George Natar – B.Sc, M.Sc, MCyHRMA – Certified Business and Insurance Trainer
The Need for Change
Today, the volatility of the overall market has become a permanent condition and constantly affects the intensity and extent of these changes, which require investment in something new and unknown.
On the one hand, insurance companies face challenges of inflation, interest rates, legislation, and on the other hand, they handle risks of pandemic, cyberspace and the natural environment, which already have a significant impact. All this, combined with the fundamental power of customers, technology and shifting market boundaries, lead the insurance industry to necessary institutional changes.
Many changes made during the pandemic will continue, according to a recent McKinsey survey, more than 65% of consumers intend to continue the habits they have adopted, such as e.g. the new methods of purchasing products. Many of the pandemic changes in the insurance industry, especially those related to claims, are likely to be sustained as well.
Important opportunities for those who will be ready
The year 2022 already feeds us with scenarios that create significant opportunities in the requirements of a new generation of customers, in the changing risks, and in the rapid adoption of technology by the customers themselves. Denise Garth on January 13, 2022 stated categorically that the viability of the insurance industry is vitally linked to the new generation.
“If we lose touch with them, then we will lose our jobs,” she said. The insurance landscape is changing dramatically by 2027, at a faster rate of change than we have seen to date, due to two key trends: 1. higher customer expectations and 2. accelerating technological development.
By 2027, the millennial and post-millennial generations will make up almost half of the adult population. These digital consumers demand seamless, multifaceted real-time contacts, integrated with platforms they already know as well as new ones.
At the same time, insurers will continue with the needs of the other half of the population, the X generations and the post-war (baby boomers), who do not have the same preferences.
The Acceleration of technological development
Some of the biggest technological changes concern the adoption of possibilities for digital claims, such as the significant increase in the use of Artificial Intelligence (AI) in motor vehicle and property claims and a significant increase in the use of telemedicine for injury claims. The opportunities are plentiful for our sector. Automated and fully digital processes, virtual reality (VR) decision support tools to improve decision making and streamlining.
Insurers will increasingly adapt their communication channels to individual customer preferences. In this way, they will allow customers to provide information about their claims in a variety of ways, such as uploading images to an application. Also, insurers will communicate proactively with customers, to reduce the risk of loss. For example, they will report severe weather conditions to prevent hail damage or to avoid frost and burst pipes. Businesses that use telematics will be informed about the behavior of their employees, e.g. warning that a warehouse worker lifts heavy objects and is at risk of injury.
The Customers (Insureds) of the New Age
Millennials and Gen Z, as the dominant buyer (individuals and business owners), are shifting insurers’ confidence because they do not follow the traditional life and market patterns set by older generations. It is new ground. They have different insurance needs and higher expectations. A McKinsey study found that young people have changed the types of insurance products, the growing desire for value-added services and the expectation of personalization, by leveraging new data sources, including Internet of Things (IoT) devices. These changes will drive demand for new, innovative products and services.
Younger people are interested (80%) in pricing based on driving behavior / distances and for others related to driving, keeping their vehicle safe and maintained, value and license renewals, etc. And this has an impact on the demand for motor vehicle Usage-Based Insurance (UBI), as well as new value-added services, to identify competition, customer loyalty and market leaders.
The use of digital payments also increased, with Millennials & Gen Z using Apple / Samsung Pay at 53%, corporate applications (Amazon, Starbucks) at 73%, digital wallets at 68% and Bitcoin at 25%, resulting in insurers have to support a wide range of digital payment options, both for paying premiums and for paying claims.
The New Insurance System
Digital Transformation focuses on faster, better and smarter customer engagement. The rapid adoption of digital technologies for in-house purchasing, payment and banking has led to a reversal of the balance of power between established operators and new challenges in InsurTech and FinTech.
Insurance companies are redesigned to offer targeted products and services that meet new customer expectations and keep pace with new digital leaders. Knowing, evaluating and attracting customers is vital to their “smart commitment”.
The “Insurance Ecosystem” is the new innovation in our field. The term “ecosystem” refers to an interconnected system of offers from a variety of participating providers, allowing customers to meet multiple needs, through a comprehensive user experience. It is what is now called “Embedded risk”, a risk financing technique that combines different coverages into a single multiannual contract or program with one or more common liability limits. These programs can help policyholders gain more efficient use of their capital and possibly reduce risk transferring costs.
With embedded insurance, we move from the need to “sell” insurance to an insurance environment that is ready to be “bought” at the point of sale, creating an expandable, sustainable business model. Embedded packages that contain combined insurance coverage or protection when purchasing a product, service, or platform. This means that the insurance product is not sold to the ad hoc customer (when needed), but is provided as an inherent (since its inception) feature. With this, the insurance is no longer sold because it is bought as part of another. Embedded insurance has a growing presence in the market. It is estimated that for the General Branch Sectors, embedded insurance will represent over $ 700 billion in premiums by 2027, or 25% of the total global market.
Insurance Distribution Networks
Insurance Distributors must define “who they want to be” and “how they want to play”. It is expected that a new vision will be defined that is related to the new operating model and the approach to the integration of the systems that will be used to achieve the goals. That is, what is generally called “Strategic Thinking” in business. Through Strategic Implementation, insurance distribution networks should be constantly studied and understood, and trained in depth, by choosing in any insurance sector they decide, in order to gain specialization. The distribution network should be constantly receiving up-to-date detailed information of the specialization branches, through reports, tables, numbers and many other digital media. The end justifies the means. Smarter decisions need to be made with a sound opinion of the future, analyzing emerging trends.
The recipe is as simple as ever. “Grow your business, and build a successful growth strategy.” The new operating model must take into account reporting and management structures, profit monitoring, the use of strategic office talent for the entire office and the evolution of old systems, with integrated platforms, with file and workflow systems, and with consistent and consolidated data to simplify these tasks. But the most important thing should be to create the processes of service delivery and customer relationship management that promote the right behaviors and lead to the desired results.
The key operational strategy questions for insurance networks that need to be answered are:
- What do we do better than others to get into the net “as experts”?
- how will we differentiate and with which products and services?
- What are the market segments and geographical areas that we must undertake to serve?
The Insurance Market Development Forecasts in numbers
The Internet of Things (IoT) is estimated to grow in turnover, with an average increase of 22% by 2027, reaching $ 525 billion, from the current $ 190 billion.
The size of the market for Insurance Analytics is expected to increase to $ 25 billion from the current $ 10 billion, indicating the growth potential for the sector.
The European Internet Insurance Market is ready to grow with an average increase of 7,6% by 2027.
The projected growth concerns many insurance sectors until 2027.
The global health insurance market will be $ 2.76 trillion in 2022 and is expected to reach $ 4.46 trillion by 2027, the size of the fire insurance market will reach $ 99.5 billion in 2027, showing an average increase of 7,30% by in the period 2022-2027.
In Commercial Insurance the market will reach a value of $ 1 trillion by 2027, showing an average increase of 7,20% during the period 2022-2027.
Cyberinsurance in the smaller European markets will reach $ 650 million in 2027 from the current $ 70 million.
Global travel insurance will reach $ 44 billion, from less than $ 20 billion today.
In Europe, rising pet insurance will rise by an average of 6,3%, to $ 5.2 million from $ 3 million today.
Based on all the forecasts, it is obvious that everything will increase due to the changes and the innovation that is coming. The One-Way Development Path now categorically determines where the insurance sector of Cyprus will be in 2027. The Networking teams that need to be created are part of our development strategy. This will create new productive business relationships, and offer creative solutions to take advantage of new business opportunities.
It will practically create the necessary recommendations for improving the leadership, thinking and know-how of the industry. Networking is not just about trading, it also serves as a way to build long-term, mutually beneficial relationships. With all this, who does not understand that the Digital Revolution is already in its development? We?