The insurance industry is undergoing a fundamental transformation as it comes up against the impact of new regulations, new technology, accelerating shifts in consumer demand, and mounting pressure to change and innovate. Buyers’ attitudes and behaviors are changing, too. They are less than they once were about the size of the typical carrier – with imposing headquarters and products sold through a brick-and-mortar agency sales force.
In this environment, flexibility and responsiveness matter more than ever. To remain relevant, established carriers are rethinking their purpose and looking to alternative business models. In the face of so many disruptive challenges, it’s important not to lose sight of the huge opportunities they creating for insurers.
Revisiting insurance product design
Most of today’s insurance products are not that different from those of a generation ago, but this could be coming to an end, led by the rise of usage-based insurance (UBI) and behavior-based insurance (BBI) policies.
Although pay-as-you-go policies are still niche products, they have attracted more attention during the pandemic. When people see their cars sitting unused for months, many wonder why they’re paying for coverage they don’t need. Commercial tenants feel the same frustrations as they pay to protect unused office space. And other companies have had to adjust their workers’ compensation coverage to reflect layoffs. This has created a growing need to align insurance premiums with their perceived value.
As a result, new approaches are emerging throughout the industry, and insurers could see profitability increase as they use data more effectively to assess their true exposure and develop new products. But this may take more time and effort than you think. You’ll have to incorporate real-time information and be prepared to update your assessments continuously. You’ll also need to figure out how to market new products alongside your traditional offerings.
Integrating with business partners
Some people are uncomfortable shopping for insurance because it reminds them of their own vulnerability. One way insurers can address this is through nontraditional selling relationships, such as embedding their products in the new car and home sales processes. This can make the buying process virtually seamless, downplaying associations with potential loss.
This trend is driven not by psychology but by data, and it’s a reminder of why the growth of the digital economy is a bright spot in our industry’s outlook. The key to effective underwriting is understanding behavior. With access to sensors that give information about how and when a driver uses a vehicle or how a homeowner protects building systems, for example, you can make more informed decisions about risk. With the ability to share information with other product providers and partners, you’ll be able to support alternative business models of the future and prepare for new ways of designing and distributing products.
Embracing adaptation
Just as 2020 served as a catalyst for large changes to the way we work, more unpredictable disruption is inevitable. For insurers to thrive, they’ll need to cultivate the capability to assess, pivot, partner, connect and reinvent themselves.
As the industry experiments with new business models, you’ll want to quickly prioritize and explore the options that are most promising for your organization. You’ll need to free up capital to invest in new directions. You’ll want to explore different marketing messages to learn what aspects of new product design will be most relevant to buyers. In other words, there’s a lot to do and not a lot of time to do it.
As you embrace this reinvention, remember that you have the domain expertise, the brands, and many of the capabilities that give you the power to win. By building the flexibility to adapt to alternate business models, you’ll be at the forefront of helping new generations of businesses and families manage risk and pursue opportunity.