A Brave New World — Innovate For Resilience
Innovating in a new revenue landscape will build resilience into insurers’ business and product portfolios, and deliver a competitive advantage.
As the global insurance market heads towards a significant growth trajectory over the next 5 years, new and shifting revenue pools are expected. Insurers who are willing to migrate from traditional to technology-led offerings are better positioned to lead by better integrating with customer data. Resistance to the trend will mean losing revenues to digital-first competitors and new entrants.
According to the latest Accenture report — of the $1.4 trillion in expected industry growth $200 billion will be from new risks, products, and services. This would include $160 billion in new product innovation and $40 billion from the monetization of value-added services. The report expects global premiums worth approximately $280 billion to be impacted by innovations in products of up to $140 billion and shifts towards digital third-party platforms of another $140 billion. This kind of shift will lead to a drop in the retention rate. The time for fortifying existing revenues through product and distribution innovation is now.
To outperform competitors by reducing structural costs and investing in areas of competitive advantage — the industry will coalesce around four areas of innovation, each offering similar revenue opportunities to insurers.
01 Integration of tech with traditional P&C products
From auto, to home, to health, technology is changing the very products and services on offer. Data integration is key to the analytics that has made accelerated insurance innovation in these areas possible. Wearables and IoT sensors have created new ways to analyze, price, and promote health, home security, and auto insurance solutions. Millennials are a digitally native demographic group, readymade for insurers to incorporate innovative technologies into their products. Increased personalization of products, services, and rates requires insurers to operate on the right platforms, with the right partners.
02 Shifting premium to alternative distributors
Coverage will continue to become more customized, as insurers learn more about the way consumers live, drive, take care of themselves, and their assets. Tesla, for instance already provides behavior-based auto insurance coverage to Tesla owners in California through their in-vehicle platform. Offerings like these are beginning to disrupt the insurance industry, but the race to own in-vehicle commerce is still on. Whether an OEM retains ownership of the platform or partners with a tech player, vehicles will still need to be insured. If insurers adapt to being easy platform partners, they are more likely to retain existing customers and attract new ones with UBI offerings. They will also be opening additional sales, vehicle-to-home integrations, and data monetization opportunities.
03 Sharing economy
Experiences are preferable to ownership by younger demographics, and the ones who own assets are increasingly monetizing their homes and cars through the sharing economy. Increased revenues from more asset usage can offset the reductions in premiums from fewer owned assets. Traditional insurance companies have shown promising flexibility in this area. Multiple carriers offer products adapted to sharing economy risks. The gig economy is also eroding traditional boundaries between small businesses and personal risk. As more of the workforce moves to freelance, work from home, the shared economy model will only grow.
04 Health, wellness & life products
Millennials and younger consumers are seeking insurance offers that prioritize safety, sustainability, and holistic physical and financial well-being. The willingness to share personal information in exchange for real value addition exists, which can enable insurers to narrow risk pools more accurately than previously possible. Improved longevity also means consumer mindset across demographic segments is changing. Consumers increasingly seek products that help them build and maintain healthy habits, which improves their quality of life. Insurers in turn are taking notice and proactively helping customers prevent the onset of cognitive decline, to delay the need for disability and long-term care claims.
05 Climate change, and cyber threats
With damages linked to climate change posing as complex risks to insure, the historically reliable P&C risk models are threatened. Technology can help shape and improve the response to climate change risks with more sophisticated risk modeling, through AI applications. Insurers can expect to improve incident handling, before, after, and around climate-related disasters. Insurers are also working towards supporting and incentivizing sectors focused on renewable and sustainable energy. There is also a heightened need for insurance against malware through device breaches with increased use of IoT. Increasing remote work has also added to security vulnerabilities of personal data and digital assets. Innovative insurers will expand beyond simple identity-theft coverage into more holistic prevention, mitigation, and restoration offers in cyber for personal lines. The insurance opportunities around cyber threats will also extend to incident advisory servicing.
A massive disruption in the insurance value chain will continue in the coming five years, and the trend towards innovation-led revenue growth is no surprise. The insurance industry will remain resilient and grow, but the pace of technology-driven transformation is coming faster than expected. Roadzen technologies are helping insurers comprehensively plan, test, and adapt for future scenarios in insurance, auto, mobile, and travel.
In a fast-changing world, quickly filling with climate risks, cyber threats, and increasing physical and financial vulnerabilities, insurers have to reimagine their role in the economy and position themselves as risk preventers, instead of compensators.