The “millennial mindset” is extending beyond its namesake demographic in the insurance industry, putting increased pressure on incumbents, according to new research from Capgemini, which found laggards are at risk of being disintermediated.
Consumers are increasingly opting for insurance from big tech companies and product manufacturers, like Tesla for car insurance, rather than traditional third parties, because of non-traditional companies’ sleek digital offerings and customer experience, according to Capgemini’s annual World Insurance Report.
The latest report, based on a survey of 8,000 insurance customers in 22 countries and insurance company executive interviews, found customers’ willingness to purchase insurance from big tech is “becoming ravenous”.
This year 36 per cent of customers surveyed said they would purchase insurance from big tech, more than double the 17 per cent in 2016.
Auto manufacturers also pose a growing threat to insurance incumbents, armed with first hand data about car and driver performance, according to the report.
“Tesla accesses its extensive real-time vehicle data as well as information driver behaviour (including camera recordings and sensor readings) to develop highly personalised, value-added services for the future,” the authors write.
“It can estimate the risk of accidents and repair costs accurately. Tesla’s strategy is to insure its own vehicles is a strong differentiator to its clientele. It reinforces the feeling of belonging to a unique community and, thus, exponentially increases customer retention.”
Traditional insurers meanwhile, need to charge a higher insurance premium for Teslas the report says, because they lack historical information about electric vehicles.
According to the report, consumers’ preference for innovative digital products and experiences is less correlated with their age than ever as digital adoption widens. Capgemini’s report found the number of Gen X and older customers making daily online and mobile transactions such as shopping or bill payments has doubled in two years, rising from 30 per cent of Gen X and older respondents in 2018 to 64 per cent in 2020.
Capgemini says the impact of COVID-19 will likely increase the pace of digital adoption. Indeed insurance giant IAG noted earlier this month the pandemic has contributed to rising expectations and digital adoption.
In its report, Capgemini advises insurance companies to focus on consumer trust, personalisation and innovation to stay relevant.
Anirban Bose, CEO of Capgemini’s Financial Services Strategic Business Unit and Member of the Group Executive Board said cross-generational digital adoption and the unprecedented impact of the pandemic had created compelling reasons for insurance companies to transform their business models.
“The end game will be to become the insurer that provides hyper-personalised experiences to be able to compete head on with big techs. There has to be a reason for consumers to choose to stay with insurers and hyper-personalisation can be that reason.”