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Staying ahead of the game

Mastering the Red Queen's race in the Dutch insurance industry

The Red Queen’s race, based on Alice in Wonderland, refers to the concept that keeping pace is not fast enough to win the race. It proposes that one must constantly adapt, fundamentally change and move twice as fast to gain advantage, but also to simply survive while pitted against an ever-evolving opposition in an ever-changing environment. This metaphor nicely applies to the current state of the Dutch insurance industry. The industry is currently in the midst of a transition with an uncertain outcome.

Executive summary

In previous years, overall GWP has been able to grow due to fiscal incentives, regulatory protective barriers and a favourable economic climate. As a result, there was little necessity for a focus on achieving operational efficiencies or innovation. Yet, from 2008, the value of new business has been declining. Changes in legislation, a changing distribution structure, changing consumer behaviour, a low interest rate, increased life expectancy and a combined ratio in Property and Casualty (P&C) of over 100, have resulted in a ‘perfect storm’ for the Dutch insurance industry in the last 2 years, requiring a fundamental transition. Dutch industry players must reinvent themselves and assess their desired contribution in the insurance ecosystem.

Learning from other industries which have travelled a similar path before, and translating these insights to the dynamics of the Dutch insurance industry, provides for a healthy wake-up call. So far, the insurance industry has been hesitant to make drastic strategic changes. Most insurers have followed roughly the same path—one that combines running a closed individual life book with incremental cost-cutting initiatives to counter the decreasing life books and the low profit margins in the P&C insurance market.

Deloitte believes that new emerging trends offer opportunities for insurers to transform the industry. Some of these trends are industry specific, where others are crossing over from other industries. Deloitte's Dutch Insurance Outlook identifies some drivers and trends with game-changing potential:

Insurance Outlook

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The sharing economy creates a new (insurance) market

New platforms simplify the renting or sharing of products or services, reducing the need for ownership and consequently changing insurance needs. Customers’ desire to receive flexible insurance products for specific risks at particular times is driving the growing popularity of such flexible products. Insurance offerings could move from annual (automatic) insurance subscriptions to on-demand insurance. The rise of the sharing economy is exemplified by platforms such as Peerby.nl, Airbnb, Greenwheels and BlaBlaCar, and is mirrored in the insurance sector by a platform such as Trov.

Artificial intelligence, robotisation and blockchain allow for radical cost reduction and participation in value networks

Emerging new technologies, including artificial intelligence, robotisation and blockchain—currently being tested by insurers and related industries—are expected to pivot in the near future. Software will be able to complete multiple tasks which at present can only be performed by humans, allowing insurance organisations to reduce the cost per policy, without heavy investments in IT architecture. Artificial intelligence — in combination with big data analyses — will allow for detailed individual financial planning and wealth management. This robotised advice could become of a higher added value than current advice provided by brokers or wealth management advisors. Blockchain provides the opportunity to establish new ecosystems, potentially connecting social media data, manufacturers and insurers in a seamless manner.

Cyber and climate risks offer opportunities for high-margin niche products


New risks are emerging and existing risks, such as rapid climate change and digitalisation, are increasing. Customers will increasingly be confronted with these emerging risks. Insurers who learn to provide their customers with ease of mind by balancing efficient expert advice on avoiding risks, and limiting the impact (prevention) with solid after-care will likely make the difference. These new opportunities come with good margins but require investment into the development of complex products with high uncertainty.

Sensoring and analytics will help to better understand and service clients

As the cost of sensors decreases, more and more sensors are being installed and there’s a huge increase in available data. This data allows insurers to offer more relevant packages based on actual use and behaviour, rather than on averaged statistics. In addition to better-fitting insurance packages, customers can benefit from the system by earning (in)tangible rewards. For example, by sharing living data with an insurer and meeting weekly fitness benchmarks, users can earn discounts on products.

Blurring industry boundaries expand the insurer’s playing field


Regulatory changes have been blurring the traditional boundaries in the life insurance sector between pension funds, banks, asset managers and insurers. The insurance industry is transforming from a spread-based to a fee-based industry. Boundaries are also blurring in the P&C sector, as access to data is not restricted to insurers anymore. The developments offer opportunities for insurers to expand their activities beyond their traditional industry boundaries. To disrupt or be disrupted seems to be the challenge facing insurers.

Now is the time to change. Insurers have the opportunity to ignite radical cost reductions or build new growth engines. The much needed earnings—while still available—of the closed books can be leveraged to fund the required exploration of new pockets of growth. A careful transformation is needed to ensure a sustainable future for Dutch insurance industry players.
If insurers make the right choices and execute them well, we believe that the aforementioned trends will help insurers to reinvent themselves and grow towards a new future-proof business model. Insurers will have to focus and grow in areas where they can contribute value, be the best and/or have sufficient scale. By letting go of full control of the total value chain, radical cost reductions can be achieved while services will be improved.


Although it might look appealing to continue to optimise profits for the short term, only far-reaching and even disruptive innovation can secure a sustainable business model for the long term. And because technology does not obey national boundaries, it may be within reach for the Dutch industry to reclaim its role on the international stage, provided it can execute its focused strategy with vision.
This report identifies a number of strategic areas in the Life and P&C space where we think shareholder value can be created. This will happen where organisations work together and create new value networks and new propositions relevant to the consumer, instead of competing over the same pieces of the pie.

 

More information on the Insurance outlook?

Please contact Marco Vet via MVet@deloitte.nl, Zeno Deurvorst via ZDeurvorst@deloitte.nl or Robert Collignon via RCollignon@deloitte.nl. Download the Dutch Insurance Outlook 'Staying ahead of the game: mastering the Red Queen's race in the insurance industry'.

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