Article

Disruptions in the Dutch insurance sector

Insurers only have one choice

The future of insurers is uncertain. A lot is changing at an ever increasing pace. How should insurers compete and stay relevant in this environment? Our recently launched report “Staying ahead of the game”, introduces four strategic answers: the one-stop shop, the consolidator, innovation driven business expansion and innovation driven efficiency.

Strategic directions for insurers

All directions seem to make sense at first sight, however Dutch insurers only seem to have one choice if they want to remain relevant in the longer run: 'innovation driven business expansion.'

strategic directions
strategic directions

Whilst the largest insurers in the Dutch market still generate most of their capital by the declining individual life and pensions businesses and the property, casualty and health businesses continue to generate low margins, many have yet to encounter and truly invest in new areas of growth. Instead, the focus of most insurers has been and still is on fixing the basics at the back end, i.e. on improving efficiency. This also holds true in the context of closed books, where consolidation of portfolios mostly occurs within the boundaries of the individual companies.

Doing things right or doing the right things?

Although the lemon can be squeezed further as there is still a lot of efficiency to be gained, looking ahead this strategy is focussed on short term wins and it merely catches up with the ever changing reality. How can an industry that has historically been lagging in efficiency compared to other industries become the champion in sourcing, realising scalable IT systems or become best-in-class low cost production factories? These have not typically been the core capabilities of Dutch insurers. Moreover, the industry would be lowering entry barriers as the back-end focussed strategic directions would promote standardisation and hence commoditisation.

Turning the focus to front end / sales focussed strategies puts the spotlight on the core capabilities and added value of insurers: assuming and reducing risks that individual persons or companies cannot or do not want to assume on their own. For the large incumbent insurers, the “one stop shop” has a number of attractive features. A strong reputation forms a prerequisite and scale helps to achieve efficiencies. The tricky part, however, is that the concept is based on intimate customer relationships and those relationships are hard to achieve and maintain. Not only do independent intermediaries (including banks) still play an important role in the distribution of insurance, the continued surge of independent online aggregators remains a significant hurdle to customer intimacy and hence to the one stop shop.

Innovation driven business expansion

Let us focus on what individual persons or companies will expect from insurers in 2020 and beyond. They will still seek a partner that can assume and reduce their risks. These risks and the perception thereof are changing constantly and at increased pace. At the same time, innovation on the back of new technologies enables ever more solutions. The insurer that is placed first, to have the answers to evolving and new risks, will be the winner of tomorrow. This requires agility through investments and foresight. It requires moving away from (once) secure bets and investing in new solutions. This is not a plea to throw profitable business overboard; short term shareholders may not appreciate the shift away from dividend upstreaming to investments in future growth. However, this plea recognises that clients, staff as well as long term shareholders will want to be part of the winners of tomorrow.

Therefore, insurers only have one choice to remain relevant and it is encouraging to notice that some incumbents are taking the first steps on this path, albeit generally hesitantly. Innovation driven business expansion is the way forward.

Read more on the Insurance report 2017 and download the report 'Staying ahead of the game: Mastering the Red Queen's race in the insurance industry'. 

More information on business strategy in the insurance industry?

Please contact Philippe Dony at +31 (0)88 288 0307 or via mail: pdony@deloitte.nl

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