As P&C insurers continue to make significant investments in customer-facing transformation and back-office optimization, it’s worth evaluating their progress to date and the overall outlook for 2019 and beyond.
For Property and Casualty outside of life insurance, the industry has grown at a very low rate. Falling profitability caused by higher underwriting losses and a weak pricing environment in commercial lines are creating an uncertain environment.
What are the issues insurers must conquer in this tough business environment?
No. 5: Invasion of ‘The Outsiders’
Insurers have amassed a huge pool of historical customer data. Today’s technology giants have just as much customer data, including information beyond basic risk profiles and financial status, giving them a strong foundation for entering a variety of financial services markets, from payments to insurance. Advanced analytical capabilities also give tech leaders a potentially huge edge in underwriting, pricing and targeting new policies.
Beyond massive data troves, these companies also have huge customer bases and highly trusted brands — despite recent privacy scandals. The trust differential with financial services brands suggests consumers would turn to technology leaders for financial transactions.
The entry of tech giants isn’t a matter of if, but when. Healthcare and Health Insurance learned this with the formation of Haven, a partnership of JP Morgan, Berkshire Hathaway and Amazon. Insurers must actively consider their options, which include:
- Embracing their role as providers of capital and actuarial know-how.
- Leveraging existing and developing new capabilities to aggressively compete.
- Defining a niche role in future ecosystems centered on specific customer needs.
It is somewhat ironic that partnerships with InsurTechs (who were feared as the most likely disruptive new competitors not long ago) are likely to be essential competitive weapons for incumbents seeking to fend off tech giants.
What P&C insurers should do next
To create near-term growth opportunities, P&C carriers must launch multiple change initiatives to establish sustainable operating models. Specifically, they must:
- Identify areas of historical under-investment and prioritize areas for investments in modernization and digitization.
- Evaluate internal capabilities relative to existing strategy and identify critical development areas, particularly around experience design, analytics and digital architecture.
- Identify a new value proposition to test a faster product development approach with clear deadlines and well-defined metrics for success.
- Identify areas for further cost efficiencies to transform the business and free up capital for targeted innovation investments.
- Transform their direct channel and distribution strategies by exploring digital enablers, as well as relevant InsurTech opportunities.