Beyond Fintech – Disruptive innovation in Insurance

Article Synopsis :

This report from Deloitte carves out insurance-specific findings from a larger report on Fintech innovation presented to the most recent meeting of the World Economic Forum.

Modularization of the insurance value chain creates opportunity for digitally-savvy insurers

The report identifies 8 key forces impacting all aspects of financial services:

• Cost Commoditization: Financial institutions will accelerate the commoditization of their cost bases, removing them as points of competition and creating new grounds for differentiation
• Experience Ownership: Power will transfer to the owner of the customer interface; pure manufacturers must therefore become hyper-scaled or hyper-focused
• Data Monetization: Data will become increasingly important for differentiation, but static data sets will be enriched by flows of data from multiple sources combined and used in real time
• Systemically Important Techs: Financial institutions increasingly resemble, and are dependent on, large tech firms to acquire critical infrastructure and differentiating technologies
• Profit Redistribution: Technology and new partnerships will enable organizations to bypass traditional value chains, thereby redistributing profit pools
• Platforms Rising: Platforms that offer the ability to engage with different financial institutions from a single channel will become the dominant model for the delivery of financial services
• Bionic Workforce: As the ability of machines to replicate the behaviors of humans continues to evolve, financial institutions will need to manage labor and capital as a single set of capabilities
• Financial Regionalization: Diverging regulatory priorities and customer needs will lead financial services in different regions of the world down distinct paths

The report highlights these insurance-specific trends:

Where disruption has occurred:

• Increased modularity in the insurance value chain is enabling new combinations of players and threatening the position of incumbents
• Products to insure emerging risks are becoming critical to carrier profitability, particularly as margins in traditional products erode
• Usage–based, on–demand, and item–specific insurance products are emerging in response to changing customer lifestyles
• Life insurers are pressed to reinvent their product strategies to meet the needs of their next generation of customers

Where disruption has NOT occurred:

• Connected devices are proliferating, but insurers have failed to convince customers that connected insurance serves their interests

Key takeaways include:

• • Value chain breakup. Once tightly vertically integrated, the insurance value chain is rapidly being modularized by new technologies that allow for splitting activities across many different players. Leading organizations are using this to their advantage, pursing flexible partnerships that allow them to aggressively compete for adjacent profit pools.
  • Complex products, simply distributed. To stay competitive, insurers need to do two seemingly contradictory things at once. On the one hand, they must develop complex, highly personalized products to meet customers’ needs. On the other hand, they’ll need to make the origination process much simpler, so that even highly complex products can be sold directly via online and mobile channels.
  • Connections changing the insurer. Connected insurance will cause insurers to redirect their attention from risk assessment to risk prevention. As a result, they’ll need to work with original equipment manufacturers to build in connections. But first, insurers must convince customers that connected insurance products are better than traditional ones.

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