Insurance

Global industry agenda


Insurers face new market structures and a new class of competitors

As new and shifting risks threaten traditional products, lumbering legacy structures and processes become a burden on incumbent insurers. Risk management per se becomes more important as underlying needs evolve. Insurers who can flexibly adapt to offer new products and value-added services will win.

Disruptive forces

Digital technology is accelerating new solutions and business models for insurance players.


Multi-industry forces are a current reality


Technology change outpacing insurer agility

More than 50% of insurance CxOs believe technology will impact key business parameters 1

Only 45% of all insurers have embraced cognitive computing, well behind the leaders (71%) 2


Shifting risk creates product gaps to exploit

64% of insurers believe digital interconnectedness will create new risk (cyber, reputational, libel, D&O, virtual goods) in next decade 3

Autonomous driving and vehicle sharing economy will shrink the personal auto insurance sector by 60% within 25 years 4


Demographic changes impact supply and demand

45% of US and 46% of German executives believe population aging will have a negative effect on the quality of the workforce 5

72% of millennials prefer usage-based insurance over traditional insurance coverages 6


Political climate hampering incumbents, empowering innovators

81% of insurance CxOs see market forces as top influence factor on their business 7

Regulatory compliance costs are not proportional to size and complexity of risk 8


Globalization and connectivity power new entrants from all sides

OECD countries alone have more than 8,000 insurers 9

The number of internet-connected devices is projected to touch 50 billion by 2020 10


Disruptors fragmenting industry value chain

In 2016, insurtechs attracted a total of 1.69B USD in investments 11

Pure internet insurer Zhong An wrote 5.8 billion policies in first three years 12



Digital technologies

Redefining possibilities in the insurance industry, digital technologies
will compound disruption and have hyper-exponential impact.


AI icon

Artificial intelligence

AI icon

Artificial intelligence

Serves as an engine for learning and personalization


Mobile icon

Mobile

Mobile icon

Mobile

Give insurance a presence at the point of risk


Analytics icon

Analytics

analytics

Analytics

Improves decision making by uncovering relevant patterns


Cloud icon

Cloud

Cloud icon

Cloud

Move from siloed legacy systems to modern risk management at scale


Blockchain icon

Blockchain

Blockchain icon

Blockchain

Improves transparency and efficiency in insurance through increased trust


IoT icon

Internet of Things

IoT icon

Internet of Things

Equip physical assets with digital data to change risk outcomes


software

Software as a service

software icon

Software as a service

Powers new experimentation options for insurers and new entrants


Platforms icon

Platforms

Platforms icon

Platforms

Harnesses network effects to drive down expense and grow risk ecosystems


Insurtech icon

Insurtech

Insurtech icon

Insurtech

New source of competition – and innovation


Emerging consequences

Each manifestation of disruptive forces has the ability to shape a new future and affect the customer, the enterprise and the market.


Number 1 graphic

Products

Risk products more from after-the-fact sales to embedded decisions at point of risk

Risk products more from after-the-fact sales to embedded decisions at point of risk


  • Commercial customers use better risk knowledge to move to self-insured models with administration and risk advice services
    The number of captives globally has increased to 7,000 in 2016, with more small and midmarket businesses participating 13

  • Individual coverage becomes a mosaic of shared economy risk, point asset coverage, and surrounding holistic risk management
    Tesla began selling insurance with its vehicles in Asia as part of its vision to one day include insurance in the final price of its vehicles 14

  • Crowdsourcing of risk becomes viable as blockchain-powered trusted networks evolve
    German insurtech Friendsurance crowdsource coverage via deductibles; it reached 130,000 customers in 2017 15

Number 3 graphic

Operations

Insurer operations must handle new products, scale and connectivity

Insurer operations must handle new products, scale and connectivity


  • Increased pricing pressure on traditional insurance products due to transparency on cost and price
    In the UK, more than 11 million people use price comparison websites to search and buy insurance 21

  • Insurers are responding with tailored, connected products, but these require new data volumes and analytics
    Insurers have debuted production-scale products in 2017 that adjust pricing according to IoT data, blend wearables data with coaching, and connect complex supply chains via blockchain 22

  • Customers will still look for backstop coverage around tailored products in the form of bundled coverages
    77% of customers bundle additional policies with their auto policies, and 58% bundle their auto and home insurance policies with their existing insurers 23

Number 6 graphic

Structure

Social risk funding systems are re-evaluated, widening experimentation aperture

Social risk funding systems are re-evaluated, widening experimentation aperture


  • Privatization and democratization of insurance lines are occurring around the world, as governments like the Netherlands, Japan and Brazil aim to control societal costs
    The Netherlands recently completely privatized their health insurance system, with a mandatory basic coverage and a multitude of optional riders 31

  • Governments look to incorporate private provision of public benefits, such as UK social pensions and German health provisions
    Last 10 years have seen much change to UK retirement provision with individual state benefits scaled back and auto enrollment introduced (compulsion on employers to provide private provisions). This trend is also apparent in other countries with similar historic patterns of retirement provisions – Australia, for example 32

  • Regulatory bodies are increasingly open to innovation as a competitive advantage, establishing sandboxes to seed new business ideas
    By 2017, at least 7 countries, including the UK and Switzerland, have announced the introduction of insurance license exempt areas, or sandboxes, for testing purposes 33

Fixed policies supplanted by tailored risk management

Fixed policies supplanted by tailored risk management


  • Customer trust and interaction remains low for insurance relative to other industries
    Only 58% of customers trust their own insurer 16 and less than half trust the industry 17

  • Underlying risks are changing with the digital economy’s evolution
    64% of insurance executives believe that the number of digital risks will increase or significantly increase over the next 10 years 18
  • Business partnerships built on digital connectivity provide custom product options not available to traditional policies
    Intermediation is shifting to nontraditional providers such as car dealers, real estate agents, retailers, e-commerce and digital players 19

  • Customers expect personalization and presence at the point of risk, driving move to alternative tailored products
    47% of consumers expect personalized services tailored to them and their activity context 20

Number 4 graphic

Standalone systems are supplanted by ecosystem participation and API-powered partnership

Standalone systems are supplanted by ecosystem participation and API-powered partnership


  • Faster, more frequent connection, data transfer and analytics are eroding traditional industry boundaries
    67% of executives believe traditional boundaries between industries are blurring, and industries are being reshaped 24

  • Technology is lowering the barriers to entry and creating disruptive models in spaces not well served by traditional insurers
    Insurance startup Lemonade, which launched in September 2016, 25 has already gained over 4.2% market share on renter’s insurance in New York, primarily by attracting new customers 26
  • AI-enabled automation will drive further advancement and disruption in the future
    82% of insurers agreed that AI-driven automation will be embedded into every aspect of business over the next five years 27
  • Partnership models and ecosystems are developing to align the energy of new models with the resources of incumbents
    Generali partnered with Alphabet's Nest Labs for smart home capabilities, 28 acquired MyDrive to launch telematics and big data hub 29 and partnered with South Africa's Discovery insurance for smarthealth care 30

Number 7 graphic

Regulatory action forces transparency and rigor throughout the risk chain

Regulatory action forces transparency and rigor throughout the
risk chain


  • Regulation is forcing transparency into insurance distribution, eroding pricing power for incumbent insurers
    The EU Insurance Mediation Directive guarantees quality of advice and remuneration transparency – for example, what customers are paying for and who are they paying 34

  • Rapid changes in data legality, permission, usage and liability have direct adverse actuarial effects on insurance products
    In 2012, the EU introduced gender-neutral pricing for various lines of insurance 35

  • Privacy and antiterrorism will continue to drive regulation, and costs for security and privacy failures escalating
    The General Data Protection Regulation (GDPR) protects and empowers all EU citizens’ data privacy, with high penalties for violations 36
  • Compliance becomes competitive table stakes
    89% of financial services industry executives globally expect continued cost increases in their compliance departments over the next two years 37

Pressing challenges

Acknowledge and act upon industry challenges
in the near term to stay competitive.


Improve weak customer and risk connections

Improve weak customer and risk connections


  • Frequency of interactions are insufficient to earn and maintain customer trust

  • Product mindset and interaction models don’t position insurers as trusted advisors

  • Microservices have become the norm, but insurers are not ready to interact

Transcend legacy operational limitations

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Transcend legacy operational limitations


  • Operations costs – IT, process, application – too high in controlled expense environment

  • Systems not flexible enough to manage new products or variance in market success

  • Insurers liable for own data security issues as well as cyber risk across industries

Branch out from insular insurance thinking

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Branch out from insular insurance thinking


  • Customers looking for outcomes, not insurance products, amid evolving economic models

  • Insurance silos make delivery on outcomes challenging

  • It’s not what you know, it’s who you know

Transformational opportunities

Technology-enabled opportunities empower your organization to address pressing challenges and compete in the marketplace.


Expand market by treating customers as trusted risk partners

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Expand market by treating customers as trusted risk partners


Take customer needs seriously – customers value advice, transparency and tailoring

Provide value-added services that anticipate risks and build alternate revenue streams

Change mindset to focus on customer value metrics: CLV, RoInfo, wallet share, NPS

Restructure insurance operations to future-proof the enterprise

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Restructure insurance operations to future-proof the enterprise


Adopt core operational systems that can handle new product and service models

Leverage as-a-service approaches that maximize technical and financial flexibility

Turn security and compliance into competitive advantages

Extend insurance reach via ecosystems – yours and others’

Learn more

Extend insurance reach via ecosystems – yours and others’


Connect risk management to strong distribution and data partners

Co-create risk value propositions across industries to establish enduring value

Develop risk platforms to leverage “winner take most” network effects

Start here to assess your readiness for
the future

Critical question 1

Customer experiences

  • Are you rethinking insurance or simply improving existing products?
  • How are you utilizing data in new ways to better interact with and serve customers?

Critical question 2

Technology base

  • Are your systems battle-ready to gather risk data at scale and to share insights across enterprise boundaries?
  • Is your IT organization skilled and scoped to drive platform approaches to new technologies such as blockchain, mobility, IoT,
    and AI?

Critical question 3

Ecosystem strategy

  • What role, if any, is your company playing in the definition of insurance going forward?
  • Are you partnering with companies that help you better understand and serve your customers?

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