Article Synopsis :
This report from Deloitte examines innovation in general insurance (GI) with a focus on digital technologies.
Many in the insurance industry agree that digital technologies threaten general insurers. The consensus view is that innovative new entrants with digitally-enabled business models will eventually pick off the best parts of the insurance value chain. But digital technology presents significant opportunity—not just threat—to incumbent insurers. Telematics, for example, give insurers a chance to reinvent themselves. The threat comes not from the technology, but the failure to seize its business potential, claiming first mover advantage.
The report identifies nine ‘killer applications’ of digital technology in general insurance with the greatest potential to disrupt GI over the next ten years.
These ‘killer apps’ exhibit four characteristics:
- High potential demand among consumers
- High potential impact on the bottom line
- Lack of regulatory barriers
- Technologically possible today
The nine applications, ranked in descending order according to potential market and business impact, are as follows:
Telematics-based services: Telematics can provide people with information they really want; for example, telematics could tell environmentally-conscious drivers how to minimize their carbon footprint. Telematics can also help people minimize or avoid losses. People are increasingly willing to share data with insurers, especially in exchange for premium discounts.
Self-driving car insurance: By 2025, per Deloitte, half the cars on the road will be ‘smart’, therefore safer than conventional vehicles. Long-term, self-driving cars could shrink the motor insurance market by reducing accidents and therefore premiums. Short term, the introduction of self-driving cars and the complexity of risks associated with them presents opportunities for certain insurers.
Mobile internet transactions: Many customers would like to use their smartphones for GI transactions. Even among customers older than 55, who are less likely to use their smartphones than younger customers, 57% would like to transact GI via smartphones. Smartphones give insurers the opportunity to improve customer experience.
Price comparison websites (PCWs): The trend toward using PCWs could accelerate markedly if tech firms, which are well placed to sell insurance as they have popular brands, user data, and facility building appealing websites, launch PCWs for mature markets, as planned. PCWs commoditize coverages, driving the low-cost imperative.
Peer-to-peer insurance (P2P): Social media facilitates P2P by allowing insurance customers to form online networks that share risk. With lower acquisition costs, less fraud, fewer claims, and a straightforward claims payment process, P2P poses a legitimate threat to incumbent insurers.
Social brokers: Social brokers are a new type of online intermediary that works by 1) identifying customers segments (via social media) with poorly served insurance needs, 2) groups customers with similar needs, and 3) negotiates insurance on the group’s behalf. Social brokers are mostly threat to incumbents as they own the customer relationship as well as unique customer insights for underwriting purposes.
Cyber-risk insurance: Ever-increasing connectivity increases the risk of cyber-attacks. Cyber-risk insurance represents a large and underdeveloped market for insurers, and many incumbents are jumping in.
Sharing economy insurance: Social media facilitates the sharing economy. It allows buyers and sellers to transact in online marketplaces, such as Uber and Airbnb. The sharing economy creates markets for new types of insurance. Insurance could move from insuring people as owners of assets, as currently, to insuring people as users of assets as standard.
Value comparison websites (VCWs): VCWs help buyers compare policies based on value rather than price. VCWs list policies based on factors matched to customer need, such as perils covered, as opposed to PCWs which list policies based on price. VCWs could become a major distribution channel for their ability to demystify GI for everyday buyers.
What can and should insurers do in response to the nine killer applications? The report recommends the following steps:
- Develop new telematics-based services
- Develop new products for digital risk
- Prepare now for self-driving cars
- Use smartphones to improve customer experience
- Exploit data analytics
- Strengthen defences against cyber-attacks
- Work with new types of intermediaries
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Digital Insurer's CommentsThe kanji symbol for opportunity is a combination of the symbols for danger and reward. All nine of the ‘killer applications’ identified in this report represent opportunities for premium lost, premium found.
Leadership is key to success. The ability to think differently, and act courageously, leading the firm in bold new directions. Operational agility is also required, as what’s the use of leadership if the organization is physically and structurally unable to follow?
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