The 3 biggest trends reshaping the insurance sector in the recovery
Digital innovation is at the core of these three major shifts
INSIGHT ARTICLE |
The past year has been a wakeup call for all sorts of companies that had been dragging their feet in the adoption of cutting-edge technologies or failing to keep up with digital shifts in consumer demand. As the economy fell off a cliff and millions of people started working from home, shifts in the insurance industry underscored the importance of digital adoption in a sector that has historically lagged in that area.
Now, looking to a future in which competition in the insurance space will expand to include not just carriers but also companies in other industries that are starting to offer their own coverage, it is critical for insurance businesses to evolve digitally. Below, we look at some of the biggest trends reshaping the insurance industry today, and the importance of digital innovation across all of them.
Acceleration of digital transformation
Many insurance companies had already shifted from using traditional models to offering coverage online in order to serve changing consumer preferences well before 2020, but the pandemic has elevated the importance of that shift. Companies need to invest in digital technologies that streamline the entire customer journey, from binding a policy to paying a claim and everything in between.
The extent to which the use of antiquated processes can hamper growth has only become more apparent over the last year, and companies that haven’t embraced digitization will struggle moving forward. Take, for instance, the life and health insurance segment, which continues to lag property and casualty (P&C) insurance in terms of digital adoption.
"The broker networks are entrenched in a legacy mindset of selling business, that wasn’t really ready for the digitization brought on by COVID-19,” said David Mamane, director and financial services senior analyst at RSM Canada.
As a result, life and health insurance firms now face suppressed growth in the near term. Carriers of all types will need to prioritize product innovation that supports customer demands if they want to continue to grow profitably.
Intelligent automation and the data revolution
The velocity and veracity of data available to and collected by insurance companies is rapidly increasing thanks to the rise of telematics, usage-based insurance and Internet of Things devices. Modern enterprise analytics platforms and advances in machine learning and artificial intelligence are fueling strong investment in R&D in these areas, and many operational processes are ripe for automation, including underwriting, pricing, claims and more.
Insurance companies that tap into this potential can set themselves up for future success. Personal lines P&C insurance, for instance, experienced growth tailwinds over the last year as policyholders reassessed their insurance needs in the context of the pandemic. As more people worked from home, they started to seek out different types of coverage. Claims activity dropped, particularly for auto insurance claims, and more consumers shifted to using digital platforms.
But digital adoption doesn’t just mean more people buying their insurance online—mobile app adoption is up as well, creating new potential touchpoints and cross-sell opportunities between the carriers and their customers.
“The adoption in digital platforms is going to drive a significant growth opportunity and new channels for insurance companies to market new services,” said Mamane. One example that’s taking off in personal P&C is usage-based insurance, where customers don’t pay an annual auto insurance premium but instead pay by the mile. “These types of platforms or products are going to attract new types of consumers, and in many cases, lower risk insureds that self-select.”
Embedded insurance and alternative distribution models
More and more insurance carriers have invested in direct-to-consumer distribution models in recent years to deepen the connection with the customer and keep up with evolving consumer expectations. But that shift is now evolving to the next level; carriers are looking to partner with other consumer products companies to sell to the customer at the point of purchase of other goods.
These strategic partnerships create alternative distribution channels, in which the insurance itself is bundled with other goods and services. But carriers also need to be aware of the possibility that some consumer products companies could take this a step further and sell their own insurance, like when Tesla started selling auto insurance in 2019. If an auto manufacturer can use data from its connected vehicles to develop a better insurance cost model, that could lead to more cars sold.
“This concept is going to be something that I think auto manufacturers really tap into with advances in connected vehicle technology and 5G,” said Mamane. “Carriers are going to need to think strategically about how they could partner and distribute their insurance products through these other channels, because consumer products companies arguably have a better understanding of their customer than they could ever have as an insurance carrier.”
While this trend is happening more in auto insurance than other parts of the market, the growing use of IOT devices in homes and elsewhere could unlock the potential for seismic shifts in the way insurance is sold in the future.