Adrian Coupland, Managing Director, Data and Distribution and Keychoice
While insurers and brokers have successfully adapted to disruption in the past, the challenges facing the industry are far from over.
These disturbances take many forms, from digital disruption requiring relentless innovation, to changes and progression in service expectations.
More than two-fifths (41%) of delegates at the well-attended Innovation & Disruption Conference 2015 said that the world of insurance was “likely to be disrupted soon”, while 36% believed the current “perfect disruptive conditions” left the industry “on the precipice of major change”.
To me, hearing these views from an audience largely made up of senior industry figures is encouraging rather than surprising, and reinforces what we are already putting into action at SSP.
With disruption being considered as inevitable, it is important to take a broader view, both in terms of what can be learnt from advances within other sectors and what innovation in insurance actually looks like. Is a new idea really revolutionary or just an old concept recycled in a different way?
Despite this need for analysis and introspection, it feels like the bigger market challenges further downstream are not resonating with people, which is leaving the industry wide open to disruption from firms whose main focus is not on insurance.
Investment bank Morgan Stanley predicted in 2015 that peer-to-peer (P2P) lending platforms in Australia will surge to $22 billion in the next five years. By 2020, P2P lending to Australian consumers is expected to hit $10.4 billion and comprise 6 percent of total consumer lending in Australia. In addition, P2P lending to small businesses would grow to $11.4 billion over the same period, according to Morgan Stanley. (Smh, Business Insider, May 2015). This same model is now being applied to peer-to-peer insurance, providing new avenues for innovative companies to disrupt the industry.
Yet this is not the only force that is making waves in the insurance sector, as firms also need to manage the shift in generational behaviours and attitudes. One of the reasons for changing customer expectations is the high penetration levels of smartphones and tablets, with more people having access to devices that provide instant connections, and hence immediate gratification. This is especially true for the latest millennial generation, for whom an instantaneous society is an everyday normal.
Digital tools have become such a way of life for the next generation of insurance customers that millennials don’t think of themselves as digitally savvy. Research commissioned by Capgemini and Pegasystems discovered that, when combined with a lack of understanding of how insurance works, this means millennials favour personal interactions when selecting and buying premiums.
With this next generation of customers thinking about engaging with the industry in the next two years, insurers must be ready to see the world through their eyes. This means delivering a personalised and streamlined experience across all channels, driven by knowledge of each person as an individual.
In particular, the research outlined the need for delivering this personalised service just when the customers of the future want it. The most successful insurers will be those who provide an instant education to millennials – the “equivalent of Googling what they need just at the right moment”. This immediacy is reflected in the fact that nearly half (46%) of millennials would expect a response to email queries within 24 hours.
For insurers to win with this audience, they will also need to have customer-centric, channelagnostic processes in place that enable them to see every previous interaction and foresee customers’ next requirements, as if by magic. Creating the customer experience that millennials expect will increase their trust in providers – a key criteria for a generation motivated by authenticity and trustworthiness.
However, legacy systems just can’t provide for such interactions, so insurers and brokers will require a responsive, modern, real-time infrastructure with more joined up alignment. Modern platforms make it much faster and easier to add new functionality, respond to change, modify processes and therefore adapt when new disruptors and innovations challenge the status quo.
The same Capgemini and Pegasystems research also highlighted another trend that is set to become a major disruptor for the insurance industry – the Internet of Things. With the potential for anything and everything to be connected and monitored, almost a quarter (22%) of millennials would have a chip or a tracker inserted in their bodies in exchange for cheaper premiums.
Likewise, 26% of those planning to buy insurance would provide regular blood or urine samples to prove their good health to cut costs, while 29% strongly agreed they would be willing to have monitoring devices in their homes and cars to achieve a discount.
The global telematics market is poised to grow quite significantly over the next ten years. KPMG state in their General Insurance Industry Review 2015 report that in all likelihood the use of telematics will become the norm for the Australian motor vehicle insurance industry. JP Morgan briefly mentions the impact of technology on insurance in their 2014 J.P. Morgan Taylor Fry General Insurance Barometer report, saying that to date, telematics has not seen widespread take-up in Australia. One factor has been the large expense associated with installing a black box in a policyholder’s car.
The team at SSP has developed a strong telematics offering over the last two years and had successes with some insurers, but the lack of forward thinking and adoption by a few key players has surprised us. If insurers don’t get on board and adopt new models, they risk being left with undesirable business risks.
Market pressures in terms of premium, hyper-competitive pricing and consumer conditioning have all undermined the potential of telematics to become a mainstream product for now. As the industry looks to move beyond the traditional young driver market, the lower non-telematics premiums mean that the potential savings are smaller, so telematics offerings and the messaging behind them needs to adapt – but insurers and brokers can only continue to evolve once they have started the transformation process…
Just as in other lines of insurance, to achieve mass-market penetration, telematics must become more meaningful to consumers by adding value to their overall lifestyle through a more comprehensive range of services.
While all of these factors may seem daunting, disruption and innovation in the insurance industry are unavoidable. Yet while everyone is continuing to take baby steps to mitigate the impact of disruptors, someone else will overtake them by taking a giant leap forward, so the time for action is now.
This article is an extract from SSP eye issue 7
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