eCommerce & Merchandising

Evolve or Die! How Insurance Is Being Disrupted

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Connected millennials, empowered consumers, technological innovation, digital distribution, and new competitors—these are all forces for change in the insurance industry. But, what do they mean for the future of insurance? Buckle up! It’s likely to be a bumpy ride!

First, the forces for change transforming the insurance industry are likely to translate into reduced premiums—at least for people on their best behavior. In the world of auto insurance, telematics are already reporting where (and when) you drive, how fast you brake, how much (and how often) you go over the speed limit, and even if you lock your doors. Add telematics data to whether or not you are on the phone (whether using a navigation app, talking or texting) and good drivers willing to alter their behavior and share their data will be rewarded. In fact, Gartner predicts that “By 2019, telematics adoption is expected to lead to overall personal auto insurance premium income reduction of 20%.”

Technological innovation is similarly impacting homeowner’s insurance. Already, IoT sensors located in your house can alert you to water leaks, freezing temperatures or electrical problems, even before you notice them. Connected to an insurer who proactively addresses the problem, damage will be avoided (or substantially reduced) and fewer (or smaller) claims will result. As in the case of auto insurance, homeowners who are willing to install connected monitoring devices should see a reduction in their insurance rates as well.

Second, watch out for agent disintermediation. We know that millennials prefer self-service. According to McKinsey, the human face of insurance in the U.S. is a local agent whose average age is pushing 60. Given the choice, almost no millennial wants to chat about his personal insurance needs with some guy who could be his father (or grandfather). Instead, millennials prefer the convenience and relative anonymity of shopping online for products that match their way of life.

Gone are the days when an insurance agent was needed to educate you about insurance products and walk you through your options. Today, millennials (and a lot of the rest of us!) go online to do research… and to buy. This effect is not just limited to the U.S. A little over half of UK millennials say “comparison web sites” most influence their insurance buying decisions, while just under half say that “searching online” does. A harbinger of the future—a 2014 Gallup poll found that millennials are already twice as likely as other age groups to buy their policies online instead of dealing with a local agent.

Agent disintermediation isn’t only a U.S. or European phenomenon, or something only millennials are causing. Selling insurance online to all ages is gaining momentum in insurance markets around the world. Why? Cutting out the middleman often translates into cheaper prices for the customer, since no sales commissions are paid. In April 2015, Singapore launched a regulated online insurance portal called “Do It Your Way Insurance.” A happy customer is quoted on the portal as saying, “I had many questions with regards to health, death, and (other) insurances, and DIY Insurance was able to effectively explain them to me. I look forward to seeing more sharing on Facebook!”

And, if the prospect of agent disintermediation scares you, you may not want to hear about this next disruption! It is likely that customer disintermediation will happen too.

Think about it. What insurance products will future insurance customers be shopping for? Remember the sharing economy? We know that millennials say they don’t want to own as much stuff (like cars or houses) as the rest of us. Instead, they are content to buy ride-sharing services (think Uber or Lyft). Uh oh. Taking an Uber doesn’t require the passenger to have auto insurance, eliminating an opportunity for customer engagement between an insurer and a millennial.

But, how many folks are really taking an Uber all the time, right? So now, let’s think about what will happen when driverless cars become ubiquitous. As IBM’s newly released IBV report, “Innovating Insurance” states, “when the driver is a piece of software instead of a person, the customer trust relationship will shift from an insurer to the car manufacturer.” Uh oh. Again.

Unfortunately, all of this industry dislocation is causing the sharks to circle. From outside the industry, insurers are viewed as having been slow to respond to the latest customer demands and technological innovation. As a result, new competitors are rushing in—and they are disrupting traditional business models.

In case you haven’t noticed, investment money is pouring into an area called insurance-tech. TechCrunch reports that “…since 2010, investors have funneled more than $2 billion in venture capital into the insurance-tech industry.” These investors are betting big money that a start-up will steal customers away from legacy insurers. Established insurance companies should be quaking in their boots—or buying the start-ups.

I don’t know about you. But, as an insurance customer, I’m interested. But, as an insurance provider, I’d be nervous.

Does your insurance carrier have a plan to safeguard their business from being disrupted?

For more information on IBM’s thought leadership on the insurance industry, check out IBM’s Institute for Business Value, including our most recent publication “Innovating Insurance.” To learn how to build a complete understanding of each customer’s unique, personal situation and proactively offer insurance solutions that help them cope, check out IBM’s Commerce solutions for Insurance.

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