The insurance industry is at a crossroads and faces perhaps its most significant strategic decision in decades. The rapid rise of big data, algorithms and artificial intelligence (AI) to analyze, process, underwrite and pay claims will provide incumbent insurance firms with the means to synchronize with evolving digital customer needs over the next five to ten years.
Of course, the stakes are high. Insurers that fail to embrace a digital mindset risk missing out on the $1.6 trillion of value that next-generation insurance is set to create in the next three years. To better understand this expected realty, we conducted a thorough review of the latest trends, competitive threats, promising opportunities and best ways for insurance executives to prepare a favorable response.
In part one, we identified eight key challenges facing insurers today — all of which involve technology, changed consumer behaviors and evolving business models. Here, we outline three key ways insurers can strategically respond. Our final installment provides executive recommendations and guidelines.
Three Strategic Responses
In today’s digital landscape — where products and services rapidly become outdated and emerging technologies quickly create new consumer demand 3 traditional strategic planning cycles no longer suffice. Consequently, insurances must rethink their approach. Over the next decade, the industry is primed for either an evolutionary leap for those who take the technological plunge or eventual extinction for those firms that fail to center digital at the heart of their reinvention strategies.
Admittedly, no single model will define success. But our research reveals three core areas where incumbent insurers can differentiate themselves by playing to existing strengths and upgrading their capabilities. Some institutions may even feel they can differentiate themselves in all three.
Mastering the relationship.
In this scenario, insurers maintain a brand premium by taking customer engagement to new levels. This includes attributes such as developing omnichannel capabilities across mobile, online and physical channels; automated analytics to help clients make better decisions’ and data aggregators and information leaders to identify new areas of value for customers. For example, Danica Pension is working with anthropologists at ReD Associates (one of our key digital business partners) to gain a better understanding of how life events impact consumer behavior.
Driving the ecosystem.
In this scenario, insurers serve wide-ranging consumer needs by teaming up with third parties, including non-insurance companies and innovative start-ups. To do this, insurers must open up their systems and share organizational data with third parties via application programming interfaces (i.e., property insurers might partner with security specialists and manufacturers of smart products for managing risk) to deliver an integrated customer experience. UK-based Vitality is leading the charge here after recently partnering with Apple, Amazon, and Cineworld (one of Europe's leading cinema groups) to enhance its healthcare and life insurance offering with smartwatches and gamification.
In this scenario, tech-savvy insurers identify proficiencies that competitors or new market entrants would struggle to replicate — for instance, the ability to manage complex regulatory and compliance requirements, fraud detection, risk management, or an expansive network for distribution and claims management: basically, anyone who is in a good position to easily share unparalleled and open information efficiencies with other paying middlemen. WeGoLook is one notable example of this. Using a network of independent “Lookers” who respond to on-demand requests to perform local inspections for insurance clients, the company is decisively and quickly changing the inspection sub-industry.
What Lies Ahead
Obviously, there is no one-size-fits-all strategy for insurers to pursue. But with the rapid rate of change besetting the industry, it’s readily apparent that few incumbents will survive if they fail to change course. The onus is on existing players to hone their strengths, become more specialize, and build upon existing competitive advantages such as brand prestige, deep risk modelling expertise and large pools of capital. Only then can incumbents develop a fresh and compelling proposition for customers.