Historically, the insurance industry has proven to be incredibly resilient. The basic proposition of insurance has maintained its relevance with customers as other industries have risen and then fallen.
However, while insurance has been resilient, in recent years it has also been relatively stagnant. Growth is flat. Profitability is constrained, and cost performance is worse when compared to other sectors. And what we are seeing now is a looming crisis of relevance for insurance.
To maintain customer relevance, insurance will need to look different in the coming years.
Driving this change are a few underlying trends that continue to pick up momentum:
The nature of risk is evolving. The rise of digital, decreasing rates of ownership, and other factors are driving significant changes in the types of assets and interests that customers are seeking to protect.
Customer expectations are being set by innovators in other sectors, and customers bring these expectations with them as they consider insurance offerings. But in insurance, customers primarily see value only when a claim is filed, and even then “fine print” exclusions often leave them wondering what they paid for.
Start-ups are creating solutions to both help customers address gaps in coverage and to simplify the customer experience. Ladder1
has simplified the process of purchasing life insurance while providing tailored support to customers along the journey, for example. One of its key features assists customers with the difficult task of understanding the amount of life insurance needed for financial security.
While technology is driving ever-increasing personalization and convenience in other sectors, risk and pricing models in insurance are still largely based on aggregate data. Insurers are starting to leverage new sources of data. Betterview2
, for example, is a platform that provides property insurance underwriting insights based on drone-captured images of roofs.
If insurers fail to keep pace with these trends, they will continue to decline in relevance. Combine this decline with increasing commoditization and price pressures, and the industry is ripe for “compressive disruption,” as start-ups and players from other sectors step into the void to claim higher, service-based returns, leaving traditional insurance players with declining revenues and profitability.