Multiple threats pose massive industry disruption

MULTIPLE threats are pushing the insurance industry toward massive disruption, multinational management consultant Capgemini said in a report released March 1.
“The continued evolution of the Internet of Things, combined with changing behaviours and preferences from Gen Y customers, is driving the urgent need for insurers to undergo significant transformation or risk falling behind emerging competitors such as FinTechs,” it said in releasing the World Insurance Report 2016.
Capgemini research covering more than 15,500 insurance customers worldwide found that Gen Y (millennial) customers are much less likely to have positive experiences with their insurers compared to other age groups, despite communicating with them more frequently.
“Gen Y customers have more interactions with their insurer across all communication channels, particularly digital ones.
“They interact with insurers up to 2.5 times more on social media than other customers and over two times more via mobile.”
Those interactions, however, are resulting in positive customer experience levels that are nearly 20 percentage points lower than those of customers in other age brackets, suggesting that Gen Y customers have higher expectations for the standard of digital channels than their older peers.
Capgemini said given that more than one-quarter of all customers plan to purchase or renew their insurance through digital channels in the next 12 months, customer experience levels among millennials are particularly concerning for the industry.
In addition, nearly one-quarter of Gen Y customers said they would be likely to buy insurance from non-traditional technology-led providers, highlighting the threat from emerging competitors to the customer base of traditional insurers.
“By not providing adequate engagement for digitally advanced customers, carriers run the risk of pushing them toward a growing population of market entrants and non-traditional technology-driven competitors,” said John Mullen, Capgemini’s corporate vp and global insurance leader.
“Gen Y is clearly indicating that they do business differently and those insurers who respond to them on their terms will have a clear competitive advantage.”
It says a more fundamental threat, or enabler, to the future of insurers is the coming wave of connected technologies — in the form of such innovations as smart home ecosystems, wearable devices and machine-enabled drones, robots and cars.
“These IoT technologies are expected to transform traditional insurance business models, including everything from the way insurers connect with their customers to their fundamental assessment and management of risk.
“Yet despite this threat, insurers are significantly underestimating the degree to which connected technologies will be broadly adopted,” the consultant said.
“Only 16% of insurers think customers will embrace driverless cars, for example, while 23% of customers express interest.”
Capgemini said that affluence, not age, is the most compelling factor in determining customer uptake of IoT technologies.
In addition to its impact on customer connections, Internet technology is expected to have an even bigger impact on the core tenets of the insurance business itself.
“In a connected world, data provided by connected devices, smart ecosystems and wearables will increase risk transparency, a dynamic that will likely lead to new business models, especially in pricing and risk control.
“Risk ownership will also shift with connected technologies, as responsibility for actions — for example in the case of driverless cars — moves from car owner to car manufacturer.”
It said Internet technology also looms large in managing the level of risk exposure due to safer environments.
“This will shift premiums significantly, threatening some carriers but providing opportunities for those who can understand the emerging risks that are inherent as the rate of technology change becomes more pervasive in the lives of people and commerce.”
The consultant said insurers must start preparing themselves for the transformation of the insurance business by building strong but agile foundations in the short term.
In the medium term, insurers must sharpen their value propositions through strategic alliances and data-driven insights. And long-term strategies should focus on transforming the business to stay ahead of emerging risk profiles, new interaction models, changing customer behaviours and an expected disruption of risk selection, pricing and loss prevention.
The World Insurance Report 2016 was prepared in association with Efma, a Paris-based global non-profit organization that was established in 1971 by banks and insurance companies to facilitate networking between decision-makers.
It will be presented at Efma’s annual Insurance Summit, which will be held this June in Milan.