In 2020, the insurance industry will lose its image as old-fashioned and bureaucratic. It will need to. The coming year, and probably the coming decade, offers a changing and challenging business environment where changing weather patterns and constant technological innovation drive disruption while customers demand high levels of service and continuous improvement.
Here are three insurance trends remaking the insurance sector in 2020 and beyond:
Business Climate, Customer Experience, and Technology.
1. Business Climate
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- Increase in frequency and severity of catastrophic events, such as wildfires, hurricanes, and floods, require insurers to process claims rapidly in response. Such cycles drive up operating costs. The resulting time pressures, competition for labor and materials, and insurance money to rebuild add additional costs and presents more chances for opportunistic and systemic claims fraud.
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- The low interest rate environment will continue for the foreseeable future. Low rates increase the amount of capital available, which in turn keeps a lid on reinsurance pricing power. A SwissRE report notes that this will put pressure on business models and a premium on operating efficiencies.
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- Reports from SwissRE and PWC point to increased mergers and acquisitions (M&A) in the insurance sector. The primary benefit of insurance M&A activity is achieving economies of scale. Size alone doesn’t provide economies of scale, however. Newly combined organizations must also implement automation and process innovation to grow revenues faster than headcounts and operating costs. The industry will also see more collaboration and M&A activity between carriers and Insuretech companies. Labs, incubators, and venture funds have accelerated the speed of convergence between incumbents and the innovators that are plowing forward with large sums of VC funding.
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- Technology and automation are empowering insurance crime in the 21st century, supporting types and scales of fraudulent activity not seen before. For example, criminals can now combine real and fake information to create new, false identities. The Coalition Against Insurance Fraud reports that 84 percent of insurance organizations say fraud cases they investigate involve more than one industry. Nearly one-third of insurers estimate that fraud comprised as much as 20 percent of their claims costs.
2. Customer Experience
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- The growing urban middle class worldwide wants more insurance. For example, the SwissRE report notes the rapid growth of private medical insurance in China and India. A recent Bain and Company report calls demand for insurance in the Asia-Pacific region “explosive” but notes that, to succeed, insurers must excel at digital distribution and customer experience.
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- Frustrated claimants are fighting back against insurance companies that they may perceive as rich, distant, and uncaring. Millennial consumers want immediate and frictionless service in insurance, just like they experience with other vendors. The insurance industry’s struggles to respond to hurricanes in the eastern US and wildfires in the west are driving consumers to demand increased regulatory action. A small percentage of claimants resort to fraud out of a sense of justice or revenge.
3. Technology
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- A McKinsey report highlights how the insight and automation powered by AI and machine learning will help insurance companies rapidly evolve in their use of technology. Traditionally conservative companies will grow in their use of and sophistication with technology. They will move from making current products and processes efficient to enabling new products and processes, and eventually to transforming the business completely.
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- Digital customer service, once considered innovative and differentiating, is now expected. End consumers are increasingly impatient with vendors who are laggards in customer service. The vast, trustworthy majority of consumers are tired of being treated as anonymous and suspect. Major vendors in their lives, such as NetFlix and Amazon, know them intimately and act on that knowledge to provide better service. Other vendors offer automation and self-service to streamline interactions. Shouldn’t their insurance company as well? InsurTech innovators such as Clearspeed are ready to help insurance companies meet the demands of end consumers.
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