How insurers must change in a fast-moving world

The insurance industry’s most serious threats – societal megatrends, disruptive technology advancements, and intensifying competition from new and traditional players – also hold the greatest potential for its growth and transformation.

Looking out across the next decade, the insurance industry has many strengths to leverage, including strong capital positions, decades of risk and claims data, many well-known brands and a profitable customer base with relatively low propensity to switch.

Still, we cannot underestimate the challenges and the need for change. The industry’s current economics are unsustainable. Today’s marketplace is hyper-competitive with tight margins, slow (if any) growth and high operating costs. In Asia-Pacific’s top three insurance markets, average expense ratios grew from 28% in 2012 to 30.2% in 2017[1]. Growth is a challenge for most insurers. Maintaining recently improved results will be increasingly difficult.

Consumer trust has been slipping and could further erode. Research by Experian[2] found approximately 40% of the region’s customers trust insurance companies with their personal data.

At the same time, customer expectations are rising. Consumer trends in retail, transportation and other industries will soon come to insurance.

To deliver the seamless, intuitive experiences customers demand, carriers must forge new alliances and partnerships to expand their digital capabilities and foster innovation.

For most, legacy technology will need significant updating and the workforce will require digital skills and higher levels of engagement.

What will insurance of the future look like?

As insurance leaders work through how to respond to the above challenges, they should be considering the following market scenarios, which will soon be the new normal.

  • Shrinking auto insurance – The rise of driverless vehicles and ride-sharing will depress demand for traditional auto insurance. Responding effectively will test insurers’ product innovation capabilities. Carriers will need to rapidly adjust premiums based on vehicle safety features, fewer claims arising from distracted driving, hybrid products that cover a mix of vehicles for a household or business, and coverage for both ride-sharing drivers and passengers. Leaders will engage with autonomous vehicle manufacturers and ride-sharing platforms to provide real-time risk insights that direct cars and trucks where riders need them and along the most efficient and safest routes.

The upside is particularly high for commercial insurers that can provide fleet management and tracking, proactive maintenance and other supplementary services.

  • Increasing cyber risk – The industry’s historical strength in understanding and quantifying risk is being severely tested as more businesses and consumers are threatened by cyber risk, with damages adding up to millions of dollars. The stakes will only rise as hackers take aim at everything from connected vehicles and smart homes to nuclear power plants and defence systems. To win in cyber insurance, carriers must adopt the strongest possible defences to protect themselves and gain full visibility of their risk concentration.

They should also look to expand their offerings by patrolling the dark web for policyholder data and conducting personal security audits.

In commercial lines, insurers will also find opportunities to help businesses protect themselves against reputational risk and negligence claims.

  • Subscription insurance – Recent EY research confirms that insurance subscriptions are attractive to many consumers and businesses because of their easy and convenient bundling of holistic services, many of which will be provided by ecosystem partners. Subscription models are about offering products and services at the best possible time in line with key life events (new baby) or decisions (new car, house or job), reflecting the way people really live and businesses actually operate. Top performers may develop ‘financial operating system’ platforms that serve as a single hub for all critical information and tools.

They will make it as easy to adjust policies – adding or removing family members from policies, or changing commercial locations – as it is to add features on streaming services on leading apps.

  • Digital channels and embedded sales – Digital channels will come to dominate the mass market because consumers prefer the simplicity and control. Embedded sales will grow as more companies selling products and services seamlessly offer insurance at an attractive price, which will generate additional revenue. Insurers will use affinity channels and digital engagement strategies to boost retention and loyalty.

They might use automated pricing reviews to automatically renew policies at the most competitive market price.

The most effective insurers will target and cross-sell more effectively and build out robust self-service capabilities. They will enable digital agents with AI and machine learning to engage with customers using text, video and voice recognition technologies.

  • Rise of the tech giants – The ability of tech giants to generate high volumes of customer traffic and create superior customer experiences will be extremely difficult (if not impossible) for incumbents to match. Some large insurers may be able to market their branded products, while smaller players may need to white-label certain products to be sold through embedded channels. Other carriers may provide advanced skills, such as specialised underwriting, or a claims network that tech giants don’t have or can’t easily develop.

What should insurers do now?

While many of these trends have long been on the radars of senior insurance executives, the urgency for action has increased. Insurers need to act now to start:

  • harnessing digitisation, automation and AI to drive vastly improved expense ratios and leaner, more flexible cost structures;
  • creating customer experiences as good as or better than those offered by digital leaders in other industries;
  • building a data and analytics environment that provides continuous and actionable insight, with a clear focus on target outcomes;
  • developing win-win collaborations with insurtechs, non-insurers and non-traditional competitors; and
  • taking new approaches to distribution and supply chain, featuring product specialists, third-party platforms and the right mix of digital innovation and the human touch.


Insurers that can envision the future and have the courage to invest in thoughtful, customer-focused transformation will overcome today’s threats and seize the next wave of opportunities.

The views expressed in this article are the views of the author, not Ernst & Young. This article provides general information, does not constitute advice and should not be relied on as such. Professional advice should be sought prior to any action being taken in reliance on any of the information. Liability limited by a scheme approved under Professional Standards Legislation.


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