The insurance world, as we know it, is undergoing significant changes.
Brian Johnson, founder of neuroscience start-up Kernel, states it best when describing the impact of digital transformation: “The future is like a category five hurricane that’s going to bear down on us with so much force the single greatest thing we can do as a species is work on our adaptability to change.”
Disrupters are not necessarily a bad thing – throughout history, it is the human ability to deal with disrupters that has resulted in some of mankind’s greatest innovations and adaptations. As significant as societal changes were, the Industrial Revolution, for example, resulted in the growth of cities, the creation of new occupations, the ability for mass production, and the growth in banking and finance.
So what does this mean for insurers, and what are some of the disruptors we are currently dealing with? This article summarizes some of the changes we anticipate occurring in consumer behaviour, underwriting, claims and the competitive environment in the future. But first, let’s look at change that has already occurred around us.
- Changing demographics and evolving consumer needs. The Japanese population is aging, while segments of the populations in China and India are surging. Meanwhile, there are decreasing levels of insurance cover globally. In Australia and New Zealand, we are seeing greater consumer awareness of the need for cover in both the retail and group space, perhaps along with the frustration that it isn’t affordable. This leads to an increased demand for super-based insurance products, tailored to customer needs – and at a price that doesn’t erode retirement savings. In addition, consumer expectations regarding service offerings have increased as insurers have moved to offer greater, and more diversified, customer-focused services.
- Changing competitive marketplace. There has been a torrent of change in the marketplace as mergers, divestments, new entrants, regulatory modifications and increasing self-regulation have taken place. Several banks with subsidiary life and wealth management divisions have already divested from developing life insurance products, or are considering doing so. Instead they are looking to distribution via specialist life insurance providers and underwriters who may be better able to understand and manage evolving risks and provide a more specialised service to their customer. At the same time, one super fund has started its own life business, underwriting its customer base directly.
- Emerging challengers. New challengers to the traditional life insurer are emerging. Some of these start-ups are building on the moral foundation of the insurance industry – reminding consumers that when it works well, insurance is a social good provided in times of great need and uncertainty. The sharing economy is rediscovering the peer-to-peer nature of insurance, which has been around since the very early days of the world’s first modern life insurer, Amicable Life (founded in 1706), where member fees were divided among the heirs of the deceased.
- Medical advances. New capabilities in diagnosing and treating illness mean that events once considered significantly traumatic are now less so, or are likely to become chronic conditions instead of terminal ones. Advances in genetics1 translate into a more refined understanding of the risks faced by individual consumers. This may create a potential asymmetry of information between the applicant and the insurance company. Placing unreasonable constraints on the insurer’s access to this information may limit the opportunity to provide tailored products to individuals and more appropriate risk pricing.
- Technological changes in the nature of work. The nature of work is changing. A high proportion of tasks performed in technical occupations and some traditionally middle-class jobs are expected to be automated, changing the nature of risks faced by workers by removing some dangerous or sedentary functions. Work functions are changing so rapidly, in fact, that some jobs that didn’t exist 10 years ago (think: Uber driver) might cease to exist in another 10 years’ time. The risks faced by workers in new or as yet non-existent jobs continue to evolve and will take time to understand and insure.
With so much change already, what could the future look like?
The future of the consumer
Companies such as Amazon and Alibaba have revolutionised customer interaction and what consumers expect in terms of response rates and customer turn-arounds. The array of goods and services, available in a short period of time, with multiple offerings is continually expanding.
Flexible product and service offerings are now the expectation, not the exception, and consumers are accustomed to making decisions for themselves using data available to them in real time. Insurers must adapt to these changing expectations and not only develop products that address the consumer need, but also deliver these in a timely manner. How products are delivered to the consumer is also changing.
Consumer interaction with insurers will be a significant disrupter. There has been a 36% decline over the last six years in the number of U.K. consumers using independent financial advisors or mortgage providers when buying life insurance.2 The number of people buying insurance directly has doubled since 2011, with 29% of people making decisions independently. This U.K. survey by Direct Line shows a typical consumer decision hierarchy exhibited when considering insurance providers:
- If insurer can meet their coverage needs
- Budget compared to cover
- Healthy living rewards
- Payout rate
- Financial incentives
Findings from an internationally focused report entitled “World Insurance Report 2017,”3 which covers developments in both the life and general insurance industries indicate:
- “Consumers prefer digital touchpoints when making insurance transactions… and value services that are convenient, agile and personalised”
- 42% of tech-proficient customers say they are likely to buy another insurance product, compared to 20% of other customers