The study found insurers confronted by a wave of new digital technology. The authors argue that InsurTech presents more technology-related opportunities than witnessed before, and highlight the need for traditional insurers to design a balanced strategy which ensures return on their investments in innovation without a loss of focus.
Emerging technologies such as Artificial Intelligence (AI) and blockchain are acting as catalysts for this InsurTech revolution — driving a myriad of innovations in digitisation, data and analytics, and insurance-as-a-utility.
Among the key findings:
- Emerging digital technologies, such as sensor-based wearables and the Internet of Things (IoT), are altering consumer behaviour, driving a need to reinvent insurance offerings;
- Digital interactions are highly valued by customers, especially Gen Y and the tech savvy, who ranked the computer as the most important touch point for their insurance transactions;
- Young and tech-savvy customers represent important segments in terms of incremental revenue potential, with 36.2 per cent of Gen Y customers and 42.1 per cent of tech-savvy customers saying they are likely to buy another product (compared to 29.1 per cent of non-Gen Y customers and 19.7 per cent of the non-tech-savvy);
- However, these segments are also more vulnerable to attrition, with only 48.6 per cent of Gen Y customers (compared to 55 per cent of older customers) saying they are likely to stay with their existing firms, and 51.3 per cent of the tech-savvy saying so (compared to 54.7 per cent of the non-tech savvy);
- Building and maintaining relationships with young and tech-savvy customers will require insurers to cater to their clear preference for digital touch points.
The authors write that the steady advance of consumer technology, along with evolving customer expectations, has pitched digital technology at the centre of insurers’ strategies whereas it was previously viewed as a peripheral enabler.
As they note early in the study, “Global insurers are unparalleled in their ability to assess and manage risk, having fine-tuned their underwriting expertise over decades. Now a new wave of technology from consumer-focused firms is forcing them to alter long-held business practices.
“Insurers must now navigate a flood of new technologies, which range from wearable devices to driverless cars, and are expected to be taken up by a large number of consumers in coming years. As these technologies briskly advance, insurers must develop strategies that take full advantage of the opportunities they present, while minimising the risks.”
Insurers are advised to prioritise their innovation investments based on a synergistic technology strategy to effectively navigate the innovation conundrum. Proficiencies useful for one type of innovation are often applicable elsewhere, so a full analysis of the costs and cross-over benefits of each investment is essential. InsurTech influences will increase with time, making it imperative for insurers to formulate a comprehensive, multi-faceted response.
Of the more than 8,000 consumers surveyed worldwide as part of the WIR, almost a third (31.4 per cent) of customers said they rely on InsurTechs either exclusively or in combination with incumbent relationships to access insurance services. Respondents also said InsurTechs have earned a reputation for better value for money and timely, efficient service.
Gen Y and tech-savvy customer segments are especially sold on the promise. These consumers are after convenience, agility, and personalisation in their financial interactions and are more likely to buy additional products from their insurers, making them an important source of potential incremental revenue.
Yet the young and tech-savvy also tend to be less loyal, underscoring the need for insurers to build and maintain relationships with them by catering to their preference for digital touchpoints, according to the report.
On the whole, however, customers are not ready to walk away from the ties they have long had with incumbents, citing security and fraud protection (45.9 per cent), brand recognition (43.7 per cent) and personal interaction (41.6 per cent) as areas in which incumbents performed better. In addition, 39.8 per cent of customers say they trust their insurers, compared to only 26.3 per cent who trust InsurTechs.
Insurers agree that the complementary strengths of InsurTechs and incumbents form a solid case for collaboration. In fact, of the more than 100 senior executives interviewed from various insurance firms in 15 markets, a strong majority (75 per cent) said that developing InsurTech capabilities would help them better meet customers’ evolving demands. And more than half (52.7 per cent) agreed that having InsurTech capabilities would help them quickly design personalised products.
Jack Dugan, Executive Vice President and Head of Insurance, Capgemini, said, “Increasingly, partnerships are being viewed as a welcome development in the ongoing effort to address the InsurTech movement. InsurTechs can help incumbents overcome roadblocks such as aging systems and paper-based processes. Meanwhile, incumbents can help InsurTechs face newcomer challenges like high customer-acquisition costs and a lack of risk management experience.”
Efma Secretary General Vincent Bastid, added, “The continued reliance of consumers on digital technologies that support mobile apps, social networking, on-demand services and the like makes it clear that the mass market has entered a new phase. The insurance industry serves the masses and must adapt to the new terms of engagement. Collaborating with InsurTechs, is an optimal way of incubating and accelerating digital innovation.”