Accelerating the evolution of insurance
Shifting strategies to compete in a digital world
An accelerating evolution in how insurance is designed, sold, and serviced is being driven by rising customer expectations for greater access, transparency, and convenience. This has emboldened the industry to start transforming standard operating procedures and business models to keep up with traditional and emerging competitors, while also improving revenue and profitability.
December 13, 2017
A blog post by Sam Friedman, insurance research leader, Deloitte Services LP and Michelle Canaan, insurance research manager, Deloitte Services LP.
Deloitte’s 2018 Insurance Outlook posits that in the year ahead, insurers will be challenged to effectively anticipate, prepare for, and adapt to these rapidly shifting circumstances, both strategically and operationally. They will also be looking to differentiate their products, services, and distribution platforms for a digital age.
By prioritizing one or more of the following initiatives over the next 12–18 months, insurance companies of various stripes could make significant progress in their ongoing mission to maximize value creation and growth. At the same time, they have an opportunity to reinvent themselves for an increasingly online economy.
To grow the life insurance market, carriers may need to break the mold on underwriting and customer interaction
The stage for growth has seemingly been set for quite some time, with nearly half of the US population still uninsured or underinsured,1 yet life insurance penetration remains at historic lows. To boost life sales, insurers will need to leverage the power of public data and advanced analytics to narrow the life application-to-closing process from weeks to minutes, lower onboarding costs, and minimize the consumer dropout rate.
Accelerated underwriting metrics, based on elements such as digitally available medical data, drug prescription information, and potentially even facial analytics technology, can be used to estimate an applicant’s life expectancy and eliminate traditional medical tests. In addition, by connecting with life policyholders via sensor-driven fitness devices, insurers can build more regular and meaningful client engagement, while pricing their products on a more dynamic basis.
The proliferation of sensors may bolster the value proposition of homeowners insurers
Eighty-million smart-home devices were delivered globally in 2016, with expectations of a compound annual growth rate of 60 percent perhaps resulting in as many as 600 million in use by 2021.2 These sensors, part of the growing internet of things (IoT) phenomenon, can be used to transform the insurer/customer dynamic from a defensive to an offensive posture.
With the help of such technology, insurers or their surrogates can monitor indicators of potential problems and send alerts if issues arise to prevent or minimize damages. Sensors can also be utilized to achieve more personalized underwriting and dynamic pricing, while ultimately driving down claims frequency and severity. More importantly, ongoing connectivity could raise perception of an insurer’s tangible value, as well as fuel a surge in customer touchpoints to reinforce insurer/client relationships. (The same IoT benefits may accrue to commercial property insurers via the expansion of smart offices, factories, and other business facilities.)
To realize the full potential of connectivity, property insurers will likely need to collaborate with manufacturers and service providers to deliver and leverage sensor-driven capabilities. More nimble data management and advanced underwriting models may be required to reflect these additional risk parameters. Insurers may even choose to subsidize installation of sensors to accelerate the transition, as potential returns on multiple fronts can offset their upfront investment.
Robotic process automation (RPA) and cognitive intelligence (CI) technologies can give insurers an opportunity to reduce costs and reinvent how they conduct business
Rapid increases in computing power and decreases in data storage costs are making widespread use of RPA and CI a reality for many industries, including insurance. Indeed, insurer spending on cognitive technologies is expected to rise 44 percent globally on a compound annual growth basis over five years, reaching $1.02 billion by 2020.3 The goal is to automate not only most mundane, “box-checking-type” tasks in underwriting, policy administration, and claims, but also non-routine soft skills as well, such as intuition, creativity, and problem solving. This could potentially free up thousands of staff hours, improve productivity, and raise the value of human capital.
Insurers need new underwriting approaches to turbocharge cyber insurance growth safely
Sales of cyber insurance have increased slowly but surely over the last few years, but have yet to come close to realizing this emerging line’s full potential as perhaps the biggest growth opportunity in the property-casualty industry. The bulk of businesses are still going bare, or are underinsured even if they do have endorsements to their standard coverage or a stand-alone cyber policy. A survey by the Council of Insurance Agents & Brokers found that only one-third of their members’ clients have bought cyber coverage of some sort,4 while a global study by the Ponemon Institute revealed that companies have insured only 15 percent of the potential loss to their information assets.5
The problem is that cyber threats keep mutating, making the past anything but prologue for underwriting purposes. Therefore, to capitalize on the growing demand for coverage and avoid losing business to alternative risk-transfer vehicles, such as cyber bonds, insurers will most likely need to focus their underwriting efforts more heavily on each applicant’s risk management maturity, perhaps certified by an objective third party. Developing a cyber resumé template for smaller prospects on a mass scale could help insurers establish standard, preferred, and substandard risks. Meanwhile, to close the information gap long term, the industry could press for greater sharing of anonymous, aggregated loss data, an advantage they already enjoy with auto and workers’ compensation claims.
Looking at the big picture, insurers that make digital transformation not just a priority, but also a continuous improvement process are most likely to reenergize their cultures as well as grow their top and bottom lines. Explore our 2018 Insurance Outlook for more information on how insurers can capitalize on emerging opportunities for growth, operational improvement, and expense reduction, as well as overcome some of the economic, regulatory, and market challenges that may arise in the year ahead.
1“Limra: Nearly 5 Million More US Households Have Life Insurance Coverage,” PR Newswire, Sept. 29, 2016
2IHS Markit, “Rapid Expansion Projected for Smart Home Devices, IHS Markit Says,” September 2016
3IDC Worldwide Semiannual Cognitive Artificial Intelligence Systems Spending Guide, April 2017
4“Cyber Insurance Market Watch Survey,” Council of Insurance Agents and Brokers, May 2017
5“2017 Global Cyber Risk Transfer Comparison Report,” Ponemon Institute/Aon Risk Solutions, April 2017
QuickLook is a weekly blog from the Deloitte Center for Financial Services about technology, innovation, growth, regulation, and other challenges facing the industry. The views expressed in this blog are those of the blogger and not official statements by Deloitte or any of its affiliates or member firms.