(Ruins of the once formidable Urquhart Castle on Loch Ness, Scotland. Are insurers headed for a similar fate? Photo credit: Mike Searle.)
Is Amazon a book store? A one-stop-shop Internet supermarket? A retail hub for a vast network of partners? Who cares? I don’t, you don’t and consumers in general don’t. All we care is that we can easily get what we want when we want by shopping there. And according to an Accenture survey, the products consumers seek there could just as easily include insurance.
The survey of more 6,000 insurance customers in 11 countries found that two-thirds of insurance customers would consider buying insurance products from entities other than insurers, including 23 percent who would consider buying from online service providers, such as Google and Amazon. Forty-three percent of respondents said they might buy from banks; 20 percent expressed interest in buying insurance from home service providers, such as telecom or home security companies; 14 percent they would consider buying insurance from retailers; and 12 percent from car dealers.
This can’t be good for insurers, but how bad is it, really? It’s just a survey asking speculative questions, perhaps even deliberately designed by the crafty strategists at Accenture to cause alarm. But it is actually very bad, and it should alarm insurers.
Why? Because it is further demonstration of consumers’ rapidly changing modes of buying, and their demand for a high degree of ease-of-use through a convenient channel. Moreover, this insight into consumer propensities comes at a time when customer retention is a desperate priority for insurers. The Accenture survey also found that 40 percent of consumers are likely to switch auto or home insurers during the next 12 months. About a quarter of respondents said they were likely to cancel an existing life insurance contract, and more than a third (35 percent) said they were likely to take out a new contract with a different provider in the coming year.
“Overall, there is a significant switching risk, and we estimate that up to $400 billion in insurance premiums could change hands within the [global] insurance industry over the next 12 months,” comments Michael Lyman, global managing director for management consulting, within Accenture’s insurance industry practice.
Decisive proportions of respondents cited price (87 percent) and personalized service (80 percent) as reasons to switch insurance providers, according to Accenture. Forty-one percent are willing to pay more to get personalized advice when purchasing their insurance.
“Personalization clearly emerges as a key driver in retaining existing customers and attracting new ones,” observes Accenture’s Lyman. “Innovation in pricing strategy and the ability to make their customers feel that they are unique are this critical to capturing share within the [provider-] switching economy.”
Customer interest in advice and post-purchase service present a kind of silver lining, at least for those insurers and agents who seek to differentiate themselves that way. That should be cheering in particular for smaller, regional carriers who seek a way to compete with large national carriers.
However, the threat of online services companies looms large even on this ground. Amazon and Google are cross-industry leaders in the kind of customer analytics that drive personalization, and Google especially is positioned well to develop innovative ways of applying data analysis to underwriting.
These threats are bad enough on their own, but the big online services companies also enjoy a force-multiplier: They are rigged for innovation. Even worse still, insurer are not. Senior insurance leadership deserves credit for coming a long way since the dawn of e-commerce. However, they typically remain cautious followers of technology trends and they continue to think from an industry perspective. The problem is that the defensive walls around industry verticals are besieged and falling.
With regard to innovative ways of analyzing data for personalized service and more granular underwriting, insurance leaders will tend to dwell on their own proven expertise and of their experience in working with regulators on issues that touch on privacy. Google and Amazon have no such restraints on their approach to innovation. They not only demonstrate their conviction that the world is moving their way, they have the economic clout to drive it their way.
They also know better than legacy insurance leadership that customers want to move their way. The Accenture survey validates their strategy: 35 percent of insurance customers are open to providing access to their usage or behavior information if it can give them better value in their insurance coverage, the survey found. Nearly half (47 percent) said that it would depend on the information requested, and only 18 percent said that they were uncomfortable sharing such information.
Google and Amazon are well down the path of a game-changing trend in commerce: our economic life, along with many aspects of non-commercial behavior that is useful for commerce, has been digitalized. Global culture has adopted a new set of tools that make life easier, just as surely as did the earliest stone tools and metal ploughs and electrical appliances. Merchants who value that information are already bargaining with customers to share it, and those customers have learned its worth. The utility of such data bartering for insurance underwriting is already well attested by the progress of telematics. There can be no doubt that the trend will continue. The only remaining questions are about how far and how fast.
The specific expertise of actuaries and underwriters will withstand these cultural changes, but a real question arises as to who, as a commercial enterprise, will really own it. Will insurers prosper more as competitors, partners or subsidiaries of giant commercial entities? For the time being, insurance carriers need to ramp up their capacity for innovation and prepare to be creative about their distribution strategy. For the foreseeable future, the battle will be fought on the ground of who controls the transactions, and the major online services companies and other non-traditional competitors are well positioned to engage.