The insurance industry is constantly evolving, influenced by new technology, cultural shifts, insights, and other factors. By identifying trends early, forward-thinking businesses can ensure they are well-positioned in the changing landscape to meet customers’ needs and expectations.
There are three major trends we expect to see dominating the industry in the long term – a partnership-based approach to artificial intelligence-enabled insurance, personalised underwriting, and financial advisers becoming experts in underwriting and risk mitigation.
Partnership-based approach to AI-enabled insurance
We believe that AI will be a tool that enables traditional insurers to reduce costs, enhance compliance, and increase customer experiences by giving them choices in how to engage with a company.
As such, the insuretech disruptors often viewed as the biggest threat to the future of traditional insurers are unlikely to result in the demise of the insurers that have dominated the industry to date. Insuretechs that have attempted to take over the entire insurance value chain are struggling, with the likes of Lemonade punished by the market.
We are more likely to see traditional insurers and insuretechs form potent partnerships that draw on the strengths and skills that each brings to the table. Traditional insurers stand to benefit from the technology and innovation insuretechs have used to solve problems. Meanwhile, insuretechs benefit from traditional insurers’ extensive distribution, underwriting expertise, and compliance resources.
AI and machine learning have created potential for hyper-personalisation; think Netflix anticipating your viewing preferences and Amazon marketing what you need when needed. Insurance benefits from this personalisation enabled by advanced data analytics and customer-centric underwriting.
But insurers must put the foundations in place and build to extract the necessary data that underpins hyper-personalisation. Analytics capabilities, the foundation of personalisation, can either be built in house or in partnership with a specialised service provider that focuses exclusively on mining the data. The technology architecture needs to be cloud and API-based so that the data analytics can be deployed.
Partnerships provide this best-of-both-worlds scenario in which automation and digitisation sit comfortably alongside the necessary distribution, underwriting and compliance capabilities.
Financial advisers becoming experts in underwriting and risk mitigation
For years, the prevailing view has been that the role of financial intermediaries is under threat as insurance provision becomes increasingly digital. We believe this is highly unlikely. Customers still want to engage with people, not only robotic-enabled chatbots and digital services.
A dynamic that is likely to increase the role of the financial intermediary in short-term insurance is the likelihood that underwriting will become increasingly personalised based on an individual’s lifestyle, geographic location, and patterns of behaviour. Insurers will need to get granular in understanding the different types of risks.
Customers who get their underwriting done correctly, a service financial intermediaries are ideally positioned to provide, can mitigate and manage their personal risks properly and avoid being under or over-insured.
Sophisticated climate risk mitigation
Insurers need to seriously consider how to provide more sophisticated insurance coverage for weather-related risks. Insurers are already using advanced pricing, underwriting and risk mitigation measures, such as early warning systems, especially in regions that are either more or less exposed to climate change, customer service and sales, proactive risk management and claims strategies. Exciting new product trends are emerging.
One such product is using smart contracts to underwrite crop insurance. Farmers take policies on small land plots with predefined climate conditions, which are measured continuously. A claim is then automatically triggered when one of those thresholds is crossed. This can be applied to differential coverage for green homes and cars. And it is even expanding to commercial facilities.
The world is experiencing unprecedented change. After four decades of vibrant economic growth built on low inflation, low interest rates and globalisation, insurers now face a future that will look remarkably different – and as long as the transition is underway – highly unpredictable. It is a landscape that will be challenging, but it will also provide opportunities.