2 March 2016
Insurance is an industry at a pivotal juncture as it grapples with the impact of new technology, new distribution models, changing customer behavior and especially local, regional and global regulations. For some businesses, these developments are a potential source of disruption. Here are some key drivers that will determine future insurance business strategies:
Social: The power of connectivity
A combination of digitization, social media and internet comparison means that customers are more connected, better informed and have more purchasing options than ever before. They want products that respond to their needs and are transparent and easy to understand. They also want the convenience of dealing with insurers when, how and where they want. Insurers that are slow to recognize and respond to these demands could quickly lose out to faster moving competitors.
Technological: Shaping the organization around information advantage
Automation will become an ever more important element of analysis and response as the volume of data and the need to use it outpaces human capabilities. Insurers clearly recognize the value of big data and other analytical advances. Their investment in new systems and resources reflects this.
Mobile technology offers convenience to customers and is an important new source of connectivity for insurers, as more than two billion users worldwide come to access the internet on their mobiles. Mobile also can enhance connectivity within a company’s organization.
Environmental: Reshaping catastrophe risks and insured values
The world is facing an increasingly complex, uncertain and, in some important areas, under-insured risk environment as climatic instability makes once unthinkable disasters seem almost commonplace.
Economic: Struggling to sustain margins
The challenging economic climate has held back discretionary spending on life, annuities and pensions, with the impact being compounded by low interest rates and the resulting difficulties in sustaining competitive returns for policyholders. Potentially higher capital charges for guaranteed products could further drive up costs and erode returns in many markets. A further source of uncertainty and risk is the future of quantitative easing and the impact this could have on equity values. The keys to sustaining margins are likely to be simple, low-cost, digitally distributed products for the mass market and use of the latest risk analytics to help offer guarantees at competitive prices.
Political: Impact of regulation
Governments play an increasing role in the insurance market. This includes more regulations. As governments look to scale back spending, more and more responsibility for pensions and health-care is being passed to individuals and their employers, opening up considerable room for growth in the insurance market.
The question is no longer how much insurance is set to change, but how should, and how quickly can businesses respond. The key differentiators will be the ability to keep track of emerging developments and assess their implications, as well as being able to respond quickly and agilely at least to the key challenges stated above.
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