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Financial Services
Monday, November 9, 2015 - 03:16
Time to adapt is now

While insurers and brokers have successfully adapted to disruption in the past, the challenges facing the industry are far from over. More than two-fifths (41%) of delegates at the Innovation & Disruption Conference 2015 said that the world of insurance was "likely to be disrupted soon", while 36% believed the current "perfect disruptive conditions" left the industry "on the precipice of major change".

Comments Clinton Brown, Business Development Manager at SSP Africa, “To me, hearing these views from an audience largely made up of senior industry figures is encouraging rather than surprising, and reinforces what we are already putting into action at SSP.
“With disruption being considered as inevitable, it is important to take a broader view, both in terms of what can be learnt from advances within other sectors and what innovation in insurance actually looks like. Is a new idea really revolutionary or just an old concept recycled in a different way?”
Despite this need for analysis and introspection, it feels like the bigger market challenges further downstream are not resonating with people, which is leaving the industry wide open to disruption from firms whose main focus is not on insurance.
One example of the opportunities available is the peer-to-peer lending market, which is expected to grow from £40 billion in 2016 to £590 billion by 2025. This same model is now being applied to peer-to-peer insurance, providing new avenues for innovative companies to disrupt the industry.
“Yet this is not the only force that is making waves in the insurance sector,” says Brown, “as firms also need to manage the shift in generational behaviours and attitudes. One of the reasons for changing customer expectations is the high penetration levels of smartphones and tablets, with more people having access to devices that provide instant connections, and hence immediate gratification. This is especially true for the latest millennial generation, for whom an instantaneous society is an everyday normal.”
Digital tools have become such a way of life for the next generation of insurance customers that millennials don't think of themselves as digitally savvy. Research commissioned by Capgemini and Pegasystems discovered that, when combined with a lack of understanding of how insurance works, this means millennials favour personal interactions when selecting and buying premiums.
“With this next generation of customers thinking about engaging with the industry in the next two years, insurers must be ready to see the world through their eyes. This means delivering a personalised and streamlined experience across all channels, driven by knowledge of each person as an individual,” says Brown.
In particular, the research outlined the need for delivering this personalised service just when the customers of the future want it. The most successful insurers will be those who provide an instant education to millennials – the "equivalent of Googling what they need just at the right moment". This immediacy is reflected in the fact that nearly half (46%) of millennials would expect a response to email queries within 24 hours.
For insurers to win with this audience, they will also need to have customer-centric, channel-agnostic processes in place that enable them to see every previous interaction and foresee customers' next requirements, as if by magic. Creating the customer experience that millennials expect will increase their trust in providers, a key criterion for a generation motivated by authenticity and trustworthiness.
However, legacy systems just can't provide for such interactions, so insurers and brokers will require a responsive, modern, real-time infrastructure with more joined up alignment. Modern platforms make it much faster and easier to add new functionality, respond to change, modify processes and therefore adapt when new disruptors and innovations challenge the status quo.
The same Capgemini and Pegasystems research also highlighted another trend that is set to become a major disruptor for the insurance industry – the Internet of Things. With the potential for anything and everything to be connected and monitored, almost a quarter (22%) of millennials would have a chip or a tracker inserted in their bodies in exchange for cheaper premiums.
Likewise, 26% of those planning to buy insurance would provide regular blood or urine samples to prove their good health to cut costs, while 29% strongly agreed they would be willing to have monitoring devices in their homes and cars to achieve a discount.
This comes at a time when a study by BIBA showed there are currently around 323,000 live black box telematics motor insurance policies in the UK market, an increase of 9% from December 2013. The team at SSP has developed a strong telematics offering over the last two years and had successes with some insurers, but the lack of forward thinking and adoption by a few key players has surprised us. If insurers don’t get on board and adopt new models, they risk being left with undesirable business risks.
Market pressures in terms of premium, hyper-competitive pricing and consumer conditioning have all undermined the potential of telematics to become a mainstream product for now. As the industry looks to move beyond the traditional young driver market, the lower non-telematics premiums mean that the potential savings are smaller, so telematics offerings and the messaging behind them needs to adapt – but insurers and brokers can only continue to evolve once they have started the transformation process.
Just as in other lines of insurance, to achieve mass market penetration, telematics must become more meaningful to consumers by adding value to their overall lifestyle through a more comprehensive range of services.
While all of these factors may seem daunting, disruption and innovation in the insurance industry are unavoidable. Yet while everyone is continuing to take baby steps to mitigate the impact of disruptors, someone else will overtake them by taking a giant leap forward, so the time for action is now.
 

Copyright © Insurance Times and Investments® Vol:28.11 1st November, 2015
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