(Image credit: Andreas/adege.)
Where will the insurance industry be in a year? Five years? The pace of change is so rapid that industry prognosticators struggle to keep up. But those of us spearheading the digital revolution have a unique, and closer, view of its future. Here is my take on four major forces driving the industry as we enter the next decade:
Power to the People
The insurance industry has traditionally been product-centric and slow in delivering advisor or consumer-centric solutions, but that is changing as we enter 2020. People matter more now than ever. A big industry trend in 2020 will be the continued movement to centralize insurance around people. This will have both an internal and external focus, as industry talent moves centerstage to support a continued restructuring around serving customers’ needs.
Hampered by the perception that we operate in a stuffy, old industry, insurers have struggled to attract new talent. Finding and retaining skilled talent has become increasingly crucial as legacy insurers implement new systems, expand their IT departments, and shift focus to streamlining distribution channels. And let’s not forget that one in four insurance agents was supposed to retire in 2018.
The advent of InsurTech and digitization helps solve this problem as technological advances will help attract younger talent. Companies not only need to hire employees to fill new roles and push these changes, but they’ll also find it easier to recruit them.
Industry focus on customer-centricity will continue in 2020 and beyond. The data gathered by the IoT, from wearables to connected autos, assists in understanding customer needs and behaviors. Analyzed by algorithms, this data will allow insurers to generate individualized policies. Digital tools will also make it easier to cater to the unique needs of each customer.
M&A and Partnership Activity On the Rise
Growing out of this people-focus, expect to see more M&A activity and partnerships formed in 2020. Who insurers do business with inside the industry will matter as much as the people they serve outside it.
Companies have struggled to implement digital strategies with legacy systems. When they’ve investigated the cost of building versus buying, they’ve realized that there are many insurmountable barriers to building their own digital systems in a timely and cost-effective fashion. The solution? Mergers, acquisitions, and partnering with InsurTech
A Deloitte survey of 200+ C-Suite insurance executives found that 73 percent of them believe that M&A will drive at least 50 percent of the industry’s growth over the next five years. This activity is expected to help insurers compete in the rapidly changing digital world.
Technology Marches On
Blockchain, AI, and algorithms: ten years ago, these words might not have been heard much in insurance company boardrooms, but now everyone’s talking about them. While an understanding of what these technological tools can offer to insurance companies has increased, in 2020, we’ll see more companies finding practical applications and deploying new solutions using these technologies.
AI and machine learning have already begun to transform product development, underwriting, pricing, and fraud prevention. Data collected and analyzed by AI informs product design that truly meets demand, further customizing insurance offerings. Underwriters will continue to receive assistance from more refined tools that aid them in setting accurate prices and reducing risk. And AI can learn and adapt to thieves’ behavior in real-time, shifting quickly to block fraudulent claims.
With blockchain, the digital ledger can’t be altered, increasing transparency and trust in its records. Insurers save on admin costs from checking payments and reviewing claims submitted by third parties. It, too, bolsters fraud-prevention efforts, and companies have found that distributing it widely is a win-win.
The digital disruption has begun, and both existing and new companies will have to keep up to hold their own against industry disruptors.
Regulation Starts to Catch Up
Regulators have begun paying attention to the digital disruption happening in the industry. The National Association of Insurance Commissioners has considered a proposal for a sandbox concept where insurers can “play,” trying out new digital products and innovations not currently protected or supervised by regulation.
Many of the concerns expressed by regulators and industry leaders touch on the ethics of the collected data. What is being done with this data? Could it lead to biased outcomes or discrimination, particularly with AI making decisions unsupervised by humans? We can expect to see the regulators and others grapple with these questions in 2020 and beyond.
In the Deloitte survey, 51 percent of the C-Suite executives think that cyber and data regulation is a top challenge to fully realizing digital disruption. As regulators get more involved with how InsurTech is changing the industry, there will be compliance implications.
As we move into 2020, I expect that we’ll see more change and disruption in the insurance industry, brought about by customer, technological, and competitive forces.