Calculating and avoiding risk is at the core of insurance. So what are we to make of the fact that insurance executives top our list of professionals who think that the digital disruption of their industry is imminent?[i] We should take it seriously, seeing it as admirable clairvoyance rather than blind fear. Unlike many other industries, at least insurers know the risks they’re facing. But will they act upon this vision? They might have no other choice.
Digital disruption has arrived in insurance. In our new report on trends in European digital insurance, we show that years of slow growth, low consumer trust, and heavy regulation have weakened incumbents. Meanwhile, customer expectations have been rising, fuelling the appetites of startups and companies not traditionally associated with insurance, such as digital platforms, car manufacturers, utility companies, telcos, and sensor and wearable manufacturers, whose utility and access to consumer data has placed them dangerously close to the core of insurance.
The digital race is on. How should insurance executives respond? By leading the battle against digital inertia. Not a month passes without another European insurer launching a digital lab – in Munich, Zurich, or even Silicon Valley – or running a hackathon. Using open innovation is part of a journey to develop products and services that will fundamentally change the nature of insurance, moving away from a model based on compensation to one focused on prevention. Thanks to digital technologies, services that are already available for large corporate clients can be offered to individuals as well. As insurers gain access to more data about individual customers through digital touchpoints and use better analytical tools, they will be able to offer customers automated and tailored risk advice, helping them prevent misfortune where possible as well as offering coverage against it. Companies that get this right will avoid patronizing and controlling their customers; they will use sensors, data, and web tools to educate them about their needs, to help them care for things that matter to them, and to give them more control over their premiums.
In a business grounded in risk avoidance, insurers are slowly coming out of their shell to experiment with new products, distribution channels, and pricing models. They're not quite digital daredevils yet, but they're making a good start.
[i] In 2014, we asked 1,254 executives in companies with 250 or more employees the following question: “Do you think your business will be disrupted by digital technologies in the next 12 months?” 86% of insurance executives thought it would be somewhat, moderately, or massively disrupted. Source: Forrester/Russell Reynolds 2014 Digital Business Online Survey.