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Industry shifts are impacting insurance
Across most industries, the convergence of technologies has led to a feedback loop of change in both buyer and seller behavior. On the demand side, connectivity of people and things is becoming expected, and access is becoming more important than actual ownership.¹
On the supply side, value chains are fragmenting and reconstructing at the ecosystem level, with platform orchestrators creating new, low-friction offerings that extend beyond products and provide for underlying user needs, such as mobility, security, or health.
The insurance industry has long considered itself immune to the effects of these changes. It has felt protected by strong barriers to outside competition: strict industry regulation, the scale necessary to create a risk portfolio based on the law of large numbers, the time necessary to establish a trust relationship with customers and, last but not least, customer inertia.²
However, our research indicates insurance executives recognize these barriers are breaking down. In our latest C-suite survey of more than 12,000 global business leaders, insurance executives identified changing market forces as the top driver affecting their enterprise; regulation, which has previously been used as an excuse for the industry’s slow pace of change and lack of innovation, was not even among the top three.³
New competitors are entering the insurance market
In these shifting insurance markets, non-traditional players are increasingly setting the tone and encroaching on insurance territory with new business models, blurring traditional industry boundaries:
Insurtechs are taking advantage of inefficiencies within traditional insurance, using innovative technological solutions to cherry pick lucrative parts of the value chain. For example, California-based Roost Home Telematics is capitalizing on the increasing consumer interest in smart home technology, using smart sensors such as smoke and water detectors to mitigate damages and facilitate claims.⁴
Adjacent businesses such as auto makers are moving onto the insurance industry’s turf. For example, Daimler’s car-sharing service, car2go, eliminates the need to buy both car and accompanying insurance policy by simply including insurance as part of the car package price.⁵
Digital giants are also entering the insurance marketplace. Amazon, for example, is reportedly recruiting insurance talent and could quickly become a source of disruption for insurers.⁶
Insurers need to become Cognitive Insurers
To stay relevant, insurers need to reframe their roles and to shift from a react-and-pay mode to a predict-and-prevent approach. To support this shift, they can use data, including unstructured data, at each step of the customer journey. Much of the data around people, assets, and context is unstructured, whether it’s text images, audio, or other content. As the sum of all data created, captured, or replicated grows exponentially, the share of unstructured data is also increasing.
To effectively use data on this scale, insurers need to become what we call Cognitive Insurers. Cognitive Insurers embrace the latest technologies, most notably AI, to make sense of the abundance of this unstructured data.
¹Gyimesi, Kal, and Ben Stanley. “A new relationship— people and cars: How consumers around the world want cars to fit their lives.” IBM Institute for Business Value. January 2016. https://www.ibm.com/thought-leadership/institute-business-value/report/autoconsumer
²Bieck, Christian, Lynn Kesterson-Townes, Anthony Marshall, and Indranil Nath. “Innovating insurance: Lessons from the world’s leading innovators.” IBM Institute for Business Value. March 2016. https://www.ibm.com/thought-leadership/institute-business-value/report/innovatinginsurance
³“Insurance: Incumbents Strike Back.” IBM Institute for Business Value. March 2018. http://ibm.biz/csuiteins
⁴“Roost Smart Sensors: Technology to deliver peace of mind.” Roost website, accessed February 2019. https://www.getroost.com/sensors
⁵“Our rates.” Car2go website, accessed February 2019. https://www.car2go.com/US/en/austin/rates
⁶Hook, Lucy. “Amazon may make a ‘disruptive’ entrance into insurance.” Insurance Business America. December 19, 2017. https://www.insurancebusinessmag.com/us/news/technology/amazon-may-make-a-disruptive-entrance-into-insurance-88092.aspx