Out of necessity, invention: the future of insurance
The current disruption in the insurance market isn’t just down to new technologies and the recent changes in regulation: it’s a product of more fundamental social and economic change. The biggest opportunities now lie with insurers who best understand what customers want and have the digital and organizational agility to respond.
As in other parts of the financial services sector, the entry of automation, data and analytics, artificial intelligence (AI) and blockchain into the business mainstream is game-changing for the insurance industry. For every institution, becoming truly data-driven is now critical to deliver great products and services, protect the bottom line and reduce cost to serve. Today’s consumers want flexibility, good value and responsiveness from the companies they buy from, and insurers are no exception. While many newer digitally-enabled market entrants are well placed to meet these challenges, they operate at higher risk. For incumbents, while the risks are lower, old organizational siloes and legacy systems can be a burden.
Key digital enablers
Yet insurance, protection and pensions providers also face more profound change among their target customers. People are living longer in a less certain socio-economic climate and that is impacting insurers’ books over the long term. The move to Defined Contribution pensions, lower investment returns and a pattern of under-investment all mean that funding gaps and smaller pension pots are now a reality for many customers. And, unless they have access to one of a limited number of independent financial advisers, gaining reliable advice can be a challenge. So what’s the answer? How should products evolve? And, given the impacts on institutions in recent years, shouldn’t consumers take more responsibility for their planning for the longer term?
Digital is surely a key enabler here. Online platforms with AI and analytics capabilities offer a scalable way to reach a mass market with personalized products and recommendations plus regulated advice online; and with blockchain comes the ability to establish trust and transact securely without the need for traditional intermediaries. In the digital age, these platforms and enablers are the mechanism for empowering and enabling consumers to make the choices that are right for them – whether that’s insurance for a two-day trip or a life insurance policy. Apps and websites operated by digital giants such as Uber and Facebook are gaining more and more mind- and wallet-share. The lines are blurring in cyber space and the access point into a conversation about which insurance policy or pension product to buy could start on social media or a challenger banking app.
Policy-making around long-term saving is a wider government challenge, with regulation playing a key role in representing the needs of all stakeholders, not just shareholders. For the industry, there are significant opportunities to develop innovative products and services, ones that are simpler and more flexible – not just for the famously digitally-savvy millennials but also for those who are drawing, or near drawing, their pensions. Customer journeys need to be omni-channel, customer-centric and friction-free, with use of data analytics and AI to truly understand customers’ needs and behaviors, for example what do they value and therefore what do they insure?
Yet business transformation is not only about which digital technologies to deploy; it’s about a customer mindset: creating and enabling a customer-centric organization that empowers employees, with agile ways of working and ‘fail fast, learn fast’ principles. Digital transformation should never replace human interaction and insight to deliver standout customer experiences. As lifestyles, work patterns and consumer expectations continue to evolve, even more dramatic change looks likely. The key for institutions is to be future-proofed – in terms of culture and organization as well as digital infrastructure – and to be ready for it.
For more insights on the future of the Insurance market, read our Look Out for Insurance paper