claimants get their lives back on track not just compensating them for loss or inconvenience. This movement is leading to the development of risk management as a facet of the service insurers can offer.
The time has come when insurers need to be aligning business models to take full account of rapidly evolving consumers’ needs and the detailed micro-information generated by them. It is becoming possible for insurers to create accurate near 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 understand the potential of the massive amounts of information being produced will be able to engage with consumers in ways that are relevant and meaningful to them. This will lead to products and services that really do put the customer at the centre of the operation.
Insurers have spoken about this for a long time but the revolution in available information will mean that you can build detailed, individual pictures of your customers and offer services that will enable them to live better healthier lives. You will be able to create better risk profiles and price accordingly, perhaps using micro-rating for life risks as they can be used now for car insurance.
It doesn’t matter if you fail
Well, it does to you; but it doesn’t to the consumers because if you don’t make use of the data revolution to create relationships with your customers that are relevant, meaningful and helpful, then someone else will.
1. PwC: Life insurance 2020: Competing for a future
2. PwC: PwC life and pensions survey 2012
3. United Nations, 2014
4. Cisco: The Zettabyte Era: Trends and Analysis